ANALYSIS OF BUSINESS OPPORTUNITY IN VIETNAM

BY GPPP 3413 Political and Economic Risk Analysis

Lecturer : Prof. Dr. Abdul Rahim Bin Anuar

Vietnam PEST Analysis

Objectives

• According to Global Competitiveness Index 2012-2013, Vietnam GCI ranked 75 out of 144 countries.

• This analysis will determine the viability investment in Vietnam.

Source : Global Competitiveness Report 2012-1013

Political Landscape

• Vietnam is a one-party communist state, and is led by a troika made up of General Secretary Nguyen Phu Trong,President Truong Tan Sang, and Prime Minister Nguyen Tan Dung.

• The Vietnamese government is growing concerned with the activities of Bloc 8406, a pro-democracy dissident group. The group was named for the day on which it was founded: April 8, 2006. The group counts young, educated professionals among its members

Source : Global Competitiveness Report 2012-1013

Source : Global Competitiveness Report 2012-1013

Legal Landscape

• Vietnam has differential tax rates ranging from 0% to 40%, and there are separate rates for Vietnamese and foreign workers.

Analysis of Vietnam’s legal landscape

Current strengths• Favorable foreign investment scenarioCurrent challenges▪ Monopolies of state-owned companies ▪ Lack of independent judiciaryFuture prospects▪ Lifting of capital account restrictionsFuture risks▪ Rising power of trade unions ▪ High level of corruption

Analysis of Vietnam’s political landscape

Current strengthsPolitical stability and commitment to fight corruptionCurrent challenges Stifling of dissent ▪ Pro-democracy movementsFuture prospectsImproving ties with CambodiaFuture risks Land seizures could lead to civil unrest Struggle for power between conservatives and reformers

Economic Landscape

• The global economic slowdown reduced GDP growth to 5.3% in 2009, before it recovered to 6.8% in 2010. Datamonitor forecasts indicate that the growth rate is expected to decline marginally, dropping to 6.2% in 2011

• Rising oil and food prices increased inflation to 9.4% in 2010. Inflation reached 22% in July 2011, which poses a serious threat to Vietnam’s economic stability.

Accession to the WTO• Vietnam’s accession to the WTO in 2007 was the result of

12 years of negotiations, and is a politically significant development, as it indicates the country's entry into the global economy. WTO membership has reduced tariffs and restrictions on Vietnam’s exports to other members, which has benefited the country. In addition, Vietnam has been better placed to attract foreign direct investment (FDI). WTO membership boosted the country’s exports, and helped it to become part of the global economy.

Economic reforms• Economic reforms began in Vietnam with the aim of

improving living standards and encouraging foreign investment through more open economic policies in 1986. The CPV initiated economic reforms under its Doi Moi policy in the late 1980s.

Source : Global Competitiveness Report 2012-1013

Source : Global Competitiveness Report 2012-1013

Analysis of Vietnam’s economy

Current strengths▪ Accession to the WTO ▪ Economic reformsCurrent challenges▪ Inefficient state-owned banks ▪ Default on international loansFuture prospects▪ Free trade agreement with the EU ▪ Tight credit conditionsFuture risks▪ Downward pressure on the dong ▪ Dependence on exports

Social Landscape

• Vietnam's GDP per capita increased at an average annual rate of 5.9% during 2001– 06 in real terms. However, income inequality remains high,and the country's Gini coefficient rose from 0.345 in 1990 to 0.432 in 2006.

• Vietnam remains a predominantly rural country, although urbanization has increased following the initiation of the Doi Moi ("renovation”) economic reforms. In 2004, about 25 % of Vietnam’s population was urban and 75% rural,down from 85% in the early 1980s

Source : Global Competitiveness Report 2012-1013

Source : International Human Development Indicators

Source : International Human Development Indicators

Analysis of Vietnam’s social system

Current strengths▪ A young society ▪ Low wages in the private sectorCurrent challenges▪ Lack of religious freedom ▪ Shortage of doctors in the Central HighlandsFuture prospects▪ Initiative to improve educational quality and raise awareness of sustainable developmentFuture risks▪ Japanese ODA ▪ Rapid growth in slums ▪ High unemployment coupled with high inflation

Technological Landscape

• A new technology research center will be built in Hanoi, with a projected investment of $350m sourced from Japan’s Official Development Assistance program. The center will aim to effectively implement the country’s space technology research and application strategy by 2020.

• Vietnamese Prime Minister Nguyen Tan Dung has approved an investment of VND1.7tn ($87.2m) for the national program on IT application in state agencies by 2015. The program targets IT infrastructure for the development of e-governance and the provision of information and public services.

Source : Global Competitiveness Report 2012-1013

Technology AnalysisDecree to regulate science and technology deals• The Vietnamese government issued Decree No 80/2010/ND-CP on July 14, 2010, which

regulates investment and co- operation with foreign partners in the area of science and technology. The decree covers co-operation in science and technology organizations, research, and training. It requires agreements in this space to be either written or else a memorandum of understanding, the execution of which must be reported to the relevant state authority within 15 days from the date of execution. The agreements must be approved in writing by the provincial People's Committee in which the headquarters of the organization are located, and must also meet environmental requirements. This decree is expected to facilitate investment in science and technology in the country.

High-tech production facilities• Manufacturers are choosing North Vietnam to manufacture products meant for the world

market and, in particular, for Southeast China. This is because production costs are predicted to increase far more rapidly in the latter country than in the former over the next 10–20 years. The first signs of this shift were seen in November 2006, when Intel Corporation declared that it would increase its investment from the previous figure of $300m to $1bn in an assembly-and-test facility.

Analysis of Vietnam’s technology landscape

Current strengths▪ Decree to regulate science and technology deals ▪ High-tech production facilitiesCurrent challenges▪ Low IT usageFuture prospects▪ New center in space technology ▪ Agreement with Korean Invention Promotion AssociationFuture risks▪ High piracy rates

Conclusion

• Vietnam governance stability, plus government initiative in fighting against corruption attracted the foreign investment.

• Even though Vietnam would facing inflation problem in coming years, but this would become advantages for the investors where it produce large and cheap labours.

• Despite the government stability, banking financing access would become big problem, but for emerging country it can be normal.

• Vietnam also improved the technology through foreign direct investment.

• Therefore, investment in Vietnam is viable.