The Power of the Private Sector
Vietnam and the United States normalized diplomatic relations, and the United States lifted its trade embargo on Vietnam, less than 20 years ago. As recently as 2006, the United States labeled Vietnam a “country of concern” and Vietnam had laws that treated foreign investments differently from those of domestic investments. It’s only been 6 years since Vietnam acceded to the World Trade Organization. Yet, despite all of that, I’m sitting here in Saigon writing this blog in a mall area that includes Polo Ralph Lauren, Kentucky Fried Chicken and Pizza Hut. American companies are major forces in Vietnam's fish food industry (and raising fish is one of the largest businesses in Vietnam), the drinks market (Coke and Pepsi are everywhere) and hi-tech manufacturing (Intel has major manufacturing operations here among others). Citibank ATMs are among the most common, and the entire Southern part of Saigon was conceived and constructed by a foreign company. So how has Vietnam come so far in attracting Foreign Direct Investment (FDI)?
I had expected to be writing an entry similar to my Singapore entries about how the government operates in attracting FDI, including hopefully some great ideas we could utilize in attracting investment to the Philadelphia area. The reality, however, is that Vietnam’s government is appropriately focused on the basics, like improving their legal system, building infrastructure and educating the citizenry. One official with whom I met told me proudly how the average income per person in Vietnam is now nearly US $1,600 (although my research indicates it’s closer to USD $2,200). I’m sure the Americans reading this blog cannot imagine living on that kind of wage, yet here it is a symbol of pride and evidence of how far they have come. So with such critical needs, one can understand how Vietnam’s governmental FDI efforts are not what I experienced in Singapore, however, Vietnam has still experienced phenomenal FDI growth.
There are absolutely some fundamental economic factors that caused Vietnam's FDI growth – the opening of Vietnam to trade and the release of pent-up demand, the fact that they started so far behind meant even small increases were large percentage increases, the fact that they have one of the world’s largest populations under the age of 40, and that it’s a very low labor cost jurisdiction. – but that would be too dismissive of the complete picture of what occurred in Vietnam. When one looks closer and talks to government officials and companies that have entered the market, a key additional factor starts to emerge -- the private sector was a driving force in Vietnam’s development.
It was a Taiwanese company that first approached Vietnam nearly 20 years ago to discuss creating a new part of the city of Saigon that utilized urban planning techniques to alleviate some of the challenges in this highly populated city with, at the time, little major business. It was this community (together with government tax breaks) that helped attract numerous companies to Vietnam. So while this one foreign investment started a movement, the movement also fed upon itselt. This developer in south Saigon talked about how they developed an area intending that foreigners would move in because of the style of housing and amenities. While that happened, she also explained that a big surprise was how one Korean company would move in to the area, and then another, and all the Koreans would want to live in the same area, and then restaurants from Korea opened in the area, and so they created a Korean school and then more Korean companies moved in etc. That may sound like a nice little story, but in fact this didn’t happen once but multiple times among many nationalities. In that same area, there is now a Korean School, a Taiwanese School, a Japanese School, an American School including also a European International Baccalaureate program. I also heard from multiple individuals that because of the good experience of X company, they decided to try the market. Ultimately, however, no company with whom I spoke credited the government or any particular program. Each independently chose Vietnam for other reasons, but also in each case, the fact that other companies reported positive experiences was a key reason to choose Vietnam. Moreover, this experience cut both ways. One person I met pointed out that you do not see many Indian companies in Vietnam. He explained that this was because allegedly Tata had a very bad experience in Vietnam, and therefore other Indian companies were loathe to enter the market. Thus, the power of reputation and experience, not government assistance, seems to have proven a powerful driver in the case of Vietnam.
The private sector also seems to have been (and continues to be the) driving force behind reforms to Vietnam’s legal system that many individuals pointed out have been key to increasing foreign direct investment. These would include things like the need to crack down on corruption, improve intellectual property protection etc. One former government official in charge of attracting FDI pointed out how Vietnam says the right things and seems to be succeeding at attracting FDI, but that the central government actually has no clear policy to attract FDI. In his words, “[i]f it’s so important, show us the policy and efforts that sit behind trying to attract FDI – there are none.” So he, and others in the private sector, continue to push for the types of reforms that at the end of the day result in a promoting FDI, even if not the result of a specific policy. One company representative I met even criticized the few trade promotion materials the government does have – saying they were too wordy and not helpful. At the end of the day, he felt the government spends too much time building buildings and not enough time building roads or doing things that would help attract foreign investment. He also makes this point to the governement, and again, is another attempt by the private sector to influence the government to act in ways that promote FDI.
So how is FDI promotion happening in Vietnam? It is happening somewhat by the Federal government, but perhaps even more so at the provincial level with provinces engaging in their own activities and even independent trade missions to try and attract investment. The most concrete examples I received, however, were from the private sector. I met a large investment fund that regularly goes to the U.S. to find investors willing to invest in Vietnam. I met with major global companies that tout the benefits of being in Vietnam both as a site for production but also as a major market in which to sell goods. I met multiple lawyers, and in fact was concerned I was meeting too many. In fact, I learned that lawyers in Vietnam are often the first stop for foreign companies considering entering the country. They are an integral part in helping these companies enter the market, but also in pushing for changes in the law to promote FDI. They are also adept at helping foreign companies obtain licenses without having to make corrupt payments. It is these lawyers who pushed for WTO accession and now hopefully participation in the Trans-Pacific Partnership. It is also these lawyers who have been pushing for enforcement of Vietnam’s international treaty obligations and seeking higher standards for intellectual property protection. In addition to businesses and the legal profession, there are also quasi governmental non-profit organizations like the Vietnam Chamber of Commerce and the Vietnamese Business Forum that push for change. Perhaps the most illustrative example of the changes occurring in government due to the force of the private sector is that the National Assembly now includes members of the business community who are not members of the Communist Party and yet who were elected over their Communist Party competition. Ten years ago this would have been unthinkable. So as I reflect on my time in Vietnam, I am not disappointed in what the government has done to attract FDI, but am instead impressed with what the private sector has accomplished. The power of the private sector is alive and well in the Socialist Republic of Vietnam, and if it can thrive and impact society here, imagine what it can do in a democratic republic.
Next stop, Brazil in July...
Vietnam and the United States normalized diplomatic relations, and the United States lifted its trade embargo on Vietnam, less than 20 years ago. As recently as 2006, the United States labeled Vietnam a “country of concern” and Vietnam had laws that treated foreign investments differently from those of domestic investments. It’s only been 6 years since Vietnam acceded to the World Trade Organization. Yet, despite all of that, I’m sitting here in Saigon writing this blog in a mall area that includes Polo Ralph Lauren, Kentucky Fried Chicken and Pizza Hut. American companies are major forces in Vietnam's fish food industry (and raising fish is one of the largest businesses in Vietnam), the drinks market (Coke and Pepsi are everywhere) and hi-tech manufacturing (Intel has major manufacturing operations here among others). Citibank ATMs are among the most common, and the entire Southern part of Saigon was conceived and constructed by a foreign company. So how has Vietnam come so far in attracting Foreign Direct Investment (FDI)?
I had expected to be writing an entry similar to my Singapore entries about how the government operates in attracting FDI, including hopefully some great ideas we could utilize in attracting investment to the Philadelphia area. The reality, however, is that Vietnam’s government is appropriately focused on the basics, like improving their legal system, building infrastructure and educating the citizenry. One official with whom I met told me proudly how the average income per person in Vietnam is now nearly US $1,600 (although my research indicates it’s closer to USD $2,200). I’m sure the Americans reading this blog cannot imagine living on that kind of wage, yet here it is a symbol of pride and evidence of how far they have come. So with such critical needs, one can understand how Vietnam’s governmental FDI efforts are not what I experienced in Singapore, however, Vietnam has still experienced phenomenal FDI growth.
There are absolutely some fundamental economic factors that caused Vietnam's FDI growth – the opening of Vietnam to trade and the release of pent-up demand, the fact that they started so far behind meant even small increases were large percentage increases, the fact that they have one of the world’s largest populations under the age of 40, and that it’s a very low labor cost jurisdiction. – but that would be too dismissive of the complete picture of what occurred in Vietnam. When one looks closer and talks to government officials and companies that have entered the market, a key additional factor starts to emerge -- the private sector was a driving force in Vietnam’s development.
It was a Taiwanese company that first approached Vietnam nearly 20 years ago to discuss creating a new part of the city of Saigon that utilized urban planning techniques to alleviate some of the challenges in this highly populated city with, at the time, little major business. It was this community (together with government tax breaks) that helped attract numerous companies to Vietnam. So while this one foreign investment started a movement, the movement also fed upon itselt. This developer in south Saigon talked about how they developed an area intending that foreigners would move in because of the style of housing and amenities. While that happened, she also explained that a big surprise was how one Korean company would move in to the area, and then another, and all the Koreans would want to live in the same area, and then restaurants from Korea opened in the area, and so they created a Korean school and then more Korean companies moved in etc. That may sound like a nice little story, but in fact this didn’t happen once but multiple times among many nationalities. In that same area, there is now a Korean School, a Taiwanese School, a Japanese School, an American School including also a European International Baccalaureate program. I also heard from multiple individuals that because of the good experience of X company, they decided to try the market. Ultimately, however, no company with whom I spoke credited the government or any particular program. Each independently chose Vietnam for other reasons, but also in each case, the fact that other companies reported positive experiences was a key reason to choose Vietnam. Moreover, this experience cut both ways. One person I met pointed out that you do not see many Indian companies in Vietnam. He explained that this was because allegedly Tata had a very bad experience in Vietnam, and therefore other Indian companies were loathe to enter the market. Thus, the power of reputation and experience, not government assistance, seems to have proven a powerful driver in the case of Vietnam.
The private sector also seems to have been (and continues to be the) driving force behind reforms to Vietnam’s legal system that many individuals pointed out have been key to increasing foreign direct investment. These would include things like the need to crack down on corruption, improve intellectual property protection etc. One former government official in charge of attracting FDI pointed out how Vietnam says the right things and seems to be succeeding at attracting FDI, but that the central government actually has no clear policy to attract FDI. In his words, “[i]f it’s so important, show us the policy and efforts that sit behind trying to attract FDI – there are none.” So he, and others in the private sector, continue to push for the types of reforms that at the end of the day result in a promoting FDI, even if not the result of a specific policy. One company representative I met even criticized the few trade promotion materials the government does have – saying they were too wordy and not helpful. At the end of the day, he felt the government spends too much time building buildings and not enough time building roads or doing things that would help attract foreign investment. He also makes this point to the governement, and again, is another attempt by the private sector to influence the government to act in ways that promote FDI.
So how is FDI promotion happening in Vietnam? It is happening somewhat by the Federal government, but perhaps even more so at the provincial level with provinces engaging in their own activities and even independent trade missions to try and attract investment. The most concrete examples I received, however, were from the private sector. I met a large investment fund that regularly goes to the U.S. to find investors willing to invest in Vietnam. I met with major global companies that tout the benefits of being in Vietnam both as a site for production but also as a major market in which to sell goods. I met multiple lawyers, and in fact was concerned I was meeting too many. In fact, I learned that lawyers in Vietnam are often the first stop for foreign companies considering entering the country. They are an integral part in helping these companies enter the market, but also in pushing for changes in the law to promote FDI. They are also adept at helping foreign companies obtain licenses without having to make corrupt payments. It is these lawyers who pushed for WTO accession and now hopefully participation in the Trans-Pacific Partnership. It is also these lawyers who have been pushing for enforcement of Vietnam’s international treaty obligations and seeking higher standards for intellectual property protection. In addition to businesses and the legal profession, there are also quasi governmental non-profit organizations like the Vietnam Chamber of Commerce and the Vietnamese Business Forum that push for change. Perhaps the most illustrative example of the changes occurring in government due to the force of the private sector is that the National Assembly now includes members of the business community who are not members of the Communist Party and yet who were elected over their Communist Party competition. Ten years ago this would have been unthinkable. So as I reflect on my time in Vietnam, I am not disappointed in what the government has done to attract FDI, but am instead impressed with what the private sector has accomplished. The power of the private sector is alive and well in the Socialist Republic of Vietnam, and if it can thrive and impact society here, imagine what it can do in a democratic republic.
Next stop, Brazil in July...
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