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Business in Vietnam
Part I. Country background
Name of country: Vietnam
Neighboring countries: Cambodia, Laos, and China
Territorial size of the country: 331,210 km2
Size of the Population: 90,388,000
Type of Political System: Single-party socialist republic dominated by Communist Party of Vietnam. The party exercises force in all affairs, and the government is incapable of exercising any action without directions from the party.
Who is the Prime Minister, President? Nguyen Tan Dung, and Truong Tan Sang
What political party is in power? Vietnamese Communist Party (VCP – Viet Nam Cong San Dang)
Derivation of the form of law: Common, civil, other. The state manages the society by the law. Officially, the country is a democratic republic.
How would you classify its economic system? It is a mixed economy since it combines features of planned and market economy.
What are the GNI and the GNI per capita PPP? GNI per capita PPP is $1,270, and GNI is 285,512,223,767 (World Bank, 2013)
Major Natural Resources: Phosphates, coal, manganese, bauxite, chromate, oil and gas (offshore deposits), and timber (Index Mundi, 2012)
What major products are exported and to which countries? Main exports include crude oil, garment and textiles, rice, coffee, rubber, coal, agricultural products, footwear, electronic equipment, machinery, and wooden products. The main export partners are United States (18.6%), European Union (18.2%), China (12.2%), Japan (11.8%), and South Korea (5.2%) (DG Trade Statistics, 2012).
What are the major imports and from which countries? Major imports include petroleum products, steel, fertilizers, electronics, machinery, and equipment (Economywatch.com, 2013). Primary import partners are China (25.6%), South Korea (13.7%), Japan (10.8%), European Union (8.1%), and Singapore (6.7%) (DG Trade Statistics, 2012).
Member of what economic integration organizations: WTO, ASEAN, IMF, WB, AFTA, ADB.
Name of the currency: Vietnamese dong (VND).
Is it freely exchanged? It is not fully convertible.
Part II. Business proposition
Due to the increased global popularity of technology and its extensive availability not only to higher officials but also to users of all ages even to elementary school students, the following business proposal is made. Many countries consider Vietnam as their primary investment in manufacturing technology because the government of Vietnam provides improved conditions for international businessmen. The government acts favorably to international investors. According to the Vietnam manufacturing expo, “Vietnam has been one of the most attractive destinations for foreign investors” (citation is needed here). Therefore, it is proposed to invest in the manufacturing of computers in Vietnam. The primary reasons for this investment are high product quality and popularity, support of the local government, and lower costs of labor in Vietnam.
Part III. Evidence
- High quality and popularity of high-technology products made in Vietnam. Companies like Samsung, Intel, Fuji Xerox, and GE have made Vietnam their primary destination of FDI inflows. In 2010, Intel made a $1 billion investment into a manufacturing and testing facility in Vietnam (Thuy, 2010). Actions of multinational corporations of this size signal to investors that it is possible to manufacture high-quality products in Vietnam. On the other hand, local manufacturers of consumer electronics primarily do this using imported components (Huyen, 2010). This is dictated by the market where consumers with higher incomes tend to purchase expensive electronics that carry famous brands while consumers with low incomes tend to buy computers that are imported from China.
- Local government support of foreign investment to the high-technology sector of the economy. The Department of Planning and Investment that encourages FDI in all sectors of the economy stated that high-technology investments and investments involving know-how are the priority directions of FDI for Vietnam. Furthermore, the government considers Group A investments to be central to the economic development of Vietnam. This group includes construction for high-technology products; therefore, investment in constructing a manufacturing plant would be welcome by the government of Vietnam. The government does everything to attract investors to form joint ventures with Vietnamese companies. However, companies may face problems with product classification. For example, when Samsung decided to expand its operations to make printing machines, mobile phone batteries, and cameras, these items were not classified as high-technology items (Thuy, 2010). Therefore, Samsung as an investor would not be subject to specific preferences and incentives provided by the government of Vietnam to foreign investors in high-technology sectors.
- Lower costs of labor in Vietnam and availability of high-skilled labor. Every year, approximately 1 million skilled youths enter the Vietnamese labor market. Low costs of labor are believed to be the source of Vietnam’s economic growth and development. Primary skills that Vietnamese workers have that make them highly valuable for foreign entrepreneurs are their ability to adopt new technology easily, their diligence, and their ability to adjust. The average monthly salary of the Vietnamese workforce is lower than in other parts of the world. For example, the average monthly salary for workers in Vietnam is between $50 and $125 while the average salary of office workers is between $150 and $350. It should be noted that the quality of labor in Vietnam is not very high; therefore, the majority of people are willing and able to work as low-skilled workers. Companies have to educate their own workforce if they want them to perform high-quality tasks that demand specific knowledge.