Vietnam and Its Future Prospects

Throughout its history Vietnam has been no stranger to key political and world changing events. I’m sure everyone is aware of the Vietnam War because of the United States involvement in the conflict, but there are so many other factors to the war and to Vietnam as a whole which shaped Vietnam into the country it is today.

Vietnam was originally under the rule of the French until 1940 when France lost control of Vietnam to Japan in the beginning of World War II. In retaliation to this Japanese invasion the Indochinese Communist Party which was founded by Ho Chi Minh in 1930 seized power through guerrilla military tactics. After seizing power Ho Chi Minh announced the country’s independence. French forces then attacked Viet Minh in Haiphong which led to a war between the self-proclaimed independent country and the colonial power. Following this war which was won by the Indochinese Communist Party, the Democratic Republic of Vietnam was recognized by both China and the USSR, but then split into North and South at the Geneva conference in 1954. Within the year 1957 communist insurgents from the predominately North Vietnam began to insert themselves within South Vietnam with weapons. In 1963, the final step before the United States entered the war took place. The communist guerrillas operating in South Vietnam, better known as the Viet Cong, defeated units of the South Vietnamese Army. The United States then alleged that North Vietnamese boats fired upon two United States destroyers, which in turn allowed US Congress to approve the Gulf of Tonkin Resolution which authorized military action in the region. This number of US troops eventually ballooned up to 500,000 in 1966. Ho Chi Minh’s death in 1969 combined with the decreasing public support of the war began to end the war in Vietnam. In 1973 a ceasefire agreement was come to in Paris and all US troops were pulled out in March. With no US troops backing South Vietnam, North troops invaded in 1975 and took control of the whole country. The new Socialist Republic of Vietnam then invaded Cambodia in 1979, with resistance coming from the north from China. Eventually, in 1989 Vietnamese troops pulled out of Cambodia and a new constitution was adopted allowing for more economic freedoms for the people even though Communism was still the leading part in Vietnam. Communism continues to be the political party within Vietnam. Even though they have become more lenient over the years with certain political aspects, they still own a majority of businesses in the country and the political party chosen continues to hurt world trade.

After this long period of war came a long period of reconciliation with other countries affected by the war and a period where Vietnam struggled to put together a stable economy and political spectrum. This period began with the United States and Vietnam restoring diplomatic relations in 1995 and their membership into the Association of Southeast Asian Nations (ASEAN). In 2001 the US and Vietnam implemented a trade agreement to normalize the trade between countries after the Communist Party chooses Nong Duc Manh as the new leader. 2007 brought a great success to Vietnam when they became the 150th member of the World Trade Organization. The following year China and Vietnam resolved the border dispute which had been a topic of conversation for nearly 30 years. The years following the war brought economic stagnation which changed in 2013 when the economy grew by 5.14% in the first three quarters of the year which helped to normalize the economy.

The instability within Vietnam’s economy and political spectrum has no doubt affected its power in world circles. As a result of the war, many trade partners were unwilling to trade with Vietnam. As of the past twenty years through, this has begun to change. The United States was the big domino that fell as when the United States began trading with Vietnam again more and more countries began to trade with the Vietnamese as well and they were allowed into trade agreements with other countries that will be spoken about later. Stability is key for Vietnam and its future as the economy has always been a huge topic of conversation as it seems every time they gain some traction, the value of their currency slips again. It will be interesting to see how they fare in the future with so many new trade opportunities around them and ability to invest in their own people.

Context

Vietnam has one of the fastest growing economies in Southeast Asia, as their GDP per capita has increased 350% since 1991. Vietnam has blossomed into a hub for technological innovation and manufacturing. A key point to remember when conducting business in Vietnam is that Vietnam used to be a French colony. Even though the national language is Vietnamese, French is still commonly spoken within the country. The Vietnamese are very punctual and expect others to be punctual as well. When meeting and departing with a business partner handshakes are used and usually only take place between members of the same sex. Some individuals use a two-handed shake with the left hand on top of the right wrist and small gifts are also given, usually something with a company logo on it. Presenting and exchanging business cards is one of the most important rituals in the Vietnamese culture. When meeting with a business partner for the first time, business cards should be given to the oldest person in the room and looked over thoroughly. Dress code should be business for most occasions and make sure you let the eldest member of the group enter a room first. Relationships are stressed within the Vietnamese culture and you should do your best to build relationships with your business partners. Decisions are often made by either consensus or the senior most person in a room after lengthy discussion. Consensus is stressed greatly in Vietnam. If one person does not agree with what is going on within the business discussion, they have complete veto power.

In order to do business correctly in Vietnam there are many different business tips that should be followed to a tee. Always arrive to meetings on time, not early or late and never set up your presentation before arriving to the meeting location. Having tea before sitting down and conducting business is a common occurrence and many businesses bring tea as their gift given to the business partner. Usually, the first meeting face to face no business is conducted and it is strictly to get to know your business partner better from a relationship aspect. You are expected to talk about individual’s family life and personal life before discussing any business matter. Summoning individuals is also different than in the United States. Summoning someone with a curled index finger is only done by the boss. If you need someone’s attention extend your arm, palm down, and move your finger in a scratching motion. Also important is when speaking to someone either use their business title (which can be found on the business card) or their last name. Also, when a Vietnamese individual says “no problem” that usually means that they have a problem with what you are saying. You should double and triple check all commitments. In Vietnam almost all trade is done through cash. Because of the strict laws which are enacted throughout the country cash speeds up an already confusing legal process. Speaking of the legal process, you may need to go through the same procedure many times just to conduct business in the country legally. Within the major cities of Vietnam little sexual discrimination exists and women receive equal pay for work. However, women who go to Vietnam should not wear heavy makeup and dress conservative because women with lots of makeup on are viewed as prostitutes. Also, when dining with a man a woman should schedule it in a public place and should insist upon hosting the event. Following all of these tips and tricks should make for a successful business trip to Vietnam. Just remember that relationships are everything and try as hard as you can to build relationships outside of business.

Economic Performance

The Vietnamese dong arrived within the different parts of Vietnam at different points in history. The currency was first introduced by the government of North Vietnam in 1946, replacing the French Indochina. The dong was introduced to South Vietnam in 1953 but then subsequently replaced with the new dong after the fall of Saigon in 1975. Following the reunification of Vietnam on May 3rd 1978, the dong was also unified. The new dong was decided to equal 1 dong of North Vietnam and 0.80 dong of South Vietnam. In September of 1985, the currency was reevaluated to equal 10 old dongs. This reevaluation caused a cycle of inflation which continued into the mid-nineties. In 1978 when the dong was unified the first banknotes that were put into circulation were of 5 hao and 1, 5, 10, 20, and 50 dongs. 1980 brought two new banknotes which were 2 and 10 dongs, which was closely followed by 30 and 100 dongs in 1981. Currently in Vietnam there are banknotes of 100, 200, 500, 1,000, 2,000, 5,000, 10,000, 20,000, 50,000, 100,000, 200,000, and 500,000 Vietnamese dongs. Since 2003 a new series of currencies (coins) are minted in Finland for Vietnam. Before the minting of coins, citizens had to exchange banknotes into tokens to purchase products from a vending machine, sort of how you get tokens for arcade games in the United States.

The average inflation rate for the Vietnamese dong currently is 3.5%, which will go a long way in stabilizing a currency which has had inflation issues in the past. However, the Vietnamese dong is not a good investment in my opinion and not a valid option to trade on the open market. Even though the economy of Vietnam is projected to increase dramatically in the coming years to 21st nationally, there have been too many issues in the past which make the currency very volatile. Also, the gains you would receive from trading Vietnamese dongs are so miniscule they are not worth the fees you will most likely have to pay to trade the currency in the first place. The dong is not valued very well against the currencies of the world and did not even change value over the course of a week against most countries’ currencies.

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Within Vietnam the largest industry is the electronics industry. This industry accounts for 25 percent of Vietnam’s GDP by itself. The electronics business in Vietnam is dominated by foreign companies such as Samsung and Panasonic. However, even though these are foreign giants, the nation still reaps many benefits due to the employment of locals. Service and construction make up the bulk of the rest of Vietnam’s GDP with 39 percent and 38.2 percent respectively. Though these industries help GDP they are not directly responsible for exports for Vietnam. Vietnam is currently being hurt within world trade due to the U-S and Chinese trade war. China has devalued their products making them even cheaper within Vietnam. The government is currently trying to decide whether to devalue the dong against the US dollar to support exports and avoid more of these goods from flooding the market, or to keep the exchange rate the same to avoid inflation and increased public debt. The United States and China are Vietnam’s two most important trade partners. The United States is the larger of the two, accounting for 21.5 billion in exports during the first half of 2018. The exchange rates are ultimately hurting the Vietnamese industry and force them into a position where they either have to devalue the dong or see their countries economy falter.

Future

This SWOT analysis will dive into the different aspects of Vietnam’s economy and how they fit into the different areas of a SWOT analysis. This analysis will dive into the core economy as Vietnam as well as the different events that have affected Vietnam over the course of history and have shaped the country into what it is now.

The first aspect of a SWOT analysis is the strength section. The first strength that Vietnam has is the international trade and attractively of international trade to the country. Even though Vietnam is a communist government this government leans towards enhancing a market-oriented society. The strong commitment to the market society has allowed Vietnam to become a world leader in several agricultural areas such as rice, coffee, and rubber. Vietnam is also receiving large investments from electronics giants, most notably Samsung. The second strength that Vietnam has as an economy is the population as a whole. The population is a very driven people and are motived intrinsically to become entrepreneurs. These individuals are under 35 years of age as a majority and the Vietnamese government has directed large sums of money towards education and vocal training. We will no doubt see many important businessmen coming out of Vietnam in the near future. Another strength that Vietnam has going for it right now is the ability to be unaffected by the Chinese economic slowdown. Though China is one of the world powers economically and very close to Vietnam, there is no data to suggest that Vietnam’s economy will slow down due to the slowdown in China. As mentioned before Vietnam may be able to actually profit off of the economic issues going on with its neighbor. One of the last major strengths Vietnam has going for it economically right now is the ability to show strong and sustainable economic growth as well as improving external financial position. Over the past ten years Vietnam’s economy has been steadily growing and the investment from other companies within the country has gone well up to this point. If Vietnam continues to show economic growth and more companies see this growth, as well as scaling back their state-owned enterprises it should create a large potential for growth and for foreign and local companies to create profit while investing within Vietnam.

The second aspect of a SWOT analysis is the weakness portion. As a communist country Vietnam does have certain enterprises which are completely owned by the state. These state-owned enterprises make up 28.4 percent of capital while representing 0.5% of the total number of firms. These enterprises will need to be reformed as the country continues to grow economically. The second weakness within the Vietnamese economy is the lack of infrastructure within the country. Many individuals within Vietnam are in poverty and with so many changes to the economy since the Vietnam war it has been tough for the country to gain any traction when it comes to economy. The third weakness within Vietnam is the issue of geopolitical tensions. The communist party of Vietnam controls the political, economic, and social life within the country. Diplomatic relations over the past few years with China have worsened and this could have an effect on economic endeavors. For example, in July 2017, Vietnam began drilling in disputed water with a Spanish company and China warned they were ready to attack the facilities if not dismantled. The fourth weakness within Vietnam’s economic spectrum is that their budget deficit remained high in 2019. This is due to the state taking a 33% stake in profitable or strategic companies within the country. Almost all public debt has medium or long-term maturity as well. The final weakness within Vietnam I will speak on is the banking system being extremely fragile. This is due to the banks within Vietnam being severely undercapitalized and heavily dollarized.

The third section of this SWOT analysis will be speaking on the different opportunities within Vietnam. The first opportunity coming out of the Vietnamese economy is the ability to potentially benefit from a US-China trade war. Already GoerTek the manufacturer of Apple’s Airpods has moved production from China to Vietnam citing the trade war as the reason. Warren Buffett’s Brooks Running shoes is also looking to make the same move in the near future. This trade war could potentially bring big economic growth to Vietnam. Secondly, Vietnam is projected to remain the fastest – growing ASEAN economy in 2019. This is extremely important as many of the ASEAN economies have slowed of late but the economic outlook for Vietnam is still extremely positive. There is currently a 3.7 percent surplus of GDP within Vietnam for 2019 meaning that Vietnam takes in more money through international trade and investment that it sends abroad. The third reason Vietnam has growth opportunity is the outsourcing of different jobs in the electronics field. As mentioned before Samsung is a huge investor in the country and others are beginning to follow. Apple has begun to move production of different products into the country but the huge winner has been the IT outsourcing community. IT has become a huge influence within the country of Vietnam and has a lot of room for growth in the coming years. The fourth reason Vietnam has opportunities within the economy is the trade deals they have made and are continuing to make to this day. Through ASEAN, Vietnam has trade pacts with Australia, New Zealand, China, India, Japan, and South Korea. Vietnam also signed the Trans-Pacific Partnership as well as agreements with Russia and the EU. Investor optimism in Vietnam also jumped 6 percent between 2018 first and second quarters. This shows that the EU as well as a litany of other countries are confident in Vietnam’s future and are willing to bet on their future through agreements and pacts. The fifth and final opportunity I will speak about for Vietnam is with Vietnamese shoppers and the confidence of the consumers. Consumer confidence was higher in Vietnam than in Thailand, Malaysia and Singapore, market researcher Nielsen reported in March. As citizens’ incomes rise, their spending attracts brands in all manner of products. This will help to grow the Vietnamese economy from the inside out and hopefully create some sustainability within the countries’ economy.

The fourth and final section of this analysis deals with the threats to Vietnam currently and in the future. The first threat which looms over the country of Vietnam is the tensions between the United States and China. Even though I mentioned this as a current opportunity for Vietnam it could very easy materialize into a threat as well. An all-out trade war between these two superpowers could slow global trade and in turn slow Vietnam’s economy. The second threat over Vietnam’s economy is the low labor cost advantage, or more specifically other countries lower labor costs. Many of the foreign investments Vietnam has received over the years have to do with the low labor costs in the country and in turn how cheap it is to produce products within the country. China is dealing with the same issue right now and it is turning into business for Vietnam. When labor costs increase, which they will no doubt do in the near future especially with all the new businesses within the country some of these businesses will no doubt leave the country and move production facilities elsewhere. Thirdly according to the United Nations International Labor Organization, more than 56 percent of all employment in Vietnam, Cambodia, Indonesia, the Philippines, and Thailand are at high risk of displacement due to automation over the next decade or two. This is due to the low skill of the workforce within the country. Vietnam could use this as a way to justify putting more money into the education sector but no matter the way you look at it, Vietnam will be having to make huge investments in order to make its workforce more desirable. The fourth threat to Vietnam is deteriorating political standing with China. As I have mentioned over the past few years the political landscape between Vietnam and China has been in question and if China and Vietnam were to get into a trade war or war it would be devastating to Vietnam and their infrastructure. The fifth and final foreseeable threat to Vietnam is their economy as a whole collapsing again. Throughout history Vietnam has dealt with currency issues and being able to control inflation. This is a cycle which has continued for years and there is still not a great deal of certainty in Vietnam’s economy or the Vietnamese dong.

All of the four aspects of the SWOT analysis bring very interesting aspects to mind. Vietnam from the outside looks like a country whose worst days are behind them. However, with so much uncertainty within the countries’ economy they could easily fall back into their old ways of high inflation and political uncertainty. Another aspect which will be interesting to watch is the trade war between the United States and China. This could have a huge economic impact on Vietnam, either good or bad. Much attention will have to be spent about different developments between the US and China as well as what investments are being made inside Vietnam. Another aspect to watch will be the different agreements and pacts which were made with various countries. Obviously, their countries have confidence that Vietnam will be a viable trade partner for the future and it will be interesting to see if this pans out or if Vietnam falls back into the cycle of history.

Conclusion

It will be interesting to see if Vietnam is able to capitalize on the opportunities in front of them and if they will be able to fend off the threats which are overshadowing the country. I believe that the future outlook for the country is positive but everything hinges on whether the political landscape within the country stays good and they are able to continue to create relationships with other countries. Vietnam will also need to invest more in their people so they are set up for long term success not just short-term success with their people being taken advantage of by big international companies. If Vietnam is able to play their cards right, they could continue to grow as an economy and place themselves with the world’s elite economies while growing country infrastructure.