Business in Vietnam as a Matter of Alignment
By Joyce Roque
HANOI, Nov. 17 –Vietnam Briefing spoke with Robert Hughes, a principal at Tonkin Capital and a consultant for T&C Holding JSC. Hughes has been in Asia for 18 years taking top corporate posts in Hong Kong, Taiwan, Shanghai, Bangkok, Ho Chi Minh City and Hanoi, the place he now calls home. He is also the former managing director of VietJetAir, the country’s first fully private airlines.
The T&C Holding JSC is a Vietnam-based conglomerate company with businesses in infrastructure project engineering and construction, logistics, warehousing and distribution of consumer products and investment market research and consulting. Hughes spoke to Vietnam Briefing about the ongoing challenges of doing business in the country based on his own experiences as a consultant for T&C Holdings JSC.
His first advice for investors wanting to enter the Vietnam market is to find good local partners. He says that a company must first align interests with the interests of the local partner. A local partner will know how to adjust to the subtleties of the local culture. One must learn to ask, does the local partner have all the needed legal documents?
A local partner must also have a good track record, Hughes adds. This shows that they understand the various challenges of doing business in the country. There should also be clarity in their financial dealings. Law firms in Vietnam will be able to help conduct due diligence to determine if a potential partner has a good reputation.
Hughes advises investors to be careful with your business dealings saying that if an opportunity is good it will still be there. He says that depending on the industry sometimes it’s easy to come in as a wholly owned business sometimes it’s not. Certain sensitive industries where the government wants to maintain control like telecommunications, aviation and mining sectors are still closed.
Vietnam versus China
It’s a cliché that rings true about how often Vietnam’s economic growth is compared to China’s path. Hughes acknowledges the similarities. Compared to China, Vietnam would only begin its own economic reforms after decades of political upheaval in what would be termed as doi moi or renovation in 1986; nine years after Deng Xiaoping instituted China’s own socialist-oriented reforms.
Vietnam therefore would naturally look to its huge neighbor as a model for its own policies given that its own development is at earlier stages. Hughes says just as in China, in Vietnam national interests always comes first before business interest so what you can do is align your interest with the government’s.
Nguyen Nguyen Dzung, an official from Vietnam’s Foreign Investment Agency, told Vietnam Briefing that there are a lot of opportunities to invest in the country. An investor must know the Vietnam market and more importantly follow the rules. He says that sometimes investors come in not knowing the regulations that govern FDI.
Hughes says that an investor may choose Vietnam over China because labor is still cost effective with a well-educated workforce in place. The workforce has an abundant supply of new graduates from local universities taking up jobs. He also points out that one advantage that Vietnam has over China is its membership to the Association of Southeast Asian Nations bloc. Once trade tariffs and barriers go down in the region, Vietnam will be able to access the ASEAN market better than China.
Giovanni Ronchi, the director of GT Line srl in Vietnam also echoed the same sentiments in an emailed response to questions. He says that labor cost in Vietnam is more affordable than China. His company ended up choosing Vietnam because the country is willing to support smaller investments and at the moment his company is not willing to risk such a huge investment.
GT Line srl is an Italian company specializing in technical cases and is considered a European leader in the field. Ronchi replied that the company was able to find reliable suppliers in local market as well as support from government organizations to manage Vietnamese import and tax procedures. Currently, Ronchi is busy with setting up a company owned factory in Vung Tau Province located at the south of Vietnam.
The financial crisis
Even with the financial crisis slowing markets globally, Vietnam has been able to weather the crisis better than most. Nguyen says that in his opinion the country’s US$8 billion stimulus plan has done its job by helping companies and individuals overcome difficulties. The government is aiming for a 5.2 percent GDP growth rate for the year and a GDP target of 6.5 percent for next year.
If anything the financial crisis has encouraged more regional money to find its way to Vietnam. The country’s top foreign investors come from Japan, South Korea, Hong Kong, the Virgin Islands and Taiwan, where their own slowing economies have led them to seek the high growth markets of Vietnam and China. The Vietnamese market has yet to realize its full potential because of pent up demand domestically.
Hughes explains that since Vietnamese culture is based on Confucianism it is more comfortable to Asian investors. Asian investors tend to rely on relationships rather than due diligence when conducting business unlike the West.
The government needs foreign investment to come in to realize its plan to develop the economy. This will not happen overnight and a potential investor is advised to look at investing in the country for the long-term. Hughes says that people lose track of how long something takes to grow taking into account various aspects like GDP and population growth.
Ronchi writes that they believe that in the near future Vietnam will be able to get more investors as its economy, even with the crisis, slowly expands.
He says they are convinced that economic recover has already begun although it is slow.
Success in Vietnam
Since the country shares a similar political and economic structure with China it is considered easier for a potential investor to anticipate Vietnamese market needs. An investor will be able to guess where the economy might be heading based roughly on the China model. Hughes says that in the end success in Vietnam is the same as success in China – one will need patience and hard work.