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As the cost of entering the China market rises, many foreign companies are adopting a ‘China plus One’ strategy and turning to Vietnam for its cheaper manufacturing base and burgeoning consumer demand. Glenn Baker gets a feel for the country and reports on the potential opportunities for Kiwi exporters.
Vietnam, population 88.26 million (2010), GDP US$102 billion, China’s southern neighbour, ravaged by war in the 60s and 70s, now in 2012 poised for major economic expansion, riding on the back of the explosive growth of China and other ASEAN markets.

For many New Zealand companies Vietnam has never been on their export radar – traditionally because of the country’s socialist history and political instability; more recently, due to a lack of awareness of the market’s emerging potential.
What’s needed are some fresh, first-hand accounts of this market; and where better to start than Tim Baxter, who recently took up the reins of country manager, DHL Express New Zealand and Pacific Islands, after spending five years heading up DHL Express in Vietnam, based in Ho Chi Minh City (formerly Saigon).
Baxter ushers me into his office at Auckland Airport – I notice the memorabilia from his time in Vietnam. He clearly enjoyed his posting there and immersed himself in the local community, informing me that he was directly involved in helping the Vietnamese government build business infrastructure. He advised local business councils, worked with customs, helped with trade regulations and the laws of importation (what’s known as the tax-free threshold). He was a director of the European Chamber of Commerce, head of Vietnam’s logistics industry committee and of CAPEC (Convention of Asia Pacific Express Carriers) – advising government on behalf of the Big Four express carriers.
“It was all out of necessity because Vietnam is growing so fast and you need to completely rethink processes all the time,” says Baxter. “DHL, for example, was growing so quickly that in just four years business doubled and we had to reinvent ourselves again.”
A similar pressure is being applied to Vietnam’s customs authorities to cope with increased trade demand he says.
Baxter paints a picture of a dynamic Vietnam. “Your first impression? Busy! Step off the plane and it’ll seem like you have 5000 motorbikes buzzing before you. The cities were never built for cars. The bikes surround cars like swarming bees.”
The country has a massive labour force. Around 65 percent of the population are under 30 years old.
“So you have this young, vibrant, capable workforce – kids with real aspirations who see what other young people in Western countries have.
“At the same time you have a China that’s comparatively more expensive – to the extent that Vietnam’s labour rates are now on average 21 percent lower.”
The situation now, says Baxter, is that many manufacturers in Vietnam are shifting to the likes of electronics and value-added goods, and an increasing number of contract manufacturers are setting up in Vietnam.
“Vietnam is transitioning from a manufacturing base for low-skilled workers producing low-cost product, into one that’s starting to value-add into high end product.” His prediction is that Cambodia and Myanmar will eventually become the next low-cost manufacturing centres.
Meanwhile all this economic growth is requiring serious upgrades to infrastructure and Vietnam’s internal systems. A wealthier, more sophisticated population, which includes many returning, highly-skilled expat Vietnamese attracted by Government incentives, is now demanding all the necessities and luxuries that Westerners take for granted.
“The GDP per capita figure has increased substantially, so in the big urban centres such as Hanoi and Ho Chi Minh City the wealth distribution is far more pronounced than in the countryside,” says Baxter. He’s also witnessed an amazing rate of staff turnover in Vietnamese companies as young, impatient employees take advantage of the huge number of opportunities.
“At DHL it was both a good and bad problem. With our certified international specialist programme we became a feeding ground for the market.”

Doing business
How easy is it to do business in Vietnam? For a start, it’s much easier to get to the country on commercial airlines and to fly around the country. Getting from Ho Chi Minh City to Hanoi involves travelling 2,200 kilometres, but the route is well served by airlines.
As for the population, Baxter describes Vietnam as a melting pot of Indo-Chinese influences (in the south) and Chinese influences (in the north). Generally the Vietnamese are “spiritual, gentle people” – thanks to the influence of Buddhism.
He shares his thoughts on the business culture and the process of dealing with Vietnamese business people.
“Managing to specific timelines is not so important in Vietnam, everything is more flexible and fluid,” he says. “Generally, though, the system works well. People still have a priority for getting things done.
“It’s a case of buyer beware, and with a weak legal system it’s important you choose trustworthy partners. Joint ventures can become complicated,” he adds. “And in Vietnam, cash is king.”
[The country still ranks highly on the Transparency International Corruption Perceptions Index – coming in 112th in the latest index (which New Zealand topped).]“Although it’s an open economy, there are still sensitivities around what can or can’t be said.” Ensuring tact as well as building the relationship is very important, he says.
Baxter also warns that if firms are dealing with manufacturing bases exporting out of developing areas, things can be a little complex because
of the remoteness of a lot of the factories. “They tend to build factories
in low-cost areas.”
So what are his picks for export opportunities?
“From what I’ve seen, there are opportunities in building supplies, specialist electrics and lighting, specialist paints, foodstuffs, milk and dairy products, baby formulas, beauty products, ice cream, wine, beer, as well as the health and education sectors – the education sector in particular is currently undergoing major development.”
This is a wide open market where the opportunities are still visible on the ground. New Zealand winemakers are starting to get established in the market he says. “There’s also a lot of Kiwi representation in service companies, especially in the engineering field, and the New Zealand Chamber of Commerce in Vietnam is very active in supporting companies and an excellent source
of information.”
As for getting goods distributed in Vietnam, he warns that customs clearance regulations on importation are a minefield and must be thoroughly understood by New Zealand exporters prior to shipping. “Customs delays can be lengthy and expensive; paperwork and rubber stamps are very important to the Vietnamese government bodies.
“Once past the border there are numerous transportation solutions available, however, security can be an issue.” His advice is to use reputable carriers such as DHL, which has extensive coverage of the country, high security standards and links to agents who can assist with distribution.

Myths and advice
Baxter admits that many people’s perceptions of Vietnam are possibly based on images of ten to 15 years ago, and believes there is a need for the country to market itself better internationally. “Vietnam is transitioning fast into a modern economy – it looks very different to what it did even five years ago. The pace of change
is explosive.”
Yes, there are potential traps for new players, but follow good business process and the returns are there, he says. “The risk of doing business can be mitigated through good business process and through the right partnering.”
Baxter says the government, and all the organisations he had dealings with while there, including their joint venture partner Vietnam Post, are very supportive and keen to get things done – keen to make Vietnam one of the easiest countries to deal with.
“Certainly one of my goals while there, was to assist in any way I could to make Vietnam the most nimble Asian economy with the least barriers to trade, with a view to attracting more foreign direct investment and trade.” The country is well on the way to achieving that vision, he says. “It’s now much easier to set up your own company in Vietnam. Opening up the economy means that various sectors are now allowing direct ownership, and that’s very attractive to foreign investors looking for certainty.”
On the advice front, he says it’s important that exporters conduct their research in-market with other similar sector companies, to ensure they get the distribution they require, and learn from other people’s mistakes. Research the market dynamics, supplier relationships and payment terms. “When I think of doing business in Vietnam I think about the Chambers of Commerce – EuroCham, the New Zealand Chamber and AusCham – good places to start. And if you can speak to someone who’s already doing business in Vietnam, you’ll get much more detailed information.”
In karate terms, Baxter likens a market like Singapore as one for ‘green belts’, whereas Vietnam is very much for ‘brown or black belts’.
“You wouldn’t want to go in with your eyes closed.”

Stats & facts:

  • Currency: Dong (VND)
  • Exchange Rate: 1NZ$ = 16,248 VND (as at June 2012) 1US$ = 20,897 VND (as at June 2012).
  • Corporate tax rate: 25 percent.
  • Sales tax (VAT): Zero percent, five percent, ten percent.
  • A visa is required to enter Vietnam.
  • There are no direct flights from New Zealand. Connecting flights depart from Sydney, Bangkok, Singapore and Hong Kong.
  • NZTE has an excellent overview of doing business in Vietnam. Go to www.nzte.govt.nz/explore-export-markets/South-and-Southeast-Asia
  • Further information can be found at: www.hsbc.com.vn/1/2/commercial_en/international-business  

Securing payments
No matter what market you’re entering, securing payment is always a concern. Exporter asked Cath Henry, head of payments and cash management at HSBC New Zealand, whether there are any surprises for Kiwi exporters when they first begin trading with Vietnamese companies.
“Sending funds to and from Vietnam does require specific paperwork and to make this happen as smoothly as possible make sure you engage the appropriate banking parties to provide advice – especially around managing the documentation required for foreign currency transactions.”
Henry advises Kiwi firms to take the time to get to know their counter-parties in Vietnam.
“A visit to Vietnam to familiarise yourself first-hand, for example, would be worthwhile, and can support time spent on the phone, email or Internet from
New Zealand.
“However, HSBC’s global connectivity with its branches and my payments and cash management colleagues on the ground in Vietnam can assist greatly
as well.”
The amount of preparation and homework required before beginning any trade negotiations with a counter-party in Vietnam is no different to any other country, says Henry.
“You need build a relationship, especially trust, so you know who you are dealing with. It is also recommended that you seek independent advice from advisors such as your bank, NZTE, etc.
“With the advantage of greater global connectivity and the ability to have a seamless country-to-country service through established banking providers, such as HSBC, trading with countries like Vietnam is not as hard as exporters might think. Although Vietnam has a controlled currency, they export twice the value that New Zealand does and are open to trade opportunities with businesses from countries like New Zealand.”  

It’s all in the approach
According to Graham Sims, New Zealand’s trade commissioner for Vietnam, the education, cleantech, infrastructure and construction sectors are where the biggest opportunities lie for New Zealand’s exporters.
“A good proportion of the population lives two feet above polluted water, so they are looking for ways to deal with waste water, water clarity issues, and converting solids to energy,” he says.
Energy solutions involving wind, solar and hydro technology is high on the Vietnamese shopping list, he adds, and education is another sector where Kiwi firms can provide expertise.
New Zealand’s exports to Vietnam have risen significantly in recent years – by September 2010 it was already this country’s 20th largest export market. Much of that growth, says Sims, can be attributed to the two staples of dairy and timber. He cites a $47 million sale of livestock to help establish a new dairy plant and a joint venture to build an inaugural wood treatment plant as examples of the successes New Zealand companies are having in these sectors. In the case of the wood treatment plant, the customers and the path-to-market were sorted before the project was started. The New Zealand firm had all the IP; the local partner had the land, building and finances – a good example of a low cost entry to market.
There are great gains to be made in Vietnam’s construction industry too – with Windsor Engineering and Fletchers both heavily involved in projects.
“There are issues – the global slowdown has affected Vietnam’s banks, but the Vietnamese also bank differently. Only 18 percent of the population hold a bank account. And while technology adoption is increasing, this does have implications for doing business – specifically, New Zealand exports must have a guaranteed payment up front. The banks might not have funds to cover costs,” says Sims.
It does take longer to do business in Vietnam, so exporters need to be in the market for the long term. Take a strategic view, urges Sims, as the market will continue to develop. “Those who rushed into China are now moving to Vietnam, as costs [in China] have increased.”
This trend will only gather momentum, he says, as the Chinese demand for luxury goods increases.
“The Japanese, for example, are the biggest investors in Vietnam as they see major opportunities in the manufacturing sector over next 15 years. When you see a country like Japan shifting its entire cost models, you know there will be opportunities not just for manufacturing, but other industries too.”

Graham’s top tips:

  • When looking to establish an office in Vietnam, it’s essential to get good legal and accounting advice before setting anything up. “Often Kiwis don’t want to spend the money on this, but they have to.”
  • If firms are trading their products/brand/IP value they must register it in Vietnam. “Vietnam works on the principle of first person to register owns the brand/IP. So register before taking a product to Vietnam as someone else could do it, effectively blocking you from the market. There is not much you can do about it. People can show up to a trade fair, show their product and then lose the brand when someone else likes the look of it and registers it.”
  • You must have a presence in market – “absentee business owners and landlords will fail”.
  • “Most people believe that Vietnam is a complicated market to enter, but that doesn’t mean they shouldn’t try. It does take longer, but once a business has the right partner it’s a good market [to trade with]. If you go about it the right way, it is very rewarding.”
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