V I E T NA M
HISTORY & COUNTRY TRAITS
The history of Vietnam can be traced back 4000 years. Their society was one of the first in the world to practice agriculture. People in North Vietnam began growing rice in the Red River Valley. Around 2 B.C. China conquered northern Vietnam and ruled for over 1,000 years. There was an Indian influence in southern Vietnam. In the late 19th century, Vietnam became a French colony. In 1959, the north started a long guerrilla war to reunite Vietnam under Communist rule, gradually involving the US. The Vietnamese economy started to boom after 1986 due to new market reforms and is continuing to grow to this day. LOCATION: Vietnam is located on the South China Sea coast of the Indo-Chinese peninsula. The country follows the coast for more than 2,000km from the Chinese border in the north to the far south where it joins Cambodia on the Gulf of Thailand. There is also a western border with Laos. CAPITAL: Hanoi SIZE: 331,210 km, POPULATION: 94,348,835
RULING PARTY: Communist Party of Vietnam (CPV) HEAD OF STATE: Tran Dai Quang HEAD OF GOVERNMENT: Nguyen Xuan Phuc LANGUAGE: Vietnamese (official), English (increasingly favored as second language) RELIGION: Buddhist 9.3%, Catholic 6.7%, Hoa Hao 1.5%, Cao Dai 1.1%, Protestant 0.5%, Muslim 0.1%, None 80.8% ETHNIC COMPOSITION: Kinh (Viet) 85.7%, Tay 1.9%, Thai 1.8%, Muong 1.5%, Khmer 1.5%, Mong 1.2%, Nung 1.1%, Others 5.3% TOTAL POPULATION THAT HAVE RECEIVED EDUCATION: 94.5% Male: 96.3%, Female: 92.8% EDUCATION EXPENDITURES: 6.3% of GDP GENDER BREAKDOWNS: 0-14 Years: 24.1% (Male 11,948,130/Female 10,786,381) 15-24 Years: 17.22% (Male 8,411,108/Female 7,833,327) 25-54 Years: 45.05% (Male 21,358,647/Female 21,145,416) 55-64 Years: 7.81% (Male 3,376,706/Female 3,995,035) 65 Years or Over: 5.82% (Male 2,115,057/Female 3,379,028) MEDIAN AGE: 29.6 Male: 28.5, Female: 30.7 CURRENCY: New DÔng
NATIONAL HOLIDAYS New Years Day: January 1 Tit Eve: February 6 and 7 Tit Nguyen Dan: February 8 Kings Commemoration Day: April 28 International Labor Day: May 1 Independence Day: September 2
Foreign trade has become the main driver of economic growth. In 2015, exports accounted for 83.8% of GDP, up from 63.2% in 2008. Exports (in dollars) grew by 7.9% in 2015 and growth of 8.7% is predicted for 2016. The central bank devalued the dong three times in 2015 in an effort to support its export sector.
IMPORTS: $150.4 BILLION A YEAR
EXPORTS $158.7 BILLION A YEAR
Apparel Industry Materials Machinery and Equipment Petroleum Products Steel Products Automobiles Electronics Plastics
Machinery & Electrical Equipment: 32.2%
IMPORT PARTNERS: China 30.4% South Korea 15% Japan 8.9% Thailand 4.9% Singapore 4.7% US 4.4%
Textiles: 16.2% Coffee Cashew Pepper Rubber Robusta Rice
EXPORT PARTNERS: US: 21.3% EU: 18.6% China 13%
Major Export Destination Exports (fob) to Asia-Pacific Exports (fob) to North America Exports (fob) to Europe
2015 Share Major Import Sources % 44.4 Imports (cif) from Asai-Pacific 23.2 Imports (cif) from Europe 21.7
Exports (fob) to Africa & the Middle East Exports (fob) to Australia
4.6
Exports (fob) to Latin America
2.2
2.3
Imports (cif) from Other Countries Imports (cif) from North America Imports (cif) from Latin America Imports (cif) from Africa & the Middle East
APPAREL & TEXTILES HIGHEST EXPORTS: Active Wear Woven Knits Cotton Yarn Fabic
2015 Share % 78.2 6.0 5.5 3.9 2.5 2.4
Economic Overview Industrial Production Growth Rate: 7.5% Labor Force: 54.93 million Agriculture: employs 56.6% of workforce Manufacturing: employs 12.2% of workforce Services: 38.7% of GDP Unemployment Rate: 2.1% (2015) Budget Deficit: 6.5% of GDP (2015) Budget Revenue: $39.63 Billion Inflation Rate: 0.6% (2015) Currency Exchange Rate: Dong (VND) per US Dollar -21,928
SOCIO ECONOMIC STABILITY FACTORS Poverty areas still need attention Vulnerable to climate change and natural disasters Vietnam has made progress in improving macroeconomic fundamentals, more time is needed to solidify gains and further structural reforms Benefits from global integration are constrained by the absence of linkages with domestic firms Vietnam’s 2011 – 2020 Socio-Economic Development Strategy (SEDS) gives attention to structural reforms, environmental sustainability, social equity and emerging issues of macroeconomic stability
Vietnam and its Relationship to the US and Other Countries The US is keen to enhance ties with Vietnam towards strategic partnership, and will to continue step up cooperation in trade, investment, science-technology, education and training, as well as working closely with Vietnam at multilateral, regional forums, including ASEAN, the Asia-Pacific Economic Cooperation (APEC) and the East Asia Summit (EAS).
Issues of Social Unrest Cambodia accuses Vietnam of a wide variety of illicit cross-border activities An estimated 300,000 Vietnamese refugees in China Establishment of a maritime boundary with Cambodia is hampered by unresolved dispute over the sovereignty of offshore islands Vietnam continues to expand construction of facilities in the spratly islands Vietnam’s stateless ethnic Chinese Minor producer of opium poppy Probable minor transit point for Southeast Asian heroin Government continues to face domestic opium/heroin/methamphetamine addiction problems Enforces the death penalty for drug trafficking
POLITICAL STABILITY FACTORS Stability of US Relationship
The economic ties between the two nations will be strengthened if the proposed Trans-Pacific Partnership, a free trade deal between Pacific Rim countries, is signed and finalized. Increasing strained relations with China are pushing Vietnam to pursue stronger relations with the US and agreements like these consolidate security prospects for Vietnam. The only source of bilateral tension between them is likely to be the US’ concerns over the status of human rights and religious freedom in Vietnam.
Vietnam has experienced outbreaks of SARS and the avian flu in recent years. The dangers of a reoccurrence are great and the economic fallout could be sizeable. The banking system is burdened with an uncomfortable amount of bad debt. The number of households in poverty varies across the country. The poorest regions continue to be the Northwest (16.4% poor), the Central Highlands (13.6%), and the Northern Central Coast (12.7%). Ethnic minorities generally have a high incidence of poverty.
Future Government Plans
The ruling Communist party of Vietnam has not recently faced any serious threats to its power, and this situation is expected to remain the same over the coming years. Over the years, the communist party has formulated policies and made decisions for the well-being of the economy. Apart from internal power struggles, the leadership is likely to face challenges over issues such as land disputes with China. Because of this country’s rocky economic performance is likely to undermine the party’s support, which may lead to more demand for open elections and multi-party democracy.
PESTLE ANALYSIS POLITICAL
Political stability Poor participation at local levels Territorial dispute with China High corruption levels Land seizures could lead to civil unrest
ECONOMIC
Strong foreign investment Vulnerable banking system Doubts over privatization of the state owned enterprises (SOEs) Trade agreements with South Korea Fillip to tourism Free trade agreement with Russia-led Eurasian economic union Low tax base
SOCIAL
Young society Access to education Lack of religious freedom Suppression of freedom of expression Urban development plan Plan to improve hospitals Governemnt to go ahead with hike in minimum wages Large number of slums
TECHNOLOGICAL
Strategy for science and technology development Increasing international co-operation on science and technology Poor performance on patents Transfer of sophisticated technology through FDI remains elusive Approval of broadband development plan Emerging e-commerce sector High piracy rates
LEGAL
Landmark law to curb money laundering Monopolies of state-owned companies Lack of independent judiciary High tax compliance costs New laws to stimulate more investments Reduction in tax rates Inneffective anti-corruption law
ENVIRONMENTAL
Reduction of greenhouse gas emissions Solar power station in Vietnam Penalty for violation Rising water pollution Adverse environmental effect due to rice boom Disaster risk management Strengthening Grown Growth Prime Minister looking to curb illegal logging Rising deforestation Policy challenge
Market Value The Vietnamese apparel retail industry grew by 13.4% in 2014 to reach a value of %5.6 billion. Market Value Forecast In 2019, the Vietnamese apparel retail industry is forecasted to have a value of $9.3billion, an increase of 66.1% since 2014. Category Segmentation Womenswear is the largest segment of the apparel retail industry in Vietnam, accounting for 49.7% of the industry’s total value. Geography Segmentation Vietnam accounts for 1.4% of the Asia-Pacific apparel retail industry value.
Vietnam has become a very prevelent player in the global textile market. The textile industry in Vietnam has become the fifth worldwide exporter and has a labor force of over 2 million people, with over 1.3 million working for the industry directly. The Vietnamese apparel retail industry had total revenues of $5.86 billion in 2014, representing a compound annual growth rate of 15.6% between 2010 and 2014. In 2019, the Vietnamese apparel retail industry is forecast to have a value of $9.3 billion, an increase of 66.1% since 2014. The compound annual growth rate of the industry in the period 2014-2019 is predicted to be 8%. Apparel and Textile Industry Strengths to the US Market
Active Wear Denim Knit Tops Market Rivalry Rayon Strong growth in recent years helps to lessen the Nylon level of rivalry in the Vietnamese apparel retail Spandex industry. Labor Costs: Minimum wage in apparel industry: $107 USD per month, said to help workers cover 80 % of basic demands.
STATE OF THE APPAREL AND TEXTILE INDUSTRY
The Vietnamese apparel retail industry experienced strong, double digit growth over the period 2010-2014. This trend is projected to continue over the forecast period, through to 2019 however, at a slightly slower rate.
Vietnam has developed supportive government policies and have begun to implement major infrastructure projects and introduced incentives for foreign producers. The main goal to attract foreign direct investment.
About 70% of Vietnam’s Textile and Apparel production is imported textiles and other inputs, predominantly from China. With this being said, investment in fiber, yarn, and textile manufacturing is rising, particularly for spinning and weaving, so the quality and quantity of textile production is likely to increase. Many textile and garment companies in the region have already begun to move production to Vietnam,. Major US retailers such as Sara Lee, JC Penney, Express, The Gap, Macy’s, Nordstrom, Mast Industries, and American Eagle source a sizable portion of their imports from Vietnam.
TRADE AGREEMENTS IMPACTING APPAREL AND TEXTILE IMPORTS
TPP: Trans-Pacific Partnership In October 2015, the TPP Trade pact was signed and it could lead to a huge change in the apparel category over the forecast period. It means Vietnam is going to open the domestic market to other nations by removing barriers and reduce the tax by 100%.As a result, more and more international brands will enter the country an respond to the huge demand for expensive brands from Vietnamese consumers. Consequently, domestic brands will have to compete with more strong players in apparel from all over the world. Meanwhile, thanks to the TPP Trade Agreement, many local manufacturers can focus on exporting to other participating nations and gain more profit than in Vietnam. The partnership is still in the process of being ratified. BTA: US and Vietnam Bilateral Trade Agreement The BTA is the most comprehensive trade agreement Vietnam has signed to this date. This document includes trade in goods,protection of intellectual rights, trade in services, investment protection, business facilitation and transparency. The agreement allows Vietnam’s products to have much lower tariffs, dropping the average from 40% to 3% when products enter the United States. The BTA contains no restrictions on Vietnamese clothing exports to the United states, but a safeguard provision would allow the US to impose quotas on textile imports in the event of a surge of imports. Vietnam has committed to reform its trade to provide a more level stance to US companies and products in Vietnam. WTO: World Trade Organization The apparel sector of Vietnam seems to have benefit from the country’s status as a world trade organization (WTO) member. Since Vietnam joined in 2007, its apparel exports have increases at an annual rate of 21.7%. The WTO membership helped several garment firms to explore new markets and avail preferences like most favored nation status. Also, it has drawn several overseas investors into the Vietnamese apparel industry.
Sea Vietnam has over 80 sea ports, that have been developed by the government through the Vietnam national shipping lines for operation. The main ports are Hai Phong in the North and Saigon in the South. The annual rate of ports has increased, doubling over the past 5 years. Due to the rapid rise in trade volume, Vietnam must continue to increase its port capacity to be able to continue at the growing rate that it is. Air There are 135 airports and airstrips for civil, military and police use in the country. A quarter of Vietnam’s trade by value is shipped by air, and the international air transport association expects the country to be the world’s fastest-growing air cargo market over the next 3 years, expanding at a 6.6% a year. Highway and Railways The percentage of payed national roads is a useful indicator of the quality of a country’s most important road network. 84% of Vietnam’s national roads are currently paved up from 61% in 197. The current percentage of paved national roads is reasonable by regional standards. These roads however are still not considered the most reliable option. There are high amounts of traffic and congestion due to the majority of roads only having 2 lanes. The railway system consists of 7 lines with a total length of 2,632 km. Currently, Vietnam does not have the concentrated flows of bulk raw materials or the long distances which give to heavy rail freight flows. Because of this, its 8 lines serve high density passenger corridors. The process of continuing the mobilization of these highway systems and always is still in progress
KEY APPAREL MANUFACTURERS Hanon Textile and Garment Company Manufactures: Knits, Dresses, Polyester, Woven Materials Top Customers: Oshkosh, Ralph Lauren, Nike Contact: Hanosimex@hn.vnn.vn +84 48621024 Hai Phong Port: 1 hour 45 Minutes Poing In Vina CO., LTD Manufactures: Blouses, Shirts, Knits, Rayon Top Customers: Club Monaco, Talbots, Chico’s Contact: tina@poongin.co.kr +84 650 3641 597 Saigon Port: 32 Minutes MJ Apparel Co., LTD Manufactures: Dresses, Jackets, Shrugs Top Customers: American Apparel, Forever 21, BEBE Contact: ship@mjapparel.com +84 61 3890 187 Ho Chi Minh City Port: 1 Hour 6 Minutes
Conditions that Affect Lead Time of Production National Holidays: New Years Day- January 1 TET Eve- February 6 and 7 TET Nguyen Dan- February 8 Kings Commemoration Day - April 28 International Labor Day- may 1 Independence Day- September 2 Weather Concerns: Dry Season - January-September Lower Waters effecting shipping Monsoon Season - October- December Landslides and cyclones Rising flood waters Flash floods
Vietnamese exports are still on the rise. It in part reflects the increasing competitiveness of Vietnam in the global economy.
Top ports in Vietnam that can serve international freight companies Zim International Shipping Company Departure: Saigon Port Arriving: Savannah, GA: $4,518, 43 Days Los Angeles, CA: $3,254, 23 Days New York City, NY: $4,140, 48 Days Vietnam Ocean Shipping Company Departure: Ho Chi Minh City Port Arriving: Savannah, GA: $4,712, 41 Days Los Angeles, CA: $3,389, 21 Days New York City, NY: $4,317, 45 Days Mediterranean Shipping Company Departure: Hai Phong Port Arriving: Savannah, GA: $2,512, 33 Days Los Angeles, CA: $1,781, 25 Days New York City, NY: $2,605, 45 Days
Vietnamese Culture Relationships are critical to successful business partnerships. Business is a win or loss to the Vietnamese. Vietnamese colleagues may try to get the best deal for their interests, even if it mens slowing down the decision making process, so be patient. Always invest time in building a good relationship based on both personal and business lines. Official business hours are generally Monday through Friday between 7:30 AM and 4:30 PM with a lunch hour sometime between Noon and 1:30 PM. Many companies, especially private firms, work on Saturday as well.
Business Etiquette in Vietnam Appointments are required and should be made several weeks in advance. The Vietnamese are punctual and expect others to be so too. Dress conservatively. Handshakes are used upon meeting and departing. Handshakes only usually take place between members of the same sex. Business Cards are exchanged on initial meetings and should be presented with both hands.
Negotiation Style and Customs For any business to be agreed upon you mus make a long term commitment to the country and visit it. Vietnamese are still a conservative and relation based society and connection over time and face-to-face meetings are critical in building trust and encouraging support..
When receiving business cards ensure you show proper respect to it and do not simply glance at it and put it on the table. Never make promises that you can not keep as this will lead to a loss of face. Business gift giving is fairly common at the end of a meeting or during a meal. Gifts should be small but not expensive.
RISKS AND BENEFITS Risks Poor Labor standards Underdeveloped apparel industry Lack of stable trade agreement with West 50% of raw materials are imported Unstable infrastructure Primarily agriculture oriented Long transportation process Quality of assembly Weak production management
Benefits
Second fastest growing economy Strong work ethic Stable political environment Large labor force US-Vietnam Bilateral Trade Agreement Growing exports market Stabilization of doing exchange rate Renovated and modernized equipment Low manufacturing costs
Vietnam’s textile and apparel industry s growing faster than that of many of its regional competitors, and foreign companies are starting to pour money into Vietnam to take advantage of potential economic opportunities from future free trade agreements. US companies will have the chance to increase their exports of technical textiles to more consumers and businesses in Vietnam. The classifications best suited for production on Vietnam includes woven knits, denim, and active wear. Vietnam is well known for producing these garments to several American companies relying on the ability to produce quality goods.
REFERENCES
http://www/commisceo-global.com/country-guides/vietnam-guide/ http://www.ncto.org/policy-positions/curent-issues https://www.cia.gov/library/publications/the-world-factbook/geos/vm.html http://0-www.portal_euromonitor.com.lirary.scad.edu/portal/statistics/changemeasure hhtp://0-www.portal_eurominot.library.scad.edu/portal/analysis/related http://www.vietrade.gov.vn/en/index.PHP?option-com_content&id-1330;strenghts-of-the-vietnam http://www.grips.ac.jp/forum/module/vietnam/garment_en.html http://www.worldbank.org/en/country/vietnam/overview http://vietnamembassy-usa.org/relations/vietnam-us-enhance-relationship http://0-web.a.ebscohost.com.library.scad.edu/bsi/pdfviewer/pdfviewer?vid=11&sid=b688cb567849-4e72-9579-c6a9c3331375%40sessionmgr4009&hid=4106
Elizabeth Fucci FASM 420-01: Global Sourcing