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Keeping Informed About Vietnam

Back in June 2014, this blog was created with the goal to publish a post per week on a topic of interest relating to Vietnam and/or Southeast Asia.

Since then, the blog has largely focused on information, trends, and events relating to technology, business, and culture in Vietnam and Southeast Asia.

It’s been a great and challenging experience to write this blog—and it would not have been possible without countless feedback, people who were willing to sit down and explain what they saw as the potential for opportunity in the region, and finding exciting and interesting topics to cover. That meant finding people who are doing exciting things in the community—whether it is creating or building or shaping a project, company, or building.

52 posts was the original target—and this goal was reached in 13 months; this post is currently number 55. Ultimately, this blog serves as a resource: 50,000-70,000 words that have attempted to capture Vietnam (from a Hanoian perspective and with the contrast of having lived in Ho Chi Minh City) in the past year.

So what’s next?

At this point, we are looking for someone with the following profile:

-A foreigner who has been in Vietnam for 10+ years;

-Who has operated as an entrepreneur, country manager, or director of an organization that is interested in technology, startups, or trade (or complementary fields);

-Who is interested in contributing 20%-30% more content to the current selection of 54 posts (each post is 1,000+ words);

-And is open to publishing the entire body of work as a book (an editor in Boston has agreed to review the project).

Please contact info@gktagroup.com for more details.

A New Direction

Vietnam is rapidly changing; moving forward, the format of this blog is going to change as well.

Articles from other publications will be shared on the blog instead of publishing original content every week. Depending on the frequency, content will be updated every month or two.

In the meantime, it can be difficult to understand what goes on in Vietnam from a foreign perspective so below are some other resources to keep current and understand better Vietnam’s emerging role in the world in the 21st century (if even a little bit more).

General News

Vietnam News

Tuoi Tre News

Thanh Nien News

Vietnam +

Communist Party of Vietnam Online Newspaper

Voice of Vietnam

Twitter

Business News

Saigon Times Weekly

Vietnam Investment Review

Vietnam Economic News

CNBC

Tech/Startup News

e27

Tech In Asia

CNET

From a Regional and International Perspective

The Diplomat

The Economist

NY Times

Additional Resources

Of course, this lit is non-exhaustive. There are many more resources to tap into. Books, blogs, podcasts, etc. (And we are also available for a quick chat or email: admin@gktagroup.com.)

Stay tuned!

First Mekong Entrepreneurship EcoSystem Summit

From June 11-13, entrepreneurs, ecosystem builders, and explorers from Cambodia, Laos, Myanmar, Thailand, and Vietnam came to Ho Chi Minh City, Vietnam to connect, build bridges, and compete for $20,000 to fund their initiatives during the first Mekong Entrepreneurship Ecosystem Summit, organized by the Centre of Business Studies and Assistance (BSA) and DHVP research as part of the TIGERS@Mekong public-private alliance.

TIGERS@Mekong (Technology Innovation Generation and Entrepreneurship Resources) is a consortium of country and region-specific partners. As found on the TIGERS@Mekong site:

“The U.S. Department of State launched the Mekong Technology Innovation Generation and Entrepreneurship Resources (TIGERS@Mekong) as a flagship project under the Connect Mekong framework at the East Asia Summit in 2012.”

Of the participant countries from the Lower Mekong, they are at different stages of market development and interest despite encompassing more than 230 million people in the region. The two shining stars, Thailand and Vietnam, currently have a lot of interest from venture capitalists and have almost 160 million people between them. Vietnam also has a lot of interest from foreign investors as the TPP is expected to pass soon. Laos and Cambodia are still largely developing and share approximately 22 million people between them; Cambodia, and especially Laos, have a lot of room to grow. And Myanmar (population north of 50 million), although “open for business” since 2011, has largely elicited a “wait-and-see” approach from foreign investors and their representative offices. There are elections later this year, so perhaps things will be different after. Already in the region, there is the Mekong Business Challenge, which has entered its 10th year so there is already some sort of dialogue in place and deepening it will only positively impact the region and its inhabitant.

So while it was good to bring the countries together, it’s also necessary to recognize that each country has its own strengths and weaknesses, and market opportunities. Thus, a tour through each country (perhaps a two-week Bootcamp to cover a topic) in a graduated fashion would allow participants to learn new skills, but also learn more about the countries in the region, and also establish a wider network. Myanmar, Laos, Cambodia, Vietnam, and Thailand could be a suitable 10-week path in the form of topics such as Ideation, Market Research, Concept Refinement, Prototyping, and Pivoting (if/when necessary).

The Pitches

Below, are some of the top 10 pitches for new initiatives which were presented at the summit (in their entirety, as described by those who pitched).

LAUNCH PAD

The main reason of failure of tech startups in the region is the serious lack of VISION and KNOWLEDGE about the market, players and customers. And the 2nd main reason is, once they have built first versions of products or services, they don’t have a proper way to LAUNCH and TEST their business.

With these 2 reasons, I believe that we must build a LAUNCH Platform for all tech startups in the region to:

  1. join, see and learn what other tech startups are doing in the region (Eye-Open). This helps them a better VISION what should do.
  2. Test their products before launching, get feedbacks from peers. And
  3. Find partners from other countries for EXPANSION when they grow

 

CROWD FACTORY

CrowdFactory consists of three main parts: CrowdPitch, CrowdCoach and CrowdData.

CrowdPitch is an event that helps startups have a chance to practice their pitching to a live audience. There are multiple events every year (depending on each local landscape) and each event has 4 startups that pitch. Audience pays for a ticket to attend and 75% of their ticket money goes straight to their favorite startup. That means it’s an offline crowdfunding event. CrowdCoach is CrowdPitch’s sister event. The number one winner of CrowdPitch gets to attend CrowdCoach, where for two hours, the startup gets to interact directly with four mentors, who give private and in-depth feedback to the startup. All of this is supported by CrowdData, as the local organizers collect new startups and mentors, they slowly collect data on the ecosystem, supporting the cycle of events under CrowdFactory.

 

Mekong Startup Training for Trainer

The program trains startups on necessary skills needed such as sales and marketing skills, users experience, digital marketing, tech skills and so on. In order to complete the program, the group of trainees need to train other startups. For those outstanding ones, will be going to train startups in other countries.

By doing this, startups in each country will meet and they will then share the business and investment information of their own country and build there networks.

This program will help ensure the wellbeing and to strengthen the networks of our Mekong region startups ecosystems.

 

Mekong Startup Weekcamp

The IDEA behind his concept is about

–        – engagement between potential Tech-Startups and Business Start-ups to share of their skills and expertise each other.

–        – networking among key players in local and regional

al The event will take 4 day long at National Event and basically the following activities will include and can adapt as per local needs.

–        Selection Process to Potential Entrepreneurs (Potential Tech and Business Start-ups) to enter Training Session

Activities are:

–        National Start-up Weekcamp Training (2 days)

–        Industry Experts /Founders’ Talk – Experiential Sharing  (1 day) “Regional Founders or Experts will be invited” (1 day)

–        IDEA Showcase and Feedback from Regional Founders/ Experts and award ceremony at Networking Night (1 day)

Along with IDEA Showcase, local Business and Start-ups booths will be exhibited by regional Start-ups  (to meet with the regional accelerators/investors from the country and from the region)

We can adapt the activities as per local needs and can leverage this concept to local and regional areas.

 

Coenlight 

Coenlight is an innovative educational platform for effective skills-based learning and with the mission to create an edu-lab that incubates intellectual potential. This platform is a grassroots initiative tailored to the Cambodian and ASEAN context. We are driven by a strong social mission to revolutionize Cambodia’s and ASEAN’s education ecosystem based on our unique strengths. At Coenlight, we believe that any passionate skilled individual can develop into an extraordinary instructor. We seek to challenge the existing paradigm that becoming a teacher is a static threshold to pass over and uphold that learning is a life-long process.

Our Model:

1) Train individuals to translate their skills into innovative courses.

2) Match passionate instructors with motivated students.

3) Build an ecosystem that fosters critical thinking, skill building, and mentorship.

4) Empower the most talented students to “pay their learning forward” by becoming Coenlight instructors.

 

Wicked Problems Worth Working On…

Many times we get stuck into thinking about market size and we filter out everything except our customers (whoever we think they might be).  However, Southeast Asia has a number of major challenges common to almost everyone in the region: disparity between rich and poor, gaps in the education system, rural poor, corruption, energy, water issues…  These are major challenges which are bigger than any single country, and they represent big opportunities for impact entrepreneurs and impact investors who can craft the right solutions.

If we could only put together a list of the Wicked Problems, clearly defined, focused, and yet still significant, we could encourage players in the ecosystem to galvanize around one or more of them, to run themed boot camps, provide seed grants, compete in themed business plan competitions, and encourage funding from industry players.

This project asks for initial funding to help find a methodology to develop this list of Wicked Problems.  Tapping into the expertise and connections of government agencies like USAid and other aid organizations there must be people (academics? NGOs? or…?) who have developed a suitable methodology that could be used to seek out, define, and get support for a good list of Wicked Problems for Southeast Asia.  How do we find out what has already been done, what can be borrowed or co-opted for our purposes, and how could we implement it?

 

CrowdHelping

We want to build an online platform that transforms the way small scale local social entrepreneurs get access to funds, by crowdsourcing bureaucratic grant proposal writing to volunteers.

Picture a small scale social entrepreneur operating in rural Myanmar. She has intimate local knowledge, she know what kinds of ventures will have the most positive impact on her community, she is already bootstrapping her idea to build a social enterprise. All she needs is access to a small grant to push her idea to the next level.

Now picture a charitable organisation, an impact investor, or an aid agency sitting in an office in Yangon. They have money that they want to give away to people exactly like our social entrepreneur.

What stands between them? Bureaucracy.

Our social entrepreneur only speaks her regional language, she cannot write a 4 page proposal, she doesn’t understand the forms she has to fill out to qualify for grants. However, she does have a smartphone.

. How does it work?

  1. Social entrepreneurs simply shoot a short video of themselves pitching their idea in their local language, posts it on their profile on our platform
  2. A network of seasoned mentors who have close connections with local NGOs and social enterprises will vet the ideas that social entrepreneurs post, in order to create trust.
  3. Volunteers who have successfully applied for grants and know how to write proposals to apply for grants will browse the pitches of social entrepreneurs posted on the platform. Through the mentors vetting process, the volunteers will know which of the pitches are made by trustworthy entrepreneurs.
  4. Once the volunteer sees a pitch she likes, she will help fill out forms, write proposals and help submit them to organisations that can give out small grants

We want to replace bureaucracy with a trust network. It’s AirBnB for access to grants.”

Going Forward

The winners were Agri-Tigers, Mekong’s Next Top Mentor, and Crowdpitch but it would be great if the organizers could host all the pitch decks online for interested parties to view and perhaps develop. Across the board, technology and entrepreneurial leaders want to inspire venture building, boost the entrepreneurial capabilities of young people, and garner a stronger entrepreneurial spirit overall. In part, it will require a mindset shift, a way of not only thinking differently, but acting differently as well.

Last weekend’s event in Ho Chi Minh City was an opportunity for those on the frontline of building and shaping ecosystems to share ideas, failures, and successes with each other—and also garner support for new initiatives. In all, it was good step toward connecting key individuals and organizations in the region in a cohesive fashion and will hopefully lay down the groundwork for increased communication and cooperation in the region.

 

Building Vietnam’s Innovation Economy

On May 12, 2015, representatives from Google, Uber, 21st Century Fox, Cisco Systems and other multi-national corporations (MNCs) came together to discuss digital trade and cross-border data flows in Vietnam’s capital city of Hanoi. The event was organized by the American Chamber of Commerce Vietnam, the Vietnam Chamber of Commerce and Industry (VCCI), and the US Chamber of Commerce. Of course, the Trans-Pacific Partnership (TPP) was front and center throughout the daylong event but there were also a series of interesting topics throughout the panel sessions, some of which were named “Building Blocks for Innovation” and “Best Practices for Promoting the Economy and Protecting Consumers.” During these panels, company representatives spoke about attitudes and policies toward operating in Vietnam.

For example, Google’s Country Lead for Public Policy and Government Affairs, Alex Long, shared some insight into the Vietnamese market: there is 300% more language learning content that is consumed on YouTube in Vietnam compared to the average rate globally, showing the strong desire that Vietnamese have for Google’s services. Google has 13 data centers around the world including one in nearby Singapore. Thus, its interests are global so Google seeks to maintain a virtuous cycle where there is more demand for online services, more innovation in online services, more investment in online services, and therefore more online services in general. (In short, Google loves content–both in terms of volume and quality.)

On a local level, activating this “virtuous cycle” can work in a few ways:

  1. Policy advocacy (through events and working with public sector partners)
  2. Pilots—increasing access (Project Loon, for example.)
  3. Peering/caching (allowing locally and regularly-accessed content to be consumed more efficiently)

However, sometimes basic training needs to be put in place to get users to the point where they can use digital tools effectively. So in 2014 Google worked with organizations like Vietnam E-commerce and Information Technology Agency (VECITA) and VCCI to conduct trainings for 500 small businesses in Vietnam. Ultimately, the goal is to get Vietnamese companies to expand abroad so digital marketing is a way for Vietnamese companies to do that without setting up an overseas office. For example, one tool that Vietnamese companies can use is Google’s Global Market Finder.

One example of a Vietnamese company that went beyond Vietnam (and was present at the event) is Topica Edtech Group, which was founded in 2007 and is now operating in three countries: The Philippines and Thailand (besides Vietnam). The company will launch into the Indonesian market in September 2015 and will be exploring cloud computing solutions within the next six months. Nguyen Khoi, a product director at the company revealed that the first step for Topica was to train people how to use computers even before educating them through their service–again highlighting the need for basic training. Mr. Khoi also shared that he thought the perception of online education in Vietnam was changing and thus Topica Edtech Group may be one of the first in a new wave of Vietnamese startups to expand abroad as a result of positive interest in the field.

At the other end of the company spectrum, Uber Vietnam’s General Manager, Dang Viet Dung had some great advice for startup teams: “Make sure your product is kicking ass.”

He told the audience to “focus on your product first” and ask some basic questions:

  1. Is it good?
  2. Is it intuitive (especially for B2C)

“Often entrepreneurs believe that they need funding—no, get the product right.”

Mr. Dung said to focus on the following steps on the way to success:

  1. Invest in a product
  2. Find a mentor—open up your network, have allies

Mr. Dung also shared information about the recent cable breaks in Vietnam: Normally, the ETA in Hanoi is four minutes and 12 seconds. That means that the time from when a user orders an Uber vehicle to when it pulls up in front of him/her is, on average, four minutes and twelve seconds.

However, the ETA delta goes up during cable breaks which results in the Uber user experience being diluted. Mr. Dung also shared that Uber has had more than 25,000 failed credit card sign ups in Vietnam—the highest in Southeast Asia. Commenting further on recent reports about controversial Uber activities in Ho Chi Minh City, Mr. Dung said the incidents in Ho Chi Minh City related to “paper versus digital” contractual misunderstanding. Mr. Dung also pointed out that Uber is pioneering transparency since all payments are digital so they can be tracked; so instead of skirting tax responsibilities, as some have suggested, Uber is actually helping to increase the tax base.

So, according to Mr. Dung, Uber:

  1. Allows governments to trace transactions
  2. Allows the tax base to get bigger

In relation to Uber, Vietnam will continue to be a growing market and Uber will continue to make the service more affordable. However, the service will stay cash-free so as to not dilute the customer experience. [Update 08/2015: Uber will now be accepting cash payments by end of the year.] Uber is currently available in over 310 cities in 60 countries in the world but when Dung joined Uber in September 2014, Uber was in “just” 180 cities and 32 countries. For Mr. Dung, Uber introduces dynamic quality, feedback, safety—all while optimizing supply (vehicles) and demand (riders). He pointed to the average utilization rate of a private car, 5%; for a taxi, 25%; but for an Uber car it can be between 60% and 80%. Thus, Uber helps reduce traffic, an issue in Hanoi and other cities.

During Mr. Dung’s panel, he said that Vietnam has “one of the biggest startup scenes in Southeast Asia.” There certainly has been a lot of interest in startups in Vietnam since late 2013, from both the private and public sectors. Phan Hong Quat, Director General of the National Agency for Technology Entrepreneurship and Commercialization Development (NATEC), under the Ministry of Science and Technology (MOST), spoke a bit about the origin and mission of NATEC, which was formed four years ago.

NATEC is supporting SME in difficult fields and is working to simplify the process for investment certificate with the Ministry of Home Affairs. The challenge that NATEC is finding a solution to is how to encourage investors to come in and support the developing industry; one initiative that the MOST pioneered is Vietnam Silicon Valley (VSB).

Modeled after Y-Combinator (YC), a seed fund in the US, VSB seeks to replicate a model that is accepted and successful in the US. VSB provides seed money to startups in exchange for up to 10% equity. Last October VSB had its inaugural Demo Day. Through its network of mentors, it seeks to help to close the gap in the startup communities in Ho Chi Minh City, Hanoi and growing scene in Danang–especially for outsourcing companies which rely on reliable and open technologies.

[NATEC was the main organizer for TechFest Vietnam, a three-day festival which was held last weekend from May 15 to May 17; the main purpose of the event was to foster international connections for startups in Vietnam. We’ll be doing a follow up to the event soon.]

On the topic of reliable and open technologies, MasterCard’s Indochina Chief Representative and Vietnam Country Manager, Arn Vogel, stated that technology allows better customer service—whether it’s e-commerce or payment facilitation and Vietnamese companies need to be able to talk to the world, especially in order to verify payments. In terms of payments, we are transitioning from 16 digits to tokenization—and verification is crucial; a company can only do that if the transaction is on its network or has access to it. Mobile payments are on the way in Vietnam; there are 130 mobile phone subscribers per 100 people and the internet is ubiquitous. However, facing different data protection laws, MasterCard and others can’t offer hosted services–which affects consumers because they can’t use their credit cards. Mr. Vogel stated that there are about 20 payment facilitators operating in Vietnam and they can all play a role to work together to change the payments landscape.

Overall, one of the key takeaways of the event was that digital tools are not just for information technology (IT) companies but for all potential fields, i.e., all successful businesses use the internet. Cross-border data flows are not just important for IT access but are necessary to use the best technology available. A major point driven by more than one speaker during the event was that the “Digital Economy” is actually the general economy and that any attempts to restrict the flow of data would impede the flow of trade as well.

Adam Schlosser, Director of U.S. Chamber of Commerce, stated that the TPP helps companies of all sizes but Vietnam stands to gain the most out of the trade agreement. According to some estimates, as Mr. Schlosser stated,  it could provide the Vietnamese economy a $46 billion boost by 2025. It would also favorably affect tariffs, market caps, and digital products and services to help facilitate free trade across borders. Jack Lambert, Economic Officer at the US Embassy in Hanoi, reiterated that with the TPP, the biggest opportunities of growth and jobs are for Vietnamese SME but they can’t compete unless they have access to the world and data.

During opening remarks, Vice-Chair of the American Chamber of Commerce, Virginia Foote, noted that the digital economy and global transformation is well underway. And more than a few speakers touched upon how Information and Communications Technology (ICT) has driven the Vietnamese economy in the last 20 years and will continue to have a greater effect in the next 20 years. And nations like South Korea, Israel, Sweden, and others can help to show Vietnam new models and tools in order to create its own digital economy with its own “Vietnamese” style. (One of Vietnam’s strengths is that it has a young population that loves working with technology, so it should be leveraged.)

Above all, the event provided key insight into how multi-national corporations and other entities in the public sector view the future in Vietnam. Throughout Vietnam, there are more than 16,000 foreign companies operating across a variety of industries. Through collaboration, local and international partners in Vietnam can work together to create an ecosystem innovation can flourish; one that is full of promising and fast-growing companies or in other words, building Vietnam’s innovation economy.

Note: If you’d like to know more information about the event, including key leadership opinions stated at the event, then sign up for our newsletter.

Forty Years Later

This week we are at the end of a six-day holiday: Hung Vuong Day (Hung Vuong, i.e., “Hung King” is to celebrate the history and lineage of Vietnamese kings.) on April 28; Reunification Day (also called Victory Day or Liberation Day in Vietnam) on April 30; and International Worker’s Day on May 1, also known as “May Day.” It’s the first big holiday break since the Tet holiday (Lunar New Year, a nine-day holiday) back in February. (Originally, the current holiday vacation was requested to be eight days, but only six days were granted.) Signage proclaiming and celebrating these three special days are all over Hanoi, citizens have their flags out in front of their homes, and nationalist songs are broadcast on public address systems in the streets. During significant year anniversaries (30th, 35th, 40th, etc.) parades are held in Ho Chi Minh City to celebrate the north “releasing” the south and the veterans that led the way.

In general, the atmosphere in Vietnam is quieter between Christmas and the Lunar New Year (one-to-two months). Things pick up between the Lunar New Year and this current holiday, but slow down again as we enter this break—in effect, another “reset.” The last day before the holiday, April 27, was the deadline to push through agreements before the exodus to places like Ha Long Bay, Co To, and Cat Ba islands.

As with Tet, many workers return to their home provinces and the streets in major cities become a bit quieter with less traffic (and less honking but not less dangerous, unfortunately). However, some work still goes on: directly and anecdotally, some construction workers on residential projects, service workers in cafes and bars, and factory workers in Bac Ninh all maintained their posts. The next big holiday is in September when Vietnam celebrates its Independence day on September 2. Thus, there are four solid months where business can proceed, unimpeded by long stretches of holiday. At the same time, Ho Chi Minh City’s rainy season begins, which can slow down travel around town due to flooding, and the weather in Hanoi heats up considerably (also slowing down the pace of things) since the city experiences proper seasons without snow.

This year is the 40th anniversary of Reunification Day, when North Vietnamese forces (NVA) captured Saigon and the Second Indochina War ended. In the US, April 30, 1975 is largely viewed as the final day of a tragic chapter in American foreign policy in Vietnam. For the more than one million Viet-Kieu (and their children) in the US, every April brings renewed memories of hardship, sacrifice, loss—and perseverance in a new land. There is no doubt that the war was a dark period for relations between the two governments at great expense of its peoples, some of which continues today. However, more than 40 years after Operation Frequent Wind, Vietnamese attitudes toward the US and capitalism may raise a few eyebrows.

New Attitudes

According to Pew Research, 76% of Vietnamese expressed a favorable opinion of the US during a 2014 poll. Almost nine-in-ten young people (as well as more educated people) were fond of the US. Of those who lived through the Second Indochina War (the Vietnam War as it is called in the US), six-in-ten over the age of 50 held a favorable view of the US. Perhaps the most surprising figure from the poll was that 95% of Vietnamese respondents believe “that people are better off in a free market economy, even if some people are rich and some are poor.” That’s not a typo; ninety-five percent of Vietnamese believe that people are better off in a free market economy (perhaps because the poll respondents picture themselves as the rich ones).

In fact, it’s not uncommon to hear from successful Vietnamese (with direct or close relations to VVIPs) that “making money is not bad… as long as you don’t hurt anybody.” Now, for those who have not spent much time in Vietnam, it may be surprising that there are so many “pro-American” attitudes in a one-party state, especially in the capital.

But spend some time working with Saigonese and doing business with Hanoians and the Pew Research results aren’t that hard to believe at all. For one, Vietnamese love and voraciously consume American culture. Furious 7, Avengers: Age of Ultron, Jurassic World, and Terminator Genisys are all films that have been screened or will be screened in Vietnam. Along with KPOP, Vietnamese youth listen to a variety of American music artists such as Taylor Swift, Bruno Mars, Maroon 5, and Katy Perry. American flag backpacks (as a fashion statement) are an occasional sight in the streets of Ho Chi Minh City (formerly and still known as Saigon). Last autumn in Hanoi there was even a American-style prom organized and American-style wedding requests aren’t that uncommon. (In fact there is even an American ordained minister who has performed a ceremonial wedding in Hanoi.)

In terms of American products, the Apple iPhone 6 is perhaps the most desired phone in Vietnam. Getting a gold iPhone 6 Plus is even better. Workers will spend two, three, or more months of their salaries just to have it and show off that they are able to afford one. Silicon Valley is the envy of many Vietnamese entrepreneurs in the tech industry. Even the Ministry of Science and Technology (MOST) initiated a Vietnam Silicon Valley program in 2013. And later this month the National Agency for Technology Entrepreneurship and Commercialization Development (NATEC), a division of MOST, is the main organizer for TechFest Vietnam, a three-day festival which will be held from May 15-17 at Vietnam National University in Hanoi.

And if you were to directly engage and question Vietnamese about the American War (as they know/learn about it), they would most likely respond with “No problem, it was not me and you who were fighting each other.” With two-thirds of Vietnam’s 90 million population being under the age of 30, that is not a surprising response at all. Other Vietnamese have described the US to your author as a “big and strong country,” a “rich country,” and even as “number one” in casual discussions over beer or coffee. (Of course, there are ideologues and “politically correct” apparatchiks to encounter as well.)

One Direction

But it’s not just people-to-people ties that are being forged; there are ever-growing official ties between the two countries as well. Coincidentally, this year is also the 20th anniversary of normal relations between the US and Vietnam. Looking forward, the US intends to be Vietnams’s largest trading partner (having traded $35 billion in total goods last year, the US is already Vietnam’s largest export market), and the TPP will only reinforce the relationship between the two countries even more. However, the intertwined paths of these two countries started long ago, and came to a salient point shortly after the end of the Second World War.

Thirty years before the Fall of Saigon in 1975, Ho Chi Minh stood in Ba Dinh square in Hanoi and read the Declaration of Independence of the Democratic Republic of Vietnam; it contained a familiar passage: “All men are created equal. They are endowed by their Creator with certain inalienable rights, among these are Life, Liberty, and the pursuit of Happiness.” “Uncle Ho,” as he also known, has another particularly famous saying that Americans might identify with: “Nothing is more precious than Independence and Liberty.” The American Founding Fathers would almost certainly agree with that sentiment.

Forty years later, Vietnam has transitioned from a war-torn economy to a manufacturing center and serves as an integral part of the global supply chain. Beginning with Doi Moi (“Renovation”) in 1986, the Vietnamese economy has become increasingly integrated with the world economy. There have been and will be other significant milestones as well: the US embargo against Vietnam ended in 1994, Vietnam ascended into the WTO in 2007, the TPP will most likely be implemented this year, and by 2018 all tariffs will be reduced to zero as part of ASEAN integration in the region–not to mention a host of other trade promotion vehicles that Vietnam is involved in at various stages. To some, the changes in Vietnam since 40 or even 20 years ago may be surprising, but as someone who heads a department in a ministry recently stated, “the world is changing so we too must change with the world.”

Vietnam Expo 2015

Last week we stopped by to check out the 25th annual Vietnam Expo which was held from April 15-18 at the Vietnam Fair Exhibition Center (VEFAC) in Hanoi. The event was hosted by Vietnam’s Ministry of Industry and Trade (MOIT) and directed by the Vietnam Trade Promotion Agency (VIETRADE). Additionally, there were a number of sponsors, organizers, and overseas partners which resulted in 28 countries and territories participating in the event, according to official numbers.

The various exhibitors were spread across three different halls whereas VietBuild Hanoi (the last event we attended at the same location) was spread across both indoor and outdoor areas. Most of the foreign exhibitors seemed to be Korean and Chinese, which was confirmed by official literature. Even though there were more Chinese exhibitors, the Korean exhibitors were organized into their own sections (they had a dedicated area in the main building) which effectively promoted Korean businesses and Korean-Vietnamese economic interests. Surprisingly, there was only one listed Japanese company on the official Vietnam Expo 2015 literature. Furthermore, Cuban exhibitors had a strong showing at the expo, closely followed by Czech companies.

Additionally, there were Russian-origin products, e.g., digital testers for food and other uses. Recently, Prime Minister Medvedev visited Vietnam and announced a new trade deal between the Russian Federation and Vietnam so perhaps there will be more Russian exhibitors at the next Expo. With EU and US sanctions against Russia, this new deal between Russia and Vietnam could prove beneficial to Vietnamese exporters and Russian consumers (and vice versa).

Overall, a variety of beauty and skin care products were on display, mostly of Korean origin as well as some Chinese fashion/clothing trends that were showcased. There were two Korean products that interested us: one was a handmade wooden iPhone 6 case produced in ROK (but could be produced for a much lower cost in Vietnam); and the other was a mobile device charger that doubled as an advertising platform. However, both items seem like they would be better suited in other (developed) markets.

Engaging Exhibitors

We spoke to exhibitors from Nepal, Iran, the Czech Republic, Korea, China, Cuba, DPRK, and Germany, among others. Some had mixed feelings about the Expo; for example, a leather producer from India (but based in China) had paid a Chinese agent $6,000 under the false pretense that the Expo was exclusively for leather (the Indian businessman sold only wholesale). He arrived at the Expo on the first day to find that there were a variety of other goods that were exhibited as well. His attempts to reach his Chinese agent were unsuccessful and the exhibitor left the Expo the next day. This exhibitor described meeting other exhibitors who had been misled, as well as having met other exhibitors who had paid about $1,000 for a similar sized booth.

We met with some exhibitors who expressed confusion about the consumer goods that were present at the event as they had been under the impression that it was to be an industry event (for purchasing and sourcing rather than end-users) which partly reiterated the Indian businessman’s experience. Strangely, there was a large, but mostly empty, Algerian section at the Expo–due to logistical issues as we later found out; we met an Algerian representative who told us that the items for her booth experienced some transportation challenges so she was unable to fill up part of the Algerian section at the event.

We saw individual provinces that were promoted for investment, both by representation of the province (e.g., Quang Nam) and as part of a larger campaign. Furthermore, we met with representatives from more than one company who provided services for Vietnamese companies looking to enter outside markets. Basically, these companies could provide turn-key services for setting up in foreign markets (their respective domestic markets). The majority of the people whom we spoke to—both foreigners and Vietnamese–indicated that they felt there was a lot of opportunity in the Vietnamese market for foreign products as well as opportunity to export Vietnamese products abroad.

At the same time, it seemed difficult for some of the exhibitors to translate the opportunity in the Vietnamese market into success. Some exhibitors had signs in the front of their booths advertising the search for a (new) local partner while others freely expressed their desire to replace their current local partners. Within the first few minutes, exhibitors readily opened up about the challenges of not only attending the Expo but about doing business in Vietnam.

Of three exhibitors whom we spoke to and were actively seeking a new local partner, two of them already had Vietnamese agents. The local Vietnamese agents were described to us as “negative” and “untrustworthy” on two separate occasions. For example, when one exhibitor had informed his local agent of his intended plans to go to the Vietnam Expo, the Vietnamese agent told the foreign exhibitor, “No need, it’s a waste of time.” (Instead of looking forward to seeing his partner.)

In another instance, a different exhibitor shared with us that he suspected his Vietnamese agent was using the foreign brand to command a premium for lower quality parts (substitutes) and that while their organization felt there was a lot of potential in Vietnam, it wasn’t reflected in the small amount of sales coming from the Vietnamese market. (These opinions are from a company that has been operating in China since 1996 so they are not new to entering foreign markets.)

Still, the lack of easily-located quality partners in developing markets is both a hindrance and nothing new. However, with the Expo’s theme of “Cooperation towards the ASEAN Economic Community” (which begins at the end of this year), it remains more important for potential Vietnamese partners to realize the long-term benefits of introducing foreign products, techniques, technology, and other goods and services that Vietnam will need to continue developing into the 21st century.

Key Takeaways

Based on our experiences at the event (over a two-day period), there were several clear and recurring themes:

-The Expo is advertised internationally (to exhibitors) as an industry event—and promoted in other ways as a consumer event;

-Many foreign exhibitors expressed interest in deepening ties with Vietnam and doing more business here;

-It’s a two-way street: many Vietnamese products are suitable for foreign markets—or at least several exhibitors believe so and have formed companies around this thesis; and

-The quality of local agents for newly-entered foreign companies in the Vietnamese market can be greatly improved—but it is challenging to find quality partners.

If you are interested in linking up with a potential Vietnamese partner or would like to learn more about the Vietnam Expo 2015 event then get in touch with us at info@gktagroup.com. The next Vietnam Expo event will be held from April 6-9, 2016.

 

The World’s Biggest Ever Trade Deal

In a previous post, we explored Vietnam’s economic context in the region and the world but here is a quick rundown of local current and proposed multi-party agreements that Vietnam is part of:

East Asian Summit (EAS)—annual forum on energy and trade held since 2005 between 18 countries.

Regional Comprehensive Economic Partnership (RCEP)—proposed free trade agreement between ASEAN members and Free Trade Agreement partners; formally launched in 2012 at the ASEAN summit. (China’s version of the proposed TPP.)

Asia-Pacific Economic Cooperation (APEC)—21 member Pacific Rim forum that was established in 1989. Membership is determined by economy, not country.

Association of Southeast Asian Nations (ASEAN)—formed in 1967, its membership today includes ten countries and focuses on political and economic issues.

And then there is the Trans-Pacific Partnership (TPP); this week we are going to do a roundup of some of the competing narratives when it comes to the TPP. The TPP has been in the works since 2002 (under a different name) with the US and Vietnam joining the round of talks in 2008. The twelve countries involved in the TPP comprise approximately 40% of global GDP; those countries are Brunei, Japan, Malaysia, Singapore, New Zealand, Australia, Mexico, Canada, Chile, Peru, and, of course, Vietnam and the US.

The TPP is both an economic and a strategic agreement; one thing to keep in mind is the annual GDP of Vietnam: approximately $170 billion. To put that in perspective, the annual revenue of General Electric is approximately $150 billion. In other words, the revenue of one US company is almost on parity with the annual GDP of Vietnam so there are other reasons than purely economic interest in Vietnam.

At a time when China is creating competing regional and global financial organizations, according to The New Yorker, such as “the New Development Bank, the Silk Road infrastructure fund, and the Asia Infrastructure Investment Bank, which, together, intend to amass two hundred and forty billion dollars in capital” (in association with some US allies) the US needs the TPP (or something like it) to pass in the near future to provide a counterbalance (as proponents of the TPP have argued).

In Favor of the TPP

What are the governments behind the TPP saying? Let’s start with some of the countries that are involved in the TPP negotiations (more than 20 rounds so far).

According to the Office of the US Trade Representative:

“As the cornerstone of the Obama Administration’s economic policy in the Asia Pacific, the Trans-Pacific Partnership reflects the United States’ economic priorities and values. The TPP not only seeks to provide new and meaningful market access for American goods and services exports, but also set high-standard rules for trade, and address vital 21st-century issues within the global economy.”

According to the Australian Department of Foreign Affairs and Trade:

“Conclusion of the TPP would open new trade and investment opportunities for Australia in the Asia-Pacific region, further integrate our economy in this fast growing region, and promote and facilitate regional supply chains. By setting commonly agreed rules and promoting transparency of new laws and regulations, the agreement will provide certainty for businesses and reduce costs and red tape for Australian exporters, service suppliers and investors.”

According to the New Zealand Ministry of Foreign Affairs & Trade:

“As well as tangible benefits for our exporters and consumers, TPP would safeguard New Zealand’s longer term trading interests. TPP is potentially a platform for wider, regional economic integration.”

According to the Foreign Affairs, Trade and Development Canada:

“Along with our successfully-concluded free trade agreement with Korea, our ongoing bilateral talks with Japan, and other ongoing initiatives, the TPP is a means to achieve our ambitious pro-trade, pro-export plan to create jobs and opportunities for hardworking Canadians.”

Against the TPP

What about the TPP’s skeptics?

There has been a great deal of secrecy surrounding the terms of the deal and some controversy. For example, China isn’t included in the deal and most of the information that the public knows about the TPP has been due to leaks.

According to Public Citizen:

“We only know about the TPP’s threats thanks to leaks – the public is not allowed to see the draft TPP text. Even members of Congress, after being denied the text for years, are now only provided limited access. Meanwhile, more than 500 official corporate “trade advisors” have special access. The TPP has been under negotiation for six years, and the Obama administration wants to sign the deal this year.”

MSF (Doctors without Borders) is against the TPP:

“Proposed by U.S. negotiators, the IP rules enhance patent and data protections for pharmaceutical companies, dismantle public health safeguards enshrined in international law, and obstruct price-lowering generic competition for medicines.”

Nobel economist and professor at Columbia University, Joseph Stiglitz, made the case against the same drug provisions in the TPP:

“The efforts to raise drug prices in the T.P.P. take us in the wrong direction. The whole world may come to pay a price in the form of worse health and unnecessary deaths.”

The EFF (Electronic Frontier Foundation) is against the TPP:

“TPP raises significant concerns about citizens’ freedom of expression, due process, innovation, the future of the Internet’s global infrastructure, and the right of sovereign nations to develop policies and laws that best meet their domestic priorities. In sum, the TPP puts at risk some of the most fundamental rights that enable access to knowledge for the world’s citizens.”

Former US secretary of Labor, Robert Reich is against “fast-tracking” the TPP (under the Trade Promotion Authority) and identifies some issues that the TPP overlooks:

“We need trade agreements that address unfair trade practices such as currency manipulation, foreign subsidies to exports, corporate power grabs and systematic and egregious violation of internationally recognized labor rights.”

Fast-tracking is important because it allows Congress to approve (or disapprove) the TPP as a whole, instead of introducing amendments which would surely kill the TPP in its entirety. (Senate Majority Leader Mitch McConnell from Kentucky is among those who want to pass the Trade Promotion Authority.)

Senator Elizabeth Warren of Massachusetts is against the TPP, in particular “Investor-State Dispute Settlement,” or ISDS:

“[I]f a Vietnamese company with U.S. operations wanted to challenge an increase in the U.S. minimum wage, it could use ISDS. But if an American labor union believed Vietnam was allowing Vietnamese companies to pay slave wages in violation of trade commitments, the union would have to make its case in the Vietnamese courts.”

The CATO Institute mostly agrees with her.

Senator Bernie Sanders of Vermont is also against the TPP:

“The TPP would make it easier for countries like Vietnam to export contaminated fish and seafood into the U.S. The FDA has already prevented hundreds of seafood imports from TPP countries because of salmonella, e-coli, methyl-mercury and drug residues. But the FDA only inspects 1-2 percent of food imports and will be overwhelmed by the vast expansion of these imports if the TPP is agreed to.”

(Here is a speech Senator Sanders gave to the Senate earlier this year.)

Both sides are very clear in their respective positions; there does not seem to be much middle ground. On one hand, governments and corporations are overwhelmingly in favor of passing the TPP. However, NGOs along with current and former politicians, policy advisers, and pro-consumer advocacy groups have all voiced their concerns about elements of the TPP.

Defining Failure and Success

So there are clear and credible opponents to the TPP. However, if the TPP fails, it could mean disastrous results for American foreign policy in the region.

As The Economist points out:

“Failure to complete it would be a terrible blow to American interests, for a number of reasons. Trade liberalisation itself is of course one. With prospects of a global agreement at the World Trade Organisation vanishing, America’s hopes lie in the TPP and the more distant Transatlantic Trade and Investment Partnership with Europe. In his state-of-the-union speech to Congress in January, Barack Obama dwelt on “the world’s fastest-growing region”, ie, Asia and the Pacific.”

As The Editors of the Bloomberg View pointed out:

“The main harm, if the talks fall apart, is the damage this would cause to the larger process of global economic integration.”

(However, a Bloomberg View columnist also covered secrecy issues involving the TPP process.)

The Brookings Institution laid out one scenario as a result of a failed TPP:

“The rebalance to Asia will stall. TPP is the second leg (after a reorientation of military resources) of the policy of rebalancing to Asia. As such, its fate will determine whether this strategy advances or just limps along. If TPP fails, doubts about the staying power of the United States will once again rear their ugly head. The signature U.S. policy to remain vitally connected to the world’s most dynamic economic region will come to naught. Let’s not forget that prior to the advent of TPP, the United States appeared poised to be marginalized from the process of regionalism in Asia.”

And if the TPP passes then what would that mean for the average American?

According to Moyers & Company, the TPP will drastically impact income distribution in the US:

“[T]he incomes of those at the very bottom of the ladder would be protected by the minimum wage, and those at the very top would benefit significantly from the deal’s intellectual property and investment protections. But the vast majority of Americans would see their incomes drop.”

Rep. Loretta Sanchez of California goes further to elaborate how destructive the TPP would be for the US and its workers:

Unfortunately, the TPP would neither ‘protect American workers’ nor bring jobs ‘back from China.’ Assessing what we know of the massive TPP only affirms what we’ve learned the hard way through past broken promises on trade pacts – it’s a bad deal for American workers.”

And what about the ISDS?

Jeffrey Zients, Director of the National Economic Council, wrote on the White House Blog:

“There have only been 13 cases brought to judgment against the United States in the three decades since we’ve been party to these [kinds of] agreements. By contrast, during the same period of time in our domestic system, individual and companies have brought hundreds of thousands of challenges against Federal, state, and local governments in U.S. courts under U.S. law.

We have never lost an ISDS case because of the strong safeguards in the U.S. approach.

But that doesn’t mean that the US will always win an ISDS in the future either.

Time is Running Out

So who is right and who is wrong? Can both sides be right? What should be done?

American workers can’t compete on labor wages alone and workers (in general) can’t compete against automation. Is it better to get rid of vulnerable (to outsourcing) American jobs now that will eventually be lost to job automation?

Who would benefit the most from the TPP? What sort of timeframe are we looking at? Five years down the road? 10 years? 20? Through that lens, who is really winning and who is losing? It’s only with hindsight that we can see the effects of NAFTA.

Are there other issues that have been overlooked and that the TPP would open the floodgates for?

In the short term, the TPP would make Vietnam a clear winner (as a result of its growing manufacturing base) but the benefits for the majority of Americans seems limited and largely focused on American corporations. Mexico would benefit as well, especially if Vietnam were to slash its high import taxes on vehicles. However, as we pointed out in this post, cheap labor is not a sustainable competitive advantage for Vietnam in the long term.

However, the effects of the TPP will surely be felt beyond Vietnam, the US, and the 10 other countries involved. In a sense, international trade, intellectual property rights, and fundamental issues of national sovereignty in the 21st century will all be redefined. The lack of transparency in the process, the unanswered questions, and the overall unclear picture does little to bolster confidence in those who are promoting the TPP in a positive light.

If the TPP fails to go through, it would deal a serious blow to American efforts in Asia. The TPP is in a fragile state at the moment; it can be derailed if Congress does not grant Trade Promotion Authority. Trade Promotion Authority (TPA) means that Congress can approve or disapprove the TPP but cannot amend or filibuster. The TPA must be obtained from Congress first in order to “fast-track” the TPP, i.e., to give a “yes” or “no” vote as President Obama has requested. The US expects TPA to pass within the next month but it’s not a done deal.

The LA Times recently summed up the state of negotiations:

“At this point, the administration appears to have pinned its hopes on a fast-track bill being negotiated by Sen. Ron Wyden of Oregon, the Democrats’ top member of the Finance Committee. Fast-track authority is also supported by the committee chairman, Sen. Orrin G. Hatch (R-Utah), and Ryan in the House.

But the administration’s strategy looks in peril as talks between Wyden and the others have dragged on.”

Simply put, without TPA, there is no TPP, (and less “rebalancing” to Asia) but perhaps that’s a good thing in the long term.

Former IMF chief economist Simon Johnson, and Representative Sander Levin of Michigan posed a profound question about the TPP in Politico Magazine:

“Are the agreement’s rules sufficiently forward-looking and strong enough to bring about meaningful lasting improvements to people’s lives, by enhancing the positive aspects and addressing the negative impacts of globalization?”

As more information about the TPP’s 26 chapters continues to leak to the public, the answer to that question seems to be a resounding “no.”

Long Van Group

Long Van Group, founded in 1992, is comprised of four companies: Long Van NTV, Loval, ALV, and Hondalex. Through its portfolio companies based in Vietnam and the US, the family-owned group is perhaps best known for its aluminum product manufacturing—which is how it got its start. The other companies include a trading company in Ho Chi Minh City for the domestic market, a trading company in the US for the international market, and a joint-venture with Hondalex. Recently, we sat down with Thy Van Nguyen (Vanessa), whose official title is Operational Director but she is heavily involved with the strategic vision of the group as well as integral in implementing organizational change across the companies.

Ms. Nguyen was born in Ho Chi Minh City and moved to the US when she was 16. After being based in Seattle, Washington and attending university in the US, Ms. Nguyen moved back to Ho Chi Minh City about 18 months ago in order to focus on the family business. She currently spends about 80% of her time in Vietnam between Ho Chi Minh City and Binh Duong Province, where the manufacturing  activities of Long Van Group takes place. Currently, one of Ms. Nguyen’s major initiatives is the transformation of culture in her organization, something that she has successfully done in the domestic trading arm of the group.

Changing a Culture From Within

Ms. Nguyen is a big believer in getting the people doing a task or activity to understand the purpose of it. The people on the front lines are already the best people to do to the job so they will also be in the best position to improve the process. It’s only a matter of getting them used to speaking up and contributing regularly for the reward is improved efficiency and recognition by management and their peers.

That goal is sometimes easier said than done as older managers in a company have a more traditional mindset of top-down management style. Therefore, it’s necessary to first change the managers—either their attitudes or outright replace them (however, Ms. Nguyen didn’t have to fire anybody). If the managers had not bought into her vision at the onset then the project couldn’t have worked. Having the managers on board enabled the culture at the trading company to completely change within eight months but it took six months before she began to see the fruits of her labor. It also helped that Ms. Nguyen speaks Vietnamese in addition to English, and is the daughter of the company’s owner so she did have the power to initiate and implement change. However, despite these advantages it was still tricky for her to balance the right relationship with the workers due to some strong local cultural elements.

Part of the culture in Vietnam revolves around a fear of power which has roots in the royal history of Vietnam and continues in the form of wealth and political power today. Therefore, people in positions of power might need to be more informal, more cheery, and re-emphasize what resources are available to workers who need help, guidance, or any kind of assistance. People aren’t going to ask for help on their own or tell you what problems they have. Vietnamese culture is generally not expressive; a Vietnamese son or daughter can do 1,000 things right and not receive a single compliment. However, if s/he does one thing wrong then they will hear about it to no end. Thus, a lack of a negative response is a positive step. It’s important to praise workers because no one really says compliments from an authority position so it really impacts their subordinates.

It’s interesting to note that Ms. Nguyen was able to effectively change the culture because of gaps in old culture when other senior leaders were focusing on other business lines. Her changes came at the right time because the old system was not effective for expanding beyond the original 20-30 employees since it was largely based on gut feelings.

It may also be that everybody can see the problem at hand but no one wants to do much about it–Ms. Nguyen sought to change that. The interesting thing is that the workers want to hear different perspectives but not necessarily change the old ways of doing things. So even though everyone can point out the problem, no one can suggest a solution because it may be too risky to suggest a potential solution.

This challenge of self-confidence and expression has its origins in the educations system in Vietnam. The educational culture in Vietnam revolves around being told what to do; the teacher tells you the answer and that’s the answer–end of discussion. One way to overcome this element is by tapping into the fact that Vietnamese people love to look good; they want the story to be about them. They love the credit so give them that credit when appropriate. For example, present them with a situation and ask them to help. Then you can follow up with: “I listened to you and it worked.” In these moments you will see how proud the workers are and have just established a precedent. Perhaps the most effective way to connect with workers is to tell them stories, and then get them to be part of the stories. It can be as simple as presenting a scenario to workers and asking them, “if you had to make that decision then what would you do?” Indeed, not all changes are smooth and changing a culture is perhaps one of the toughest tasks to take on but by empowering workers it increases an organization’s operational efficiency overall.

Make no mistake: an organizational transformation is not without friction and conflict—especially when dealing with the “old guard.” Some people quit in the process, in part due to wanting to change the organization in a different way than Ms. Nguyen so they left. Changing the culture required that Ms. Nguyen trust that a real foundation was in place for the company to expand upon itself. To that end, she had to let go of some of the intensive focus she had on certain processes. These days Ms. Nguyen’s 62 workers at the trading company embrace and drive towards her and their vision of change.

Training and Developing Vietnamese Workers

Improvement is a continuous process at Long Van Group. Ms. Nguyen gives training courses once or twice a week for each division in her company in an effort to better prepare them for current and future work-related tasks. She strives to get different workers to select a unit each week based on a set list and give a presentation to the other workers. In her “guide-on-the-side” role, she asks questions and draws opinions from the workers and gives feedback at the end of each session.

During her training sessions, she will also share a story about a work experience, or conduct a workshop, or present a scenario. Then the workers will split into groups and talk about what each worker would have done in the scenario or what to do in the situation in the future.

Example: Your colleague sends an email to an organizational partner who you must coordinate with on a project. In the email, your colleague states that your company is not responsible for a specific portion of scope but that there are related issues that need to be addressed for the client’s benefit. The organizational partner’s vice director simply responds: “If the scope is not your responsibility, then your opinion does not matter.”

Ms. Nguyen will then question the workers on whether or not the logic of the vice director is wrong. Thus, the workers are solving problems with real experiences (the above example is actually used in training by Ms. Nguyen and was experienced by your author in Ho Chi Minh City last year) and are thinking about how to view situations more deeply.

This analysis is important because when responding to allegations some Vietnamese tend to lash out when things start to take a dive and they can take things personally even if they aren’t meant to be from your side. So it’s vital to be mindful of not only what you say (although that is important as well), but about how they feel (and taking care to let everyone save face).

Within Vietnam, southerners rely more on gut feelings whereas northerners are more logical. The southerners present themselves at face value; they want to prove to you that they care about you when they meet you. However, northerners want to compare status levels and act accordingly. Thus, foreigners might have a better time in Hanoi compared to “common people.” Northerners tend to think more before they talk so their use of words is better and more structured which presents them as being clever. Southerners speak more from the heart since they are generally more open and expressive. It’s important to be aware of your counterpart’s feelings because in Vietnam and in life, one can never do something big or grand without building a coalition.

Human Capital in the US and in Vietnam

In the US, people and workers are proactive while in Vietnam they are largely reactive. However, foreigners can learn a lot from Vietnamese people. But first, they must stop assuming and see things in limited possibilities. Ridiculous and downright crazy (from a western perspective) things could and will be possible because it may be the only option for moving forward in Vietnam.

The social structure is more set in the US due to the developed economy and Puritan work ethic. So in the US there is freedom to choose within set choices, i.e., the illusion of freedom because everything is already structured. Life is very predictable in the US so many people want to be proactive, they want to be ahead of the curve. Thus, Americans tend to assume a lot when planning.

On the other hand, Vietnamese are “proactive by being reactive:” they expect the plans to go awry so they bypass the planning stage and when things devolve they are better equipped to salvage the situation. Thus, Vietnamese prepare for certain situations but not for all situations. In that sense, they are able to make unreasonable (or even crazy) positions seem logical because they have developed these skills. They are very adept at framing an arena and taking up defensive and offensive positions and excel when things don’t go right, in part due to the messy social structure. It may be surprising to some that Vietnamese can be very practical because oftentimes there are no other options.

So, Vietnamese are really good at changing situation into their favor but they are also good at making crazy logic sound normal. Some people may believe that if they spot an issue and bring it up, then they will need take responsibility for it. People are afraid of responsibility because of the challenge of getting the task accomplished correctly. Vietnamese people like to look good so they don’t like to put their name on a project or idea in case it fails. But if it turns out good and then they take full credit. For Ms. Nguyen, a large part of the effort to change the organization is by marketing herself through self-branding because the perceptions of the workers will make or break any initiative.

Opportunities for Expats

To Ms. Nguyen, Vietnam is the perfect country to grow something big—but it’s a double-edged sword. Everything is based on relationships, which can be good or bad depending on the perspective. To be successful in Vietnam, one needs to be flexible and open-minded since many problems in Vietnam need to be solved in unorthodox manners. Structure beyond social doesn’t really exist, so if one relies on structure to move forward then s/he is in for a rude awakening (unless those connections are present). Above all, give Vietnam a chance but know where your limits are and what is the extent of your comfort zone for (operational and legal risks).

Expats shouldn’t assume anything in Vietnam and they will have to take on more responsibility to ensure that things stay on track and don’t fall apart. Things that are taken for granted in the west simply don’t exist in Vietnam. For example, the search results of Google, and Google VN are very different. Some people in Vietnam trust the US version more than the Vietnamese version. Also, Vietnamese websites generally don’t have a “how-to” section. For western websites, the product or service offered is described in depth and it is very clearly shown what it is and how it is done.

When explaining something in Vietnam, it has to be simple, clear, and consistently explained multiple times. Then, inverse questions need to be asked in order to triangulate what the actual response is for determining if the receiver understands or not. Communicating processes, requirements, or issues to locals can be timely and frustrating, even when explaining in the Vietnamese language. One way to get Vietnamese people to understand a process or information is through infographics—and in particular, youngsters will understand it better. They like the convenience aspect and the way the information is presented so they are more likely to understand it. If a member of the older generation doesn’t understand something, then s/he will just ask someone nearby or a close friend who will be put on the spot and could just blurt out something that sounds good but isn’t necessarily accurate. Thus, a crazy feedback loop begins where most of the information is wrong as the process continues. Besides, many Vietnamese don’t believe what they read. The older generations do, but the younger (those born in the 1990s and later) ones, no. Cute infographics can help explain things succinctly—and the cuter, the better; think anime characters.

In more general terms, most work fields don’t give newcomers to the country a chance. Connections are part of status which bypasses merit in many cases. It doesn’t matter if you are the best in your field, if you don’t have a good connection then no one will work with you. When arriving in Vietnam, get the connection first. Leverage being sent by a foreign company by learning about the country and forming bonds. Another option is to wait until you have the money to buy status here. In that sense, you don’t have to be the best person in your field—you can be average but still get a piece of the action through connections.

Drinking: Bad or Good for Business?

Still, business can be too much relationship-based; that is to say too reliant on gut feelings and feelings in general. Logic is largely used to make decisions in the US but in Vietnam they need to “feel it” in order to do something. These positive feelings are usually the result of some bonding over alcohol, either bia hoi, ruou, or some imported spirits.

Ms. Nguyen points out that her male employees never get drunk enough to be inappropriate at company functions. And for those who don’t drink any alcohol, while they can sponsor a “drinking nominee,” they could be at a disadvantage with their local counterparts by them not “truly” knowing the person when s/he is drunk. Thus, the best way to establish trust with Vietnamese counterparts is to drink alcohol with them—so if you get drunk easily then you must learn how to control yourself. Vietnamese truly believe that you will be yourself when you are drunk so in a way it’s like peering into your soul.

Everything you say or do shapes their perception about you, especially when drinking. The actual message, while important, is secondary since they are judging you via a gut feeling. It can be quite dangerous since Vietnamese may perceive an offense where there was none. When doing business, Vietnamese generally won’t trust you until you drink alcohol with them and they are able to see the “true you.”

How you are as a person when drunk may be the biggest indicator of doing a deal with Vietnamese. Their perception of you while imbibing will be the baseline for judging you. Once they see you drunk, then that’s how they will perceive you and they will hold onto this image of you until the next time you drink together. If you are a bad drunk, then beware.

The Next Step

Next up for Ms. Nguyen is changing the culture at the factory since it is a special case. The entire production was in the hands of two directors but the current result didn’t turn out so well so the focus is on getting workers to take more initiative and overcome fears of failure. Indeed, Long Van Group is at the forefront of providing high-quality products and driving organizational change in order to provide a better customer experience. Vietnam is becoming an even more prominent destination for outsourcing and manufacturing and as more projects are implemented here then the technical and management skills requirements will increase as well.

Today, China produces for much of the world but in recent years some factories have migrated to Vietnam, in part due to the fact that wages in China are higher than in Vietnam. However, prices of finished goods in Vietnam can be higher than in China because of other operational costs. The disadvantage that Vietnam has is that the workforce is less skilled than China’s and the economies of scale don’t exist on par with China. Quality control remains an issue in Vietnam as well.

As more foreign companies come to the Vietnamese market, the standards for local workers’ qualifications and skills will rise. A growing trend is for Vietnamese workers to take courses at private institutes to aid in their professional development, e.g., how to be a better manager or CEO. These courses are truly development on an individual level because people are there because they want to be better. For the students, Ms. Nguyen suggests that they seek to understand on a conceptual level and learn to connect everything.

“Learning how to connect things is the tool you need to work in the real world,” Ms. Nguyen advises.

Below, Ms. Nguyen shares some of her favorite quotes:

“Do or do not, there is no try.” –Master Yoda

“If you are a good leader, when your work is done, your aim fulfilled, your people will say, ‘We did this ourselves.’” –Abraham Lincoln

“You can listen like a blank wall or like a splendid auditorium where every sound comes back fuller and richer.” – Alice Duer Mill

 

Special thanks to Vanessa Nguyen of Long Van Group who shared her time with us and greatly contributed to this week’s post.

First Impressions of Vietnam

Trying to explain Hanoi, and Vietnam in general to someone who has never been here can be quite challenging. For many expats in Southeast Asia, the region and its cultures can be difficult to understand and navigate let alone effectively explain to family and friends at home. And research, while helpful to understand settings, is not a substitute for direct experience.

This week we have a guest contributor who is with us here in Hanoi. Zdravko Tumbovski is an international businessman who has done business in Turkey, Bulgaria, his native Macedonia, and other countries. He arrived in Hanoi for the first time on Tuesday, November 18 in order to take a firsthand look at the Vietnamese market and to gauge its potential for his interest in trading with Vietnam and in Southeast Asia.

His professional experience includes an internship at an insurance company in Macedonia; a Business Analyst position at a family owned company, Info Group Ltd, which made investments in the Macedonian Stock Exchange and the Macedonian Real Estate market. Currently, Mr. Tumbovski is the founder and director of Z&Z Capital Ltd based in Bulgaria, which specializes in transport and logistics services in the European Union (EU).

Additionally, in conjunction with partners in Turkey, he is involved in import-export transactions, mainly in cooking oil, but they are also expanding to other commodities for the Turkish bazaar. His primary role is to find a suitable supplier and to negotiate the payment methods and transportation of the goods.

Zdravko shares his first impressions of Vietnam below:

After constantly moving around between the US, Europe, and the Middle East in the last seven years, I spent a considerable amount of time in Los Angeles this year. About a month ago, I reconnected with director of GKTA Group, whom I have known for several years.

GKTA Group introduced me to some of the many challenges, opportunities, and conditions faced in Vietnam. I felt attracted to learning more about this dynamic market and it didn’t take long for me to decide to come here and check out Vietnam for myself.

Even though I am still in the first week of my arrival, I must admit that I am having a very smooth transition to this country so far. I was already familiar with Asian cultures due to my friendship with Asians in my network that I have known for a long period of time, and also because GKTA Group put a lot of effort to set up at least one meeting per day with a local person where I can get his/her answers to some of my questions about his/her country’s future, his/her point of view toward foreigners, and the changes that s/he has seen the past five years in Hanoi, especially.

Hanoians and Hanoi

Vietnamese people in the capital of Hanoi are generally polite and quiet. It usually requires some time until they start to feel comfortable sharing their views, and begin to realize the goal of my questions because I see that they are not very used to foreigners who are interested in their culture, and who try to understand their values.

Vietnamese people seem to be the loudest on their motorbikes. They are honking at every cross street, and from my findings they rarely show anger with words, but only with menacing stares at the perceived wrong-doer. The amount of motorbikes and the traffic frequency for me was something unseen before; in short, outrageous.

Hanoi is a city with a long history, and it is shown on every corner. Hanoi has the street-selling spirit and it is still done traditionally and mostly inexpensively for locals. However, there is luxury consumption visibility in the younger generations and newly rich populations. For me, this is probably more visible because I was raised in a former communist country, Macedonia (Former Yugoslavia).

The Wi-Fi coverage and the use of internet are quite impressive compared to the expectation of technology in a developing country. The “drinking-coffee” habit is at large range, and the number of cafes is seemingly endless but a favorite of Vietnamese people. One new thing for me is using condensed milk (“sua dac”) in almost every cup of coffee—and I find it tasty—even if it is uncommon for me as a European.

Luckily, I am fan of Asian cuisine, and have been eating it frequently. Compared to other cuisines and the tastes of some westerners, you may remain hungry here if you are very picky with the food. The traditional street foods, or the local dishes in the very basic and not-so-modern restaurants can be tasty for people who are food enthusiasts and open to new flavors; on the other hand, it can be off-putting (even though I aim to be cautious with my language here), because I certainly know many people who would not be able to eat the local food here, and who would not be willing to be seated and served in the Hanoian or Vietnamese way of small tables and children chairs. So far, I enjoy it.

Work Ethic and Exposure

My personal view is that most of people here work hard and long hours. The basic example for that is the staff at the hotel where I stay. They are here every single day of the week, for over twelve hours per day. They are very friendly and very helpful even if there is occasional miscommunication.

When talking to waiters or other people in cafes and on the streets, I have come to realize that many of them have not had a chance to travel a lot. Actually, many have never been outside of Vietnam. The reason for that is first, money and second, time since, as mentioned before, they have to work almost every day, year-round.

There is a sense of trust that permeates through the people here. I had a very unique experience that occurred to me at the border upon arriving at the airport: I had arranged for visa upon arrival and at the bureau the visa was issued and stamped more quickly than what I had estimated, but I had no cash on me to pay. The customs officer asked me if I had any currency equal to the amount of $95 (the price of the visa), but I had none. The ATM was outside the immediate area, after the passport control, so I thought that I couldn’t consider the option to withdraw some money. As a matter of fact, the officer walked me through the immigration border without any checking and without any concern, just to withdraw the necessary money for the visa, and then led me back to her desk in order to pay. That was surprising. Actually, the border control experience in general was more liberal than in many other countries.

If I am allowed a chance or could offer some suggestions to Vietnamese who want to be successful with westerners, it would be:

  • Learn more English, the number of tourists is increasing  and you need it
  • Strive to be more comfortable with foreigners
  • Be more creative for international businesses; this land is rich
  • Act more responsible to the duties and respond to requirements efficiently and faster

Business and Understanding Vietnam Now and in The Future

I haven’t experienced any business deals in Vietnam yet, but I am most worried about the changing industry regulations, the unpredictable law amendments, unfair competition, and the guarantee of quality standards.

My advice to the expats that want to do business in Vietnam is to spend as much time as possible here, but with local people. It is essential to understand the habits of the Vietnamese before starting any sort of business, in order to prevent an organizational mismatch and communication misunderstandings. It is complex and different here indeed.

I can already see that the necessary attributes required to succeed in Vietnam are patience and simple guidelines.

What I would like to learn about Vietnam or the Vietnamese is: until what extent have the ancestors shaped today’s population, and how much is the young generation willing to keep and practice the old traditions? I hope that finding this balance will help me to predict and understand their place in the world for the next decade.

This next decade will be crucial for Vietnam as the country transitions to increased trade with more global partners, the middle class continues to grow, and more foreign investment pours into the economy. Vietnam has many natural resources, a lot of talented people, and a willingness to exceed economic indicators but it will not be without some development friction, conflict between traditional and modern Vietnam, and addressing some major investor concerns. However, the long-term benefits will be far greater than what the shortcut rewards of today will provide. After all, as Jim Rohn says, “You cannot change your destination overnight, but you can change your direction overnight.”

Thanks to Zdravko Tumbovski who contributed to this week’s post.

Economic Context in the Greater Region and the World

Vietnam is party to several regional and global organizations. Ever since doi moi (“Renovation”) in 1986, institutions encouraging regional economic and financial cooperation between South Asian countries have played a major role in Vietnamese development. Below, we will examine some of various organizations and partnerships that Vietnam is a part of.

East Asia Summit (EAS)

Since 2005, the East Asia Summit encourages cooperation in several fields from energy to education. Concerning the economy and finance, the last summit in Brunei reaffirmed the common will to increase cooperation in economy and finance with more “liberal initiatives.” Myanmar will organize the 9th edition of the East Asia Summit in November, 2014.

Regional Comprehensive Economic Partnership (RCEP)

The Regional Comprehensive Economic Partnership aims to gather 10 ASEAN members and six non-ASEAN members to improve economic cooperation in the region. Today, RCEP totals 46% of the global population and generated 24% of the global GDP in 2012.

RCEP plans to standardize Free-Trade Agreement (FTA) rules to simplify its implementation by companies. Also, the establishment of common incentives serves to “democratize” the use of tax incentives for both large and small enterprises. According to Kohei Shiino, deputy director of JETRO (Japan External Trade Organization) Singapore, RCEP will “bring about big advantages for Vietnam’s garment and textile industry.” For example, the ASEAN-Japan tax incentives on exporting Vietnam-made goods in Japan only concern products with ASEAN or Japan origins. However, 33% of Vietnamese apparel materials cannot benefit from tax incentives due to their Chinese origins. The implementation of common incentives should help to avoid similar situations in the future.

Looking forward, the fifth round of negotiations in December in New Delhi, this economic partnership seems to have a bright future ahead of it. The Asian Development Bank argues that RCEP will increase revenues by 664 billion dollars in 2025 – which would equal 0.6% of the global GDP due to goods, services, assets and labor exchanges between these countries.

However, Vietnam will have to face the challenge of joining RCEP, while being an active member of the Trans-Pacific Partnership (TPP). The potential conflict between the TPP – led by the United States and RCEP, driven by China–(both wanting to shape economic partnerships with Southeast Asia countries) could put Hanoi in a difficult position. Indeed, both political and security implications in the context of an economic partnership can be conflicting between China’s and United States’ interests. Concerning the future role of Vietnam, ASEAN observers consider a potential split of Asian countries in two sides: Singapore, Malaysia and Vietnam would tend to turn to TPP whereas other ASEAN countries would strengthen trading relations with China through RCEP.

On a smaller scale, Vietnam has to consider China’s predominance in the trade balance between the two countries. Although crude oil and coal are exported to China, Vietnamese industries abundantly import Chinese goods as raw material, machinery and equipment, steel, chemicals, and oil and fabrics. (This situation is probably due to the differing economies in North and South Vietnam.)

Asia-Pacific Economic Cooperation (APEC)

Created in 1989, the Asia-Pacific Economic Cooperation includes 21 countries in the Pacific region and congregates 40% of the global GDP. Since the establishment of APEC, average trade barriers have dropped from 16.9% to 5.5% in 2004.

Looking at numbers, Vietnam takes advantage of being a member of such a organization: from 1998 to 2006, capital flows of APEC members towards Vietnam reached $49.5 billion with 6,527 projects in operation. Moreover, 10 APEC members are part of the top 15 investors in Vietnam. As a consequence, Vietnam will be able to rely on future solid financial and economic partnerships to accelerate its integration into the world economy.

Association of Southeast Asian Nations (ASEAN)

Since July 1995, Vietnam has taken part in the Association of Southeast Asian Nation with nine other states. The effective growth of trade between ASEAN and Vietnam reflects the success of the partnership. According to Louis Taylor, CEO of the Standard Chartered Bank in Vietnam, Laos and Cambodia, “ASEAN is the third-largest export market for Vietnam, accounting for more than 10 per cent of the country’s total exports … [and] the second-largest supplier to the country, accounting for 20 per cent of the nation’s total imports.” In 2010, Vietnam hosted summits concerning ASEAN solidarity and connectivity and expressed “its desire to fulfill the goal of building the ASEAN Community by 2015.” Although increasing regional economic cooperation will generate changes in Vietnam’s economy, one-to-one treaties and agreements with neighboring countries also impact the market.

In March 2014, on the occasion of a visit of the Vice President of Myanmar Nyan Tun in Vietnam, the two countries concluded a bilateral agreement on a common objective in trade. Vietnam remains the ninth-largest foreign investor with $370 million invested in Myanmar, let alone the 18 Vietnamese companies registered in Myanmar. Moreover, in 2012, the trade volume amounted to $66 million. Both sides want to reach $500 million in trade by 2015, thanks to cooperation in agro-forestry, fisheries, banking, telecommunications, transport, oil and gas and tourism.

Bilateral Trade Agreements 
Vietnam is also working on increasing economic partnership with individual nations such as South Korea. On October 2
nd, President Park Geun-hye met Nguyen Phu Trong, the general secretary of the Communist Party of Vietnam during his state visit in Korea. Both sides agreed on signing a free trade agreement before the end of the year and improve cooperation in building transportation infrastructure in Vietnam.

Additionally, in 2012, India and Vietnam announced their common objective to reach $7 billion bilateral trade in 2015 and $15 billion by 2020. The Indian government expressed its wish to facilitate the access of Indian banks to the Vietnamese market, in order to develop trade and investment between both countries. The implementation of India-ASEAN free trade agreement by Vietnam and India helped both countries to reach $4 billion in bilateral trade in 2012.

Moreover, Vietnam appears to be the land of opportunities for Japanese small and medium enterprises (SME): a survey from business associations in the East Asian country show that 50% of Japanese SMEs planning investment abroad consider coming to Vietnam. Therefore, it should come as no surprise that the Japan External Trade Organization in Ho Chi Minh City welcomed 2,400 Japanese investors considering investment opportunities in Vietnam between April 2011 and January 2012.

The Takeaway and Key Milestones

We can observe several trends in regards to trade in Vietnam: the first general trend is the expansion of the range of products concerned by free trade agreements. The second phenomenon is the common will of improving existing trade conditions between countries. Finally, Vietnam actively tries to develop its trading partnerships with neighboring countries and is moving to increase cooperation on many subjects as well as to deepen economic relationships with a wide range of current and potential partners.

For foreign investors, the Vietnamese market should also become more attractive to Thai retailers with the upcoming ASEAN Economic Community in 2015. Meanwhile, the Vietnamese retail market is expected to grow 12% in 2014. The major news is that the TPP could be finalized later this year—if so then expect relations between the US and Vietnam to become even closer. [Update: as of February, 2015, the TPP has still not been finalized but the US has announced that it intends to be Vietnam’s number one trading partner after the TPP becomes finalized.]

Thanks to Louis Boulay, who contributed to this week’s post.

Sources:

Credit: Louis Boulay

Credit: Louis Boulay

Credit: Louis Boulay

Credit: Louis Boulay

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