Business Beyond the Reef

Saigon has grown up (photo: Hanukikanker)

I’ll never forget my first impression of Hanoi: “This is like Taiwan, but thirty years earlier!” So much has changed since then – and so much has stayed the same. You see, my first visit to Hanoi was in 1995. President Clinton had ended the U.S. trade embargo on Vietnam, and I was dispatched by the Commerce Department to look into how the U.S. Commercial Service could start work in the market before we even had an embassy. I checked out office space in Hanoi, visited Saigon and Vungtau, and was the first American diplomat to meet with Vietnam’s economic and industrial ministries. (Scott Marciel was with me. He’s now the American ambassador in Indonesia.) I found a Vietnam that had moved on from our war, that revered the quality of American products, and that wanted American investment – but only wanted one of everything. Most of that still holds true.

We had a workshop recently in Honolulu that explored getting into the Vietnamese market in advance of next month’s APEC summit in Hawaii. Our speakers were videoconferenced in from Ho Chi Minh City (HCMC or, as the locals still call it, Saigon): Jim Mayfield, principal commercial officer at the American consulate, and David Day, a Honolulu lawyer on business in Vietnam. Jim did most of the presentation, with David providing color commentary. They painted a picture of a market with strong possibilities, but with some daunting challenges as well.

The challenges are familiar. Inflation is running at 20% a year. Physical infrastructure is a problem. While there are shuttle flights between HCMC and Hanoi, getting to second and third-tier cities, or into the countryside, can be a considerable issue. The education system has trouble keeping up with the demand for capable workers. A general lack of transparency and a profusion of red tape go hand-in-hand with rampant petty corruption. The legal system is still new and developing (David commented that contracts in Vietnam should only be considered a guideline for behavior, not the controlling documents that Americans are used to).

Getting paid is likely the single biggest issue for companies that simply want to sell to Vietnamese importers. Be cautious and check out the people you are thinking about doing business with. It is common for U.S. (and other) companies to begin by demanding cash-in-advance before shipping anything, gradually loosening their terms as relationships develop and confidence is gained. remember that Vietnam is largely a cash-driven economy, with perhaps only 20% of the people or their companies making use of banks. Your initial payments are likely to be by wire transfer.

All that said, Vietnam can be a delightful place to do business. There is a lot of good will for the United States and an enthusiasm for American products. Yeah, I know we fought a war with them, but that is ancient history. Seventy percent of the population was born after 1975 and they get taught about more recent wars with China and Cambodia. If anybody in Hanoi thinks about our war, they just assume that those silly Americans were duped by nefarious southerners. I have met American vets who have gone into business with Vietnamese partners after discovering that they had fought in opposing units in the Central Highlands. They bonded because they knew the conditions that the other had survived.

Per capita income is rising. While about US$1160 for the country as a whole, income in Hanoi is now about $2000 and zooms up to $2800 in Ho Chi Minh City. This will continue to rise and 40-50% of the population will be urban by 2020, so the consumer market is going to grow profoundly.

Some of the opportunities for U.S. companies are founded on Vietnam’s current infrastructure deficiencies. We can expect continuing opportunities for architectural and engineering services, urban planners, and for companies in energy projects and water resource management.

There are huge opportunities in education and training services. Vietnam is already the 9th largest source of foreign students coming to the United States, more than 13,000 students last year. They are especially attracted to 2-year college programs at which they can improve their command of English before moving on to a full university or grad school. And on-the-spot training in Vietnam is taking off, with U.S. companies and colleges offering training in business, management, information technology, engineering and for the hospitality industry. The University of Hawaii, by the way, is the only accredited U.S. MBA program presently in Vietnam.

Jim Mayfield sees room for U.S. retailers and franchises in Vietnam. Saigon has a newly opened Gap store, in addition to Carl’s Jr. outlets and a Hard Rock Cafe, but still no McDonalds or Starbucks. Most U.S. brands simply are not there yet.

The entire hospitality industry is open, not just training for the local industry. American companies are investing (I know of Hawaii investors busy at China Beach), but U.S. style marketing and amenities are needed if Vietnam is to attract foreign tourists in great numbers. Jim specifically mentioned opportunities for golf course developers.

I asked about Hawaii as a brand in Vietnam. Both Jim and David responded that, while Vietnamese are aware of Hawaii, it is not necessarily thought of as part of the United States and definitely needs work as a brand to help with marketing. It is more important to be seen as American in this market.

We are paying extra attention to APEC this year in Honolulu, only natural since Hawaii plays host this November to the APEC leaders’ meeting with its thousands of attendant hangers-on from governments and private sector around the Pacific. This means that local companies are starting to think about how to do business in the APEC markets. But they almost always go about it the wrong way.

What’s the right way for small companies to do it, you ask? Look for the simplest and easiest markets in which to do business. Generally, that means starting out in your home market, the one you are most likely to fully understand and be comfortable with. Then move on to others that are easy to enter, gradually building up to the hard cases. Think about it – in anything else you might do, do you start out with the hardest opponent, going into the most inhospitable environment? No, you start training easily, gradually moving to tougher opposition until you can handle the very toughest.

But that is not how Hawaii’s companies tend to go about it. True, they begin with the Hawaii market and then move on to the U.S. mainland. But then they want to tackle China because China is in the headlines and thus is sexy. They used to want to go to Japan for the same reason. And most get their heads handed to them. There is a better way.

Let’s look at the APEC markets to see where it is easiest to move your product. Notice that I did not say the easiest places to sell your product, though they often go hand in hand – but the easiest markets to physically get your products in to.

The World Bank has already done the heavy lifting for you with its series of “Doing Business” publications – one of the newest of which is Doing Business in APEC 2011. The report looks at all sorts of factors in the ease of doing business in particular markets, but what catches my eye is the small section on the ease of trading across borders. It assesses how easy it is to move product into or out of a market, focusing on the red tape – numbers of documents to file, the number of days it takes to get it all done, and the cost per container of moving your goods in and out. The practical stuff that can make business profitable – or a pain in the okole (that’s a Hawaiian anatomy term). The World Bank ranks countries on the number of required documents (bank or customs clearance, port or warehousing, transport documents), the time it takes to move goods (documentation, customs clearance, inland transport and port/terminal handling), and the cost of all this per 20′ container. They don’t include ocean or air transport, or bribes. Both can be significant – and the latter is hard to measure.

data source: World Bank, 2011

What does this tell us? It can help you begin to narrow things down and decide to hold off on certain markets while you go after easier prey first. I have marked the easiest in each category with green, and the hardest with red, but that leaves the rest as a judgement call. It is pretty clear that you might want to try other APEC markets before you get your heart set on Russia. It is equally clear that Singapore and Hong Kong look pretty easy to enter. China? Documents and cost aren’t bad, but that’s an awful long time sitting on the dock waiting for clearance. And the United States? We’re fast, don’t require too many documents, but, lordy, are we expensive.

Things you might find interesting, but I haven’t had the time or inclination to blog about:

• Anything involving counterfeiting, fraud, or commercial piracy gets me excited, so you can imagine my reaction to Monday’s reports of massive piracy of the hit film “Avatar“.  According to the London Times, Avatar set a new record for number of pirated copies in its initial days of release: 980,000 illegal copies in the first five days – half a million in the first two days!  The studio expected nothing like this, having convinced themselves that nobody would pirate a 3D film since they couldn’t copy it in 3D.  Wrong.  And it will get worse when Avatar comes out on DVD.
• I’m glad their sales grew somewhere.  General Motors said Monday that its sales in China grew 67% in 2009 over 2008. I assumed this was from very low volume, but was blown away when I saw that GM sold 1.8 million vehicles in China last year.  Good on you, Detroit!

• The Huffington Post carried an outstanding article January 5 by Michael T. Klare of Hampshire College, entitled “The Blowback Effect: 2020″, which examines likely trends over the next decade.  While I may not concur with all the details, Klare’s trends are spot on and should be the basis for many an international business plan in the next ten years.  Klare discusses the rise of China, the relative (but only relative) decline of the United States, the continued emergence of developing countries, and climate issues.  Well worth a read.

• Another good read is an article at Asia Times by Brantley Womack of the University of Virginia.  Womack examines the good and the bad of the new China-ASEAN free trade agreement, with some especially interesting analysis of potential issues between China and Vietnam.  Look for “China-ASEAN Pact Offers More Than Win-Win.”

• U.S. software firm Cybersitter, known for its award-winning parental filtering software, has filed suit in California against the government of China and two Chinese software firms for stealing code to block access to “politically undesirable” websites by Chinese Internet users.  The suit alleges that more than 3000 lines of code were copied into China’s control software, Green Dam.  Cybersitter says that more than 56 million copies of the pirated software were distributed after China required that Green Dam be bundled with new computers sold in China.  See the full story in the New York Times.
• International Living has issued its 2010 Quality of Life Index of the best places to live, ranking a whopping 194 countries.  The top five are France, Australia, Switzerland, Germany and New Zealand.  The United States did well, coming in with a tie for 6th with Luxembourg and Belgium.  Then there is the other end of the scale.  The bottom five, predictably, are Somalia, Yemen, Sudan, Chad and Afghanistan.
• It finally happened, but don’t get excited yet.  China is now the world’s largest exporter – at least for the first 11 months of 2009.  China sold $1.07 trillion during the period, while the long time title holder Germany slipped to second with a mere $1.05 trillion.  Germany’s exports were picking up toward the end, so adding December may reverse China’s title hopes.