CASE STUDY REPORT

From Communism to Capitalism: Vietnam’s Economic Transformation

The case mentions how Vietnam’s economy transformed in recent years. In 1990s,

Vietnamese problems of macro-leading are poverty alleviation and economic

restructuring in the direction of flow access to the region and internationally. For a

decade, united Vietnam’s economy was plagued with inefficiency and corruption in

state programs, poor quality and underproduction and restriction on economic

activities and trade. It also suffered from the trade embargo from the US and most of

Europe after the Vietnam War. When they lost the war, the palace became the base

for the Ho Chi Minh City People’s Committee, which worked to impose tight

communist control.

In the three decades since Vietnam has gone from communism to a form of

capitalism, it has begun surpassing many neighbors. It has Asia’s second-fastest-

growing economy, with 8.4 percent growth last year, trailing only China’s, and the

pace of exports to the United States is rising faster than even China’s.

In October 2001, U.S. President George Bush signed an agreement that created a

U.S.-Vietnam free trade area. After this signing market another milestone along

Vietnam’s path occurred more open market. Before this agreement there were another

big paths for Vietnam Economy. In February 1994, U.S. President Bill Clinton ended

America’s 19-year economic embargo of Vietnam and opened the door for U.S.

companies to target the world’s twelfth most populous country. In July 1995,

President Clinton reestablished diplomatic relations between two countries. In 1995,

Vietnam joined the Association of Southeast Asian Nations (ASEAN). In 1998,

another big thing happened and the White House announced that it would exempt,

which meant that pending approval, American companies investing in Vietnam could

apply for financial assistance from the Overseas Private Investment Corporation and

the Export-Import Bank. After the exemption, in July 2000, Clinton signed a trade

pact with Vietnam. 6 years later than the trade pact The Asia-Pacific Economic

Cooperation (APEC) Summit was held in Hanoi. (Hanoi is the capital of Vietnam and

also the country’s second largest city.) Another big process happened and Vietnam

joined the World Trade Organization (WTO) in 2007.

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Market Opportunities In Vietnam

Investors are always looking for opportunities that are hidden and hard to find, to

maximize their gains against their fellow competitors. Vietnam may be the hidden

gem that investors are looking at. A report from InvestingAnswers.com indicates that

Vietnam’s estimated GDP growth is at a strong 8.2%, which is second highest, right

behind China’s 9.4%, and in front of India’s 6.4%. After the Vietnam War, their

economy suffered greatly due to the inefficiency and corruption in the communistic

run economy. In more recent times, the country is benefiting greatly from the

movement of a communistic to a free market economy. However there are still

problems in their economic infrastructure that has yet to find the balance between

communism and capitalism.

Much like their fellow competitor China, Vietnam also has low cost labor that allows

for easy investment in manufacturing.  Vietnam’s government saw this as an

opportunity to grow both their state and private business sectors.  State owned

companies account for about a third of Vietnam’s economy, but yet only account for a

fifth of their industrial output.  Their state run companies are proving difficulty in

keeping up with production, because of corruption and poor leadership. 

The government having a communistic mind base, is wary of letting their economic

power fall in the hands of the people.  It seems as though the government would

rather gamble and bet on their state run companies to succeed, providing them with

much of capital share of the country.  However with extra capital benefits, these

companies are proving to be failures in the global markets, which only deters the

countries economic growth.  The capital could be used elsewhere for private business

to succeed.

In Vietnam Market, there are lots of opportunities for foreign companies. Young

population make large workforce with cheap cost, set-up cost and material cost.

Another thing is in potential markets’ most players are local companies that have

small capital. Also economic laws and regulations encourage the companies. Some of

the laws and regulations have been changed to attract Foreign Direct Investment

(FDI). With all that, stable political and economical environment is one of the

Vietnam strong points.

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When we look at the sight of the consumer-products companies, The total population

in Vietnam was last recorded at 87.8 million people in 2011 from 34.7 million in

1960, changing 153 percent during the last 50 years. (World Bank, 2011) The

population of Vietnam represents 1.27 percent of the world´s total population. It

means that one person in every 79 people on the planet is a resident of Vietnam. So,

for consumer-product companies this population means huge potential market. Also

purchasing power parity is approximately $296 billion (2011 estimated).

Figure 1: Purchasing power parity for Vietnam between 2002 to 2014

On the other hand, when we look at the sight of the industrial-products companies,

opening as a promising land for world giant corporations encourage firms to invest

Vietnam, instead of before joining World Trade Organization (WTO), most of

industry companies were government owned. Under developed infrastructure of

Vietnam, another investing options for the industrial-products companies.

How Things Changed After Economic Transformation

With the presence of most multinational companies, bring more jobs and income for

Vietnamese people, also they’re now are brand-oriented, they have more choices from

local goods to famous brand goods. Instead of limited to just government-owned

companies, employees now become more active to join international workforce. After

the transformation with new technologies, people living standard is higher than

before. With the joining of WTO, international banks, healthcare and education could

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enter the sectors that belong only to government before, which bring competitiveness

and lots of benefits for local people.

Many American firms found themselves playing catch up by the early 1990’s, many

non-U.S. global companies had preceded the Americans into Vietnam. For instance,

South Korean industrial giant Daewoo was a key investor; other companies with

major commitments included Sony, Toshiba, Honda, Peugeot… Carrier was among

the first U.S. companies to legally market in Vietnam in 1994. The company’s

window air conditioners appeared in stores in Hanoi and Ho Chi Minh City. Gillette

began shipping razor blades and disposable razors. AT&T began selling home and

office telephone products through a distributor in Taiwan. Caterpillar set up

equipment-leasing operations and some popular Western ad agencies opened their

offices in Vietnam.

Considering that 60 percent of Vietnam’s population is under age of 25, it is no

surprise that PepsiCO and the Coca-Cola Company also responded proactively to the

new market opportunity. Pepsi’s joint venture with a Vietnamese firm Ho Chi Minh

City is bottling Pepsi; local production began within hours of Clinton’s 1994

announcement.

Vinamilk, the biggest milk manufacturer in Vietnam with diverse beverage categories

including fruit juice and drinking yogurt, ranked ninth, while Coca-Cola, claimed the

10th position for its high brand equity through its heritage even though, in terms of

market share, Pepsi performed better due to product availability.

Nokia ranked second for overall brand recall and has the highest ownership level with

a portfolio for all segments in the market, from economy to premium.

With several initiatives to cater to the local market, including higher quality and

availability of fresh foods, pricing closer to consumer demand, higher standard for

modern trade, French brand super-market Big C ranked third with increasing equity

among Vietnamese consumers.

One company, Glass Egg Digital Media, provides software writing services to leading

global videogame developers such as France’s Infogames and U.S. based Electronic

Arts. Glass Egg founder Phil Tran pays programmers annual salaries of about $4,000,

tens of thousands less than programmers in the Unites States are paid.

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Mobifone, the government-owned mobile service provider in Vietnam, ranked fourth.

In recent years, the telecom sector in Vietnam has boomed to reflect a high growth

rate and attracted several investors in this field. The telecom industry is expected to

become a new power in Vietnam’s economy in the next decade.

Vietcombank, the market leader for banks, ranked fifth followed by Saigon Co-op

Mart the biggest local trade-chain reputed to have lower priced products in the sixth

position.

Viettel, the market leader for mobile phone service providers and subscribers with a

relatively lower pricing position over Mobifone, ranked seventh while Sony, the most

popular brand in home appliances and AV equipment, ranked eight for its high brand

equity among consumers through the brand’s heritage.

Top car brands: Cars are generally still aspirational as ownership is limited to the

upper income class. Brand heritage would be the key factor driving preference.

1.   BMW

2.   Mercedes Benz

3.   Toyota

4.   Honda

Top beverage brands: Vinamilk has been taking advantage of its lower price strategy

and in the past three years has been diversifying its product line for beverage. Most

recently, the government has launched its 'Buy Vietnam' campaign and Vinamilk is

one of the local companies that have benefitted from that campaign.

1.   Vinamilk

2.   Coca Cola

3.   Heineken

4.   Tra Xanh 0 do

Top mobile phone brands: This category is dominated by Nokia and with its portfolio

for all income classes, active marketing and innovation.

1.   Nokia

2.   iPhone

3.   Samsung

4.   Blackberry

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Top home appliances brands: Vietnam still holds high value for Sony. They see the

brand as having the highest quality available although for most, they usually resort to

lower priced brands available.

1.   Sony

2.   Panasonic

3.   Samsung

4.   Electrolux

Top PC and laptop brands: Nielsen has found no predominant brand for PCs /

laptops due to variety of brands and models available in the market.

1.   HP

2.   Sony

3.   Dell

4.   Apple

Top mobile phone service operators and internet service providers:

1.   Mobifone

2.   Viettel

3.   FPT

4.   Vina phone

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Made In Vietnam Likely To Find Widespread Acceptance Among American Costumers?

Nike was one of the first US companies to shift its manufacturing from China to

Vietnam. With this move came increased criticism of worker exploitation and poor

working conditions. Nike spends an enormous amount of money on marketing their

products while seeking the lowest possible cost of production. As a capitalist study,

the company does well. However, consumers are exposed to reports of these

practices and often respond to the pressure by avoiding Nike products. The effect is

short term as Nike answers the criticism with proactive public relations (PR)

campaigns that seek to re-establish consumer trust. American consumers are

notorious for their short attention spans, and with each athlete endorsement or

innovative marketing move, their opinion quickly shifts to a more neutral or positive

perception of Nike.

In recent years, many other companies have followed Nike's lead and this has led to

even more expansion in Vietnam. The textile industry produces high quality products

that are sold to American consumers through a variety of brands and retailers. Has

the "Made in Vietnam" label caused concern? Yes, some consumers do reject the

products and choose to purchase products that are produced in the USA or in

companies they feel more comfortable with. However, the majority of consumers are

more value and brand conscious, and readily purchase products made in Vietnam.

Furniture, textiles, and more electronic goods are produced in Vietnam as every year

passes, and American consumers pressured by a decline in purchasing power and

choosing to spend their money on what is perceived as the best value. With major

retail chains like Target and Wal-Mart stocking these goods, the decision is more

often than not based on the price of the product and not where it originates.

Cuba vs Vietnam

Cuba and Vietnam have some similarities. Both established socialist regimes as a

result of their struggle for independence from imperialist powers. Their fights were

widely supported by many sectors of the society because of their nationalistic stances,

not necessarily because of Marxist ideas. Both are economically underdeveloped

nations, but could accomplish socialist revolutions against orthodox Marxist theory,

which claims that socialist and communist revolutions come after a country reaches a

highly developed capitalist stage. Both countries confronted U.S. intervention during

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their socialist revolutions and suffered or suffers U.S. economic embargo (in case of

Vietnam until 1995, and Cuba to present.) Yet Vietnam and Cuba are in many ways

quite different. Vietnam’s population is almost eight times as large as Cuba’s, and

even now 70 percent of its people are peasants.

Its society is much more heterogeneous than Cuba’s and difficult to integrate as a

nation state. The author believes that these differences have led Cuba and Vietnam to

choose different paths over the last 20 years.

Another reason that the author believes that Vietnam-style reforms are more suitable

for Cuba, at least more than reforms that aim at both political and economic changes

together, is that democratization or drastic political reforms are more difficult for the

current Cuban regime to accept than the introduction of a market economy without

democratization. As noted above, the Cuban government tends to adopt economic

policies that favor its survival. First priority of Cuba’s current regime is its survival,

and, for this purpose, economic reform without democratization is more acceptable,

and therefore, the process is more likely to be peaceful or less conflictive.

The next argument here is to what extent Vietnam-type reforms are feasible in Cuba.

Fidel Castro has been against any kind of market-oriented reforms because he

believes that introduction of market mechanisms would cause income disparity among

the people, and, in spite of difficulties in the daily lives of most Cuban citizens for the

past 17 years, the current regime has not introduced any reforms related to more

market mechanisms. It is unlikely that the Cuban government will implement any

kind of economic openings as long as Fidel is politically active. Thus, the possibility

that Cuba might introduce market-oriented economic reforms like Vietnam will

become a real argument only after Fidel becomes politically inactive or passes away.

Conclusion and Suggestions

Vietnam is absolutely one of the world’s most successful countries in terms of

sustainable rapid economic growth over the recent 10-year period, second only to

China. Also has emerged as the world third largest exporter of rice, second largest

exporter of coffee, cashew and pepper, fourth biggest exporter of footwear. The

country is also a leading exporter of apparel and textiles, and seafood.

Vietnam is the second best investment destination among ASEAN countries for

Japanese investors, according to a survey conducted in early 2002 by the Japanese

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External Trade Organization.

Vietnam, the 13th most populous country in the world, has a large market of 80

million people with an abundance of young and a highly literate workforce of over 40

million people of whom around 45% are under 35 years of age.

Vietnam has a relatively extensive network of roads, exceeding Malaysia’s and

Thailand’s.

Vietnam is a member of the ASEAN Free Trade Area (AFTA), the Asia-Pacific

Economic Community (APEC) and the ASEAN - Europe Meeting (ASEM); has

signed a trade agreement with the United States; and is negotiating for accession to

the World Trade Organization (WTO).

All these information show us, the economy in Vietnam will continue to grow quickly

as the world recovers from the current economic dip. As the workforce this country is

young and educated, also expect that environmental responsibility will grow as well.

The population is becoming globally aware and understands the value of maintaining

ecological balance and preservation of the environment. Vietnam will continue to

modernize their infrastructure and move quickly to compete with countries such as

Thailand and others in the region.

REFERENCES

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Ben-David, D. (1996),‘Trade and convergence among nations’, Journal of

International Economics 40:279-98

Bao Anh Thai (2005), “Trade and Investment Policy Reform in Vietnam: Integration

to the World Economy and Accession to the World Trade Organization”

Keih Bradsher, “Vietnam’s Roaring Economy Is Set for World Stage,” The New York

Times (October 25, 2006), pp. A1, C4

James Cox, “Vietnamese Look Forward to Trade, Jobs,” USA Today (July 12, 1995),

pp. 1A, 2A

World Bank (1999b), Vietnam Preparing for Take-off? An Informal Economic Report

of the World Bank, Consultative Group Meeting for Vietnam, Hanoi, December 14-

15, 1999

World Bank. 2002. “Vietnam’ Export Policies and Performance: Challenges and

Opportunities.” Draft

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