An Awakening Export Market

‘Good morning Vietnam’ is on the lips of Australian exporters as they wake up to new opportunities in this fast-growing economy Nukte Ogun reports

Vietnam’s transition from a centrally-planned to market-based economy has been anything but smooth. Modern day Vietnam still has numerous challenges to face. However, Australian exporters will find abundant prospects in this country, which is now a World Trade Organisation member and on target to doubling its GDP by 2010.

Active ImageIn an attempt to revitalise its economy—after the traumas of a devastating long period of war—the government put a privatisation program in place in 1985 and began revisiting investment laws. But it has taken just over a decade for the reforms to take off.

Since 2000, Vietnam has reached an average economic growth of 7.3 percent, making it the second fastest-growing economy in the world. Each year up to 250 Australian businesses sell $915 million worth of export goods to Vietnam. The primary exports are wheat, copper, aluminium, and non-monetary gold. But the growing middle class is also creating a demand for services and personal care items.

"More consumers in the middle class are becoming richer," says Patrick Stringer, Austrade’s Hanoi-based senior trade commissioner. Exporters should keep in mind that, unlike Australia, 60 percent of Vietnam’s 85 million population is under the age of 30. Young and affluent people, with no memory of the war, are becoming less price alert and more quality and brand conscious.

This generation is driving new consumerism at a time when the Vietnamese economy is improving. "They can’t afford houses and cars, but they can afford the smaller niceties in life–personal care items, mobile phones, PDAs, and good perfume," says Stringer. ‘Green’ baby care and dairy products are also currently in demand, especially healthy dairy beverages. "The Vietnamese are very health conscience and have a sweet tooth."

Exporters will find that, like Australians, the Vietnamese have a budding entrepreneurial spirit. "Australian businesses won’t be dealing with huge corporations, every day there are more and more small businesses in Vietnam. For an SME, business is now easier," says Stringer.

Growth & Risk

"The private sector has emerged as the driver of growth, largely as the result of an FDI (foreign direct investment) boom," says Ben Ford, senior economist at Export Finance and Insurance Corporation. "As the private sector has expanded, both domestic and foreign-invested firms have linked into global markets, and the country’s accession to the WTO in January will see its farms and firms open to competition and its legal system modernised."

The Socialist Republic of Vietnam is a one-party system, and while attempting to integrate with the international community is still reluctant to instigate broad political change and instead maintains political stability. According to Austrade, the Government will continue its gradual economic and regulatory reforms to state enterprise, banking, foreign trade, and public administration.

"In Vietnam market institutions and legal and regulatory frameworks, while in the process of being bolstered, are still relatively immature," says Ford. He identifies the chief export weaknesses as: the legal system, inadequate intellectual property protection, and corruption.

While corruption and the risk of non-payment have decreased, they are still considered unresolved problems. Exporters can reduce risk by only doing business after receiving a confirmed letter of credit (LoC). It is best to accept an LoC from a major bank, as those from smaller banks are not always kept. The process can be lengthy and Vietnamese importers will appreciate understanding.

Culture & Customs

Vietnamese importers place great importance on local customs and culture, and these will impact on business relationships. ‘Cold calling’ is not recommended, as it much easier to develop business relationships through either a friend or an official channel. "This is a relationship market, people only do business with people they know," says Stringer.

The Vietnamese enjoy doing business over dinner and drinks to create a close network between future business partners. Toasting at dinner and after-dinner events is also a regular occurrence. Common toasts are ‘tram phan tram’ (empty your glass 100 percent) and ‘chuc suc khoe’ (good health). Negotiations are lengthy and business decisions are not usually made during the first meeting, so sending a written proposal before the meeting will help if an instant reply is needed. Showing patience during negotiations is important. Emotional responses–common in the western tradition–are interpreted as weak and can result in a reluctance to agree.

During this process, the exchange of business cards is essential, and they should be received with both hands. Also, if your business card is in Vietnamese as well as English, it is good decorum to present the Vietnamese side facing up.

Most Vietnamese business contacts in foreign investment companies speak English, but this is not generally the case with government ministries and state-owned enterprises. Speaking slowly and concisely is a necessity as the Vietnamese often smile in agreement for the sake of being polite, even if they haven’t understood what you’ve said. If possible, correspondence to government ministries and departments should be written in Vietnamese.

Timely responses to faxes will show Vietnamese associates professionalism, commitment, and an interest in the market. Telephone charges and internet access are expensive, and so companies may wait for you to call them. Simple misunderstandings created by communication barriers can result in business deals falling through.

Australian exporters are expected to provide after-sales service support. They will, however, benefit from the privilege of an import tax tariff because of Australia’s Most Favoured Nation (MFN) standing with Vietnam. A 50 percent higher tax applies to businesses from non-MFN countries. While the Dong (VND) is Vietnam’s official currency, the US dollar and credit cards are accepted in most places.

Economic reforms are creating a secure place for the country within the international economy. With GDP at 8 percent and inflation at 6.5 percent, Vietnam’s record-breaking economic growth looks set to continue. "Vietnam is caught between two philosophies [communism and capitalism] and exporting to this market requires careful research, risk management, and good business relations," says Ford. "While it is an attractive export destination, it is a challenging business environment."

  

FACT FILE

Population: 84.4 million (2006).

Official language: Vietnamese.

Government: Communist state

Australian exports to Vietnam (2005-06): $1.586 million (key sectors: non-monetary gold, copper, aluminium, wheat).

Key growth sectors: personal care items, baby care and dairy products.

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