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SAIGON Inspiration Business WHY THE MIDDLE CLASS IS VIETNAM’S FUTURE
It’s no secret that the middle class carries the economic stability of a country more than any other demographic.
The recent growth of exactly this group of consumers, who have left the constraints of poverty and have reached a new quality of life, is a very good sign for all businesses in the country. Simply put, the growing middle class is the motor of Vietnam’s rapidly growing economy. According to the Boston Consulting Group (BCG), the “Middle and Affluent Class” (MAC) is experiencing a significant increase from 12 million people as of 2014, up to a projected 33 million people three years from now. This will be around a third of the country’s total population, which is forecast to reach 97 million by 2020.
A member of the middle class is defined by a monthly income of VND 15 million or more, which gives them significant purchasing power. Keep in mind, however, that these numbers should be taken with a grain of salt. According to the Singapore-based Institute of Southeast Asian Studies, reliable data is difficult to obtain, since the discrepancy between a worker’s official salary and their unofficial income can be quite significant.
The Implications of Change for Vietnam
The influence of the growing middle class can be seen in many fields already, from restaurant businesses to office buildings and nice apartments; another good sign of increased purchasing power is the high quality of imported goods flowing into the country. The change is evident everywhere and the Vietnamese are optimistic about their wealth increase in the future.
According to the BCG, a staggering 92 percent of Vietnamese believe that they live a better life than their parents, and 93 percent believe that their own children will live in better conditions than they do now. This optimism contributes to the stable economic growth Vietnam is experiencing at the moment.
It’s not all good, however. One problem with the rapid development is the lack of consumer goods and distribution channels. While the real estate sector can easily keep up with the trend, shopping for suitable goods is sometimes a pain. The retail environment is simply not ready for changing consumer behavior, which creates occasional price and quality problems. Resourceful business owners like Carey Zesinger of Having prefer to see this problem as an opportunity to tap into the market.
Technology plays a part in this story as well. Vietnamese are avid internet users – a whopping 43 percent of members of the MAC are using the web on a daily basis; however, just 16 percent shop online. This may be due to a significant lack of trust and the low quality of many available online stores. On the other hand, many businesses already know how to attract customers: by offering deals and discounts! There are few countries in the world where people are more actively hunting for deals than in Vietnam. Income class does not matter in this case: everybody loves a discount.
Vietnam is Trending to the Future
Of course, economic status doesn’t just affect retail businesses. Middle-class families are also tending to invest in proper education for their children, which will in return increase their children’s chances of finding quality, good-paying jobs. This will help them support their own middle-class family in the future. Moreover, good education increases awareness of social and health issues, which will in turn lead to responsible consumer behavior. It’s a good cycle to start.
The demand for healthy food and high-quality, affordable goods and services ultimately drives our economy. Vietnam’s movers and shakers are beginning to realize that producing goods and services in the country will more effectively tap into the increased mass purchasing power. This, in turn, will create more and better jobs. We’re experiencing a period of economic transition in Vietnam, and this is driven in large part by the rising middle class.
When it comes to business, the window of opportunity is wide open. Of course, it comes with obstacles, risks, and drawbacks. The competition is huge from both foreign investors and Vietnamese entrepreneurs. But there is rarely an opportunity without risk, so we wish you Chuc mung nam moi! May you dare and grab the rooster by the neck!
SAIGON Inspiration Business THERE’S TROUBLE BREWING FOR VIETNAM’S COFFEE INDUSTRY
There is something deceivingly banal about nations producing coffee, like Vietnam.
It’s something about the big numbers that make the mind sort of deadening like when they tell you that Vietnam is the second-largest coffee producer after Brazil, an export market worth US$20 billion globally. So, one may snap back to attention learning the land supply suitable for coffee growth could shrink by nearly three-fourths, according to environmental scientists studying the crop. The reason? Climate change.
Vietnam’s Weather Problems
“I’d say the biggest challenge now is climate change,” Joshua Guikema, co-founder of K’Ho Coffee, said. His Dalat coffee farm grows Arabica beans, a plant species that represents a mere five percent of Vietnam’s robusta bean heavy output. Some of the best coffees are also the ones most sensitive to changes in growth conditions, and they would be the first to be threatened, Guikema said. “Coffee is susceptible to many diseases—especially the old varieties, which are really vulnerable,” he said.
In September, the US-based National Academy of Sciences published a report forecasting coffee production with advanced computer modeling while taking into account the combined effects of climate change and bee loss, the first study of its kind. “Climate change impact assessments suggest a significant reduction, up to 50 percent in the global area suitable for coffee farming by mid-century,” the study’s authors write. Other models indicate that “coffee-suitable” areas may be reduced by up to 88 percent by 2050 across the most severe warming scenarios.
“We expect by 2050 the demand for coffee to double. And by 2050 the land suitable for growing coffee will decrease,” Guikema said. “So we expect the prices to go up.” That’s about double the farmland that a similar 2016 study said would be lost by a warming climate. Coffee supports the livelihoods of 125 million people around the world, including some of the most marginalized and poor people in developing countries.
Hitting the Weakest in Vietnam
That may make your future cup of coffee more expensive and is a huge threat to coffee farmers, many of whom are small actors like Guikema and K’Ho Coffee. Most of the world’s coffee comes from South America, and 80 percent of those farmers are working on less than four hectares and modest incomes. K’Ho Coffee’s operation spans 40 hectares. About 95 percent of Vietnamese coffee is made on private farms—85 percent are less than one hectare and only one percent are larger than five hectares. The silver lining is that the impending crisis is a cause for innovation.
Inventing a New Coffee Bean
The US-based World Coffee Research is developing new varieties of coffee plants. It is testing new varieties and new techniques like growing under forest shade. A US$6 million project is underway that takes experimental beans raised in Nicaragua for a four-year experiment in Vietnam and Cameroon. In July 2017, coffee shipments globally amounted to 9.4 million bags at 600kg each, 11 percent-plus more than last year, but exports present a different picture.
July 2017 was Brazil’s lowest recorded coffee export, 1.75 million bags. Vietnam’s shipments during that month reached 1.55 million bags, nearly 30 percent lower than the previous year. Both countries’ shipments appear to be trending downward.
Vietnam’s Coffee Master Plan
Vietnam’s coffee economy was created and solidified through a national coffee growing program in the ’90s and a simultaneous normalization of economic relations with the United States. Guikema said Vietnamese coffee production probably peaked around the late ’90s. In 2012, Vietnam established a coffee master plan, which identified 614,500 hectares of farmland being used for coffee. That land was producing beans at an average of 2.4 tons per hectare.
The plan also described an intent to push the higher-quality Arabica beans like the ones Guikema is growing on K’Ho Coffee’s farms. The plan involved Vietnam growing the premium bean’s production from 5 percent of production to 8 percent in 2020.
It’s a serious move to establish Vietnam as an exporter of high-quality coffee. Only 6 percent of coffee is consumed domestically. Much of it goes to the United States, Brazil, and Germany, where coffee consumption is 4.5kg, 5.5kg, and 6.5kg per person, respectively. Vietnam consumes 1.5kg of coffee per person on average. In 2012, the nation’s coffee exports rose to a record US$3.7 billion.
That’s under threat as warming temperatures give rise to a fungus called coffee rust and make things more habitable for a pest called the coffee berry borer, an insect blamed for millions of dollars worth of lost coffee crops. Guikema is building a new nursery to grow new, experimental coffee plants. Coffee’s strength and saving grace may be a curious and conscientious customer base. Guikema said he’s confident that if coffee can be made that’s better for the environment and better on the palette, people will take to it.
SAIGON Inspiration Business SHIFTING SANDS: THE FUTURE OF MANUFACTURING IN VIETNAM
To be updated
What does the manufacturing sector’s future look like in Vietnam?
After decades of growth, the Chinese economy has begun to slow. Rising wages, an aging population, and increased consumer spending have shifted the economy towards higher-end production and a more consumer-centric model of growth, which doesn’t bode well for many of the existing manufacturing activities in China.
What does this have to do with Vietnam? In short, investors fleeing skyrocketing costs in China are starting to understand the importance of lessening similar risks in what is termed “China plus one” markets — locations such as Vietnam characterized by lower costs and a capacity to take on manufacturing once located in China.
However, “The Vietnamese economy is slowing”, “Vietnamese wages will soon be rendered uncompetitive” and, most recently, “Automation will put huge segments of the Vietnamese population out of work” are just some of the headlines that have formed a counterargument for companies entertaining the idea of investing in Vietnam. But how real are these concerns and how does Vietnam really stack up against its northern neighbor?
A Long Way to the Top for Vietnam
Vietnam, while certainly susceptible to these changes over the long term, is far from a point where investments, in aggregate, will be rendered uncompetitive. Instead, similar to China, Korea, and other countries that have historically chosen to pursue export-driven models for growth, Vietnam is steadily working its way up the value chain and has a long way to go before it reaches the top. Over the last two decades, Vietnam transitioned from exporting textile products to being one of the world’s largest production hubs for cellphone manufacturing.
However, instead of replacing textiles, the export value of both textile and electronics products registered growth from 2001 to 2016 even as electronics overtook textile exports in their share of total exports. This shift up the value chain has undoubtedly put upward pressure on wages, has demanded more technical skill sets, and led to increases in quality and value across all sectors. However, over this same period, investment in Vietnam reached record heights of US$11.8 billion in 2015 and economic growth has maintained a level of 6 percent since 2010.
2021 Vietnam Manufacturing Specializations
But What About boosting Automation in Vietnam?
Surely the introduction of automated manufacturing processes that are required for electronics manufacturing and increasingly accessible for textile production will decrease employment and render wages competitive. While automation does pose the most realistic risk to labor-intensive manufacturing and has been a challenge for countries ranging from China to the United States, these concerns are less important in the immediate future of Vietnam.
Vietnam’s position on the value chain is food for thought when placing the risks of automation in context. Although Vietnam has benefited from divestment from China, many companies remain content to keep at least a portion of their manufacturing in Asia’s traditional manufacturing hub. Much of this production remains at the highest end of the value chain — with the manufacture and assembly of technical components.
Currently, the Vietnamese government has free trade agreements signed or in effect with all of its ASEAN counterparts as well as China, Korea, Japan, and most recently the European Union. It comes as no surprise that these nations make up the bulk of investment within the country. Additionally, the ability of the Vietnamese government to move quickly to institute domestic reform and conclude international agreements bodes well for the future when the challenges of wage inflation and automation will become more pronounced. The true test, however, will be time. No one knows for sure what the manufacturing landscape will look like in five or ten years.
SAIGON Inspiration Business HOW EMPLOYEE WELLNESS CAN BOOST YOUR BUSINESS
A healthy Vietnamese workforce is a productive workforce.
In the USA, some 80 percent of companies have employee wellness plans and an incredible 92 percent of businesses with over 200 employees have such programs. This is sensible: return on investment (ROI) on wellness programs is about 3:1 because of reductions in absenteeism, staff turnover, and stress reduction. For example, Johnson & Johnson’s wellness and prevention programs implemented over three decades ago have resulted in tangibly better productivity, employee health outcomes, and savings of millions of dollars. With these kinds of numbers, the verdict is: good health is good for business.
Traditionally, businesses in Vietnam haven’t paid much attention to employee health, but the shifting economic landscape is likely to change this. As Vietnam’s businesses start to engage in increasingly high value-added activities, the reliance on low-cost, unskilled labor shifts to a more skilled and productive workforce. It is more disruptive and expensive when highly skilled employees leave or are out of commission: satisfaction, retention, and health go hand in hand.
Types of Wellness Programs in Vietnam
What exactly does an employee wellness program entail? Anything you want, really, as long as it results in healthier employees. One of the major misconceptions about wellness programs, and perhaps one of the reasons they haven’t been widely adopted in Vietnam, is that they’re expensive to maintain and take up valuable working time. In reality, every company can create its own program, investing as much time and money as they see fit.
Do you employ a lot of smokers (48 percent of Vietnamese men smoke)? Then provide information about quitting and offer cessation courses. Do your workers spend their lunch break at McDonald’s or go for other unhealthy, greasy street food? Encourage them to try healthier alternatives. Access to exercise and fitness outlets or at least information is also important.
Anything helps, as long as the employer encourages healthier habits for their workers. Investing in an employee’s health today will reduce health insurance payments and other costs down the line.
Protect Your Valuable Assets
At the moment, Vietnam’s government mandates that companies must have yearly health check-ups. Typically, that is the limit of HR concern for employee health, although lack of attention leads to less-than-optimal workplace productivity. So, it falls to C-level and senior leadership to examine and exploit the link between employee wellness and productivity.
So far, a few employee wellness programs have been offered sporadically. Teambuilding and event management provider Top Team has offered its managerial employees a wellness program, for example, as have safety training consultancy Integrated Safety Solutions, FV Hospital, and Victoria Healthcare international clinics. Check their websites to learn more.
Each company must carefully weigh the costs and benefits of a workforce that is more productive, has less absenteeism, feels cared for, and thus stays loyal (something that may help the high rate of turnover that plagues many companies). If our workers are not commodities but valuable assets for our success, they must be cared for. And nothing is more basic than safety and health.
See you at the gym!
SAIGON Inspiration Business CHINA+1: THE NEW FACE OF MANUFACTURING IN VIETNAM
To be updated
Foreign companies outsourcing operations to Vietnam to reduce costs and improve market share is nothing new.
The only things that seem to change are the companies changing the way that operations are relocated, and the countries that manage to attract capital inflows. Among nations competing for investment over the last decade, Vietnam has rapidly emerged as a highly effective location for future relocation in Southeast Asia.
Capitalising on rising costs and increasingly complex regulatory compliance requirements in neighboring China—the former “factory of the world”, the Vietnamese government’s accession to the WTO, competitive costs and receptive investment environment have made it a the ideal location for Chinese-based investors seeking to reduce costs and diversify supply chains.
China is not out of the picture altogether. Foreign investors and domestic Chinese companies largely view China’s production capabilities in a favorable light and place considerable value on its deep talent pools, top-tier infrastructure network, and excellent sourcing options.
Instead of abandoning the Chinese market, investors are choosing to supplement Chinese operations with low-cost inputs sourced from production facilities in markets such as Vietnam. While the structures of these operations differ greatly depending on the country in question, this production model has become widely known as China+1.
Vietnamese Competitiveness and China+1 Production
Vietnam’s close proximity to China, competitively priced labor, and a strong network of trade agreements have proven critical to its competitiveness as a China+1 destination. Cities such as Hai Phong are just 865km away from China’s manufacturing hub of Shenzhen. While a considerable journey, this is much closer than alternatives such as Jakarta (3,300km), Bangkok (2,750km), or Kuala Lumpur (3,025km).
By situating manufacturing cost centers close to traditional hubs in mainland China, investors are able to reduce costs with limited interruption or delays to currently existing supply chains. Foreign investors pursuing China+1 also generally benefit from cost reductions on wages, land pricing, and inputs. Vietnam again stands out in this respect, offering investors a minimum wage of 59 percent of that found in China and 70 percent of that in Thailand.
Finally, and perhaps most importantly, Vietnam’s network of trade agreements is among the best that manufacturers will be able to find in a country at this point on the value chain. Vietnam, unlike China which has historically used its low wages and large size to boost export competitiveness, has a wide network of trade agreements extending to key import markets across the globe.
Among this network are trade agreements with Korea and the European Union, as well as upcoming agreements with the European Union and, should everything go according to plan, members of the Trans Pacific Partnership (TPP). As a member of the Association of Southeast Asian Nations (ASEAN), Vietnam also benefits from the regional bloc’s trade agreements with China, Japan, Australia, New Zealand and India. Together these agreements provide a significant advantage over China that more than make up for the potential downsides.
Choosing What to Outsource
Foreign investors who invest in the Vietnamese market need to have a clear understanding of the capacity and limitations of Vietnamese production. As of 2018, Vietnam’s education and infrastructure are better suited to assembly and relatively low value-add manufacturing than many of the higher value-added processes becoming popular in mainland China.
Foreign investors often choose to enter the Vietnamese market gradually as a result of these limitations. Basic components or assembly are usually the first aspects of the production to be outsourced to Vietnam. As companies become more comfortable with the capabilities of their Vietnamese counterparts, production can be ramped up and more elements of the supply chain can be relocated.
Knowing What to Watch out for
As mentioned above, Vietnam’s real competitive advantage as a China+1 destination lies in its network of trade agreements. However, access to these agreements is not guaranteed. Most agreements have been negotiated recently and include “rules of origin provisions” that place limitations on what goods will qualify for tariff reductions.
Most often, origin requirements relate to the value added to exports in the Vietnamese market. As a rule of thumb, investors should attempt to move as much value as possible to Vietnamese production facilities and ensure that assembly facilities result in significant changes between inputs and their final output.
SAIGON Inspiration Business VIETNAM’S FOOD EXPORTS: HIGH OUTPUT, LOW VALUE
Even though Vietnam is one of the top 10 tea exporters in the world, branded, industrially produced tea is still a foreign concept.
Vietnamese people drink tea on a daily basis, and you’ve probably tasted the slightly bitter Vietnamese green tea, not to mention its watered-down iced version in Saigon’s restaurants. But have you ever heard of a brand of Vietnamese tea?Thang*, a former employee of Vinatea JSC, the largest tea producer, and exporter in Vietnam talked to us about the market for Vietnamese tea. The company exports to over 50 countries. The biggest markets are Pakistan, Taiwan, and Russia.
“Most of the tea products from Vietnam are exported under our brand, but they are not final products for direct consumption. The high volume exports are black tea in primary forms, used as ingredients for further processing by the importers, to add more value and suit their customers’ taste,” Thang said.
“We still lack the final-stage technology to produce black tea for consumption, so our products are exported at a low value. We only process green tea and some speciality varieties such as oolong tea for consumer products, but the output is low.” He added: “Green tea and black tea are produced from the same plant, but with different technical processes.”
With more than 125,000 hectares of tea plants in Northern and Central mountain provinces, such as Thai Nguyen, Son La and Lam Dong, Vietnam produces more tea for export than for domestic consumption. Thang explained, “In these mountainous provinces, the land is most suitable for growing tea plants, so the plant provides the livelihood for the people there. That’s why we grow more tea than we consume domestically.”
Vietnam is Chasing After High Value
However, high quantity doesn’t equal high value, and the story of Vietnamese tea is also typical of other agricultural products aimed at exports. Minister of Agriculture and Rural Development, Nguyen Xuan Cuong, told Vietnamnet that even though Vietnam is one of the 15 largest agricultural exporters in the world, 90 percent of export products are in “crude” form, with a low level of processing and low value. These products are often further processed and distributed under foreign brands, bringing added value to the importers.
For example, according to the Vietnam Cashew Association, Vietnam has been the number one cashew exporter for the past 12 years, processing more than 50 percent of the world’s output. However, Vietnam only participates in the preliminary processing stage, equal to 18 percent of the value chain.
The most profitable stages of salt roasting and distribution, accounting for a total of 60 percent in value, are not the strengths of Vietnamese companies. Vietnam is also the second-largest coffee exporter in the world, behind Brazil, taking up 10.5 percent of global coffee exports. However, according to the Vietnam Coffee-Cocoa Association (Vicofa), processed, roasted, ground and instant coffee only account for over 10 percent of total export value.
Jonas van Binsbergen, the owner of Shalom Coffee in Ho Chi Minh City, who has had many years working with Thai Hoa Group and contributed to making it one of the largest private coffee exporters in Vietnam, said that the company produced and exported for big global brands such as Nestle, Kraft Foods and Lavazza.
Similarly, though vegetable and fruit exports reached their highest ever peak of US$3.45 billion in 2017, Vietnam mainly exports fresh vegetables and fruits, with few companies investing in processing technology. Due to the short storage time of fresh products, most vegetable and fruit exports from Vietnam go to China, the largest importer with over 75 percent market share.
Defining Vietnam’s Coffee Quality
Another challenge is in ensuring the quality of export products, especially regarding food safety. Quality assurance in every stage of production and packaging is the first step for Vietnam’s agricultural products to penetrate more discerning markets. Binsbergen said, “A lot of [previously] state-owned enterprises are active in inspecting export products, such as CafeControl and VinaControl.” Industry groups including Vicofa are also involved in setting standards. On the other hand, inspection on the importing side is not done by the government of the destination country. “Usually the buyers have, and inspect by, their own standard.”
As Thang put it, “Quality of tea depends on everything from the material to the process. There is a right time to harvest the tea buds and to bring them into processing. We must also follow industry standards and international standards, including criteria for food safety such as pesticide residue and concentration of metal elements.”
This has to be done at the local farms and factories, before delivery to headquarters for packaging and shipping. Thang also shared how each importer has different requirements for packaging. For example, some require five protection wrapping layers or wooden boxes, and for consumer products, some specify exactly how they want the tea bags made.
Without proper investment in processing and packaging technology, as well as development in marketing and branding solutions, Vietnamese agricultural exporters will likely remain in the lower links of the global value chain.
This also applies to the domestic market with an increasing presence of international brands, filling in the gaps for processed food that local producers are leaving open.
SAIGON Inspiration Business BUILDING YOUR BRAND IN VIETNAM
An effective brand strategy in Vietnam and further is a must aspect of any business, large or small, retail or B2B.
Especially here in Vietnam, you need strong branding to compete in a tough market. Let us shed some light on what makes the Vietnamese market different from other regions and why it can be a tough nut to crack. One of the youngest, fastest, and most active markets in the world, Vietnam offers political stability and steady expansion. People in Vietnam are about to rise from relative poverty to become strong, well-funded consumers. To set up a successful branding strategy in Vietnam, it is necessary not only to understand the quirks of an emerging market but also Vietnamese culture. Let us look at the demographics first.
Women in the Vietnamese market
Like everywhere else, women are drawn toward fashion and promises of beauty, although the independent lady in red is not too popular here yet. Vietnamese women tend to be drawn to cute and feminine designs. Family and children are still a major focus, and with the growing awareness of environmental issues, so are health and safety.
Men in the Vietnamese market
Like everywhere else again, men are attracted to branding that speaks of strength and success. However, the Vietnamese also are drawn quite strongly towards technology. Maybe that’s because there are so many graduates in the banking, business and IT sectors, or because of the central role of technology in an emerging market.
Elderly in the Vietnamese market
Elderly people are still very traditional and family is even more important to them. Growth, safety, and other promises that support the concept of family as a safe haven are most effective for this group of people.
Youth in the Vietnamese market
Young people love Western influences, from skateboards and graffiti to shirts with prints in English that sometimes even make sense. But however much they are into Captain America, they still are deeply rooted in Vietnamese culture and for a variety of reasons prefer local brands to cover their daily needs. What all generations have in common is that family is usually more important than the individual. Together with their amazing optimism, they will always put the family first is the greatest strength of the Vietnamese people and a big opportunity for brand management.
The Use of Language in Vietnam
The fact that Vietnam uses the Roman alphabet may fool aspiring brand developers into thinking the choice of their brand name is easier than in China. Not really. The Vietnamese language is monosyllabic and that is how people read a brand name. Long, foreign words look complicated and are often too hard to get one’s head around in order to generate affinity. The shorter the better. Nestle and its water is a good example. In Vietnam, it is branded La Vie, “life” in French. Very easy for Vietnamese speakers to read, comprehend and memorize.
Foreign or Vietnamese Brand Name?
English names work well in Vietnam as long as they sound “nice”. Just take a look at some of the top native brands in the country: Vinamilk, Highlands Coffee, Vietnam Airlines, MBBank, Mobifone, Viettel, and so on. Of course, except for the first two, many brands are targeted not solely at local consumers and also have their eyes on international or at least ASEAN expansion.
Successful big brands with pure Vietnamese branding would be Trung Nguyen or Phuc Long, for example. Other brand names are short and “nice”, even if they (seemingly) possess no meaning. The language in which the brand is named doesn’t matter that much. What matters is that people can grasp the meaning of the word(s) and in case it’s foreign, that it’s easy to follow. Exceptions are brands that are mainly targeted at foreigners or Vietnamese with “foreign” aspirations. Travel agencies for example work much better with international names.
Preferred Colours in Vietnam
When it comes to colors, the approach in Vietnam is the same as in China. Red is the color of strength, luck, and success. Yellow is gold and means prosperity. Black and white, though the traditional colors of death, are nowadays symbols of minimalism and focus. Blue is clean and green is natural.
Target Categories in Vietnam
In Europe, we can decide to look cheap if we want to draw the customer’s eyes to our low prices. In Vietnam, that doesn’t work at the moment because if you want cheap products you head for the local market and street vendor stalls on Nguyen Trai. No brand is meant to look cheap. Developing a brand in Vietnam means communicating that something has value, no matter what pricing scheme you use. The relatively new Trung Nguyen Legend concept that pops up on every corner is a good example. The product, though better than street coffee, is not really high-end. But the branding appeals because it communicates high standards.
Black and gold, together with the word “Legend” – talk about posh stuff. Brands that appeal to the increasingly affluent group of customers will communicate quality with a stylish and simplistic design as well as a color palate. The aforementioned black and white are increasingly popular among many brands all over the country, even if it is just to be different from the colorful clutter that makes the ad landscape in Southeast Asia as lovely as it is complicated. Sometimes it’s better to whisper than to shout.
Market Trinity in Vietnam
Vietnam is actually not one market but three. The applicable strategies may differ strongly between the North, the South, and the Centre.
The North Vietnam
Hanoi and the Northern provinces are very traditional and judge a brand or product on the high value it exudes. Status symbols and quality presentation matter more than in the other regions.
The Centre of Vietnam
Even more traditional than in the North, people are strongly rooted in the old ways. Hue is the imperial center of the Nguyen dynasty, after all. You can communicate high value, safety, and family orientation, but innovation is not yet a part of people’s daily lives.
The South Vietnam
Much more open to innovation, Ho Chi Minh City, Da Lat and other urban areas of the Southern provinces drive the country to new heights. Many brands start here and once they are established, begin the arduous journey northwards. Saigon is where you try your new concept and see whether it leads to roaring success or dire loss.
Status Symbols in Vietnam
And here we enter the world of status symbols and their position in an emerging market like Vietnam. One of the first things you notice upon coming to Asia may be the high number of luxury cars. As soon as somebody can afford a Bentley, they will drive one. Of course, exceptions define the rule, and some successful business people drive their Mercedes to meetings while they use their good old Honda Wave motorbike to buy groceries.
Communicating value, success, and quality is a part of brand development in Vietnam as much as in other emerging Asian economies. Contrary to Europe, where a puritan mentality is ingrained by tradition, in Asia a person is judged by what they show off. If you have wealth to present to the world, you must be successful because people must be buying your product or service. Hence, it must be good.
Protect Your Brand in Vietnam
One important consideration: if you create your brand in Vietnam, consult a specialized lawyer who can help you register and protect it. Success draws in copycats, and without legal protection, it may be hard to stand your ground. Unlike patents or copyrights, where you generally only need to claim ownership once on the basis of a novel product or service, a trademark must be actively and continually asserted. Vietnam has made progress in these areas, but there is still some way to go. For more information on this, be sure to read our article on Protecting Your Assets.
SAIGON Inspiration Business VIETNAM’S RICHEST BUSINESS PEOPLE
Vietnamese people joke that half of our country must be billionaires, but just in dong.
In U.S. dollars, the process has taken a bit longer. However, now Vietnam has not only one but two billionaires, along with some other seriously wealthy individuals. Here are the heavy hitters you should keep an eye on.
Pham Nhat Vuong
The founder and chairman of the giant conglomerate Vingroup, Pham Nhat Vuong is Vietnam’s first and richest billionaire. In 2013, Forbes named Vuong the first Vietnamese billionaire with a net worth of US$1.5 billion. His current net worth, according to Forbes, is a whopping US$4.2 billion.
Born in 1968 in Hanoi, Pham Nhat Vuong was able to secure a scholarship to study in Moscow. After graduation, he got married and moved to Ukraine with his wife. There, he started his first business, a Vietnamese restaurant. Then he began making instant noodles under the brand Mivina, something completely novel to the taste of Ukrainians, and it became an immediate success. When he sold his noodle company, Technocom, to Nestle in 2009, it was making US$100 million in revenue.
With the money from his business in Ukraine, Pham Nhat Vuong returned to Vietnam and invested in real estate, starting with Vinpearl Resort in Nha Trang in 2003, and Vincom Center Ba Trieu in Hanoi in 2004. Within a decade, Vietnam witnessed the rise of Vingroup as its largest and most efficient real estate developer. The conglomerate is now expanding into retail, logistics, agriculture, education, and healthcare, making Pham Nhat Vuong the richest man in Vietnam.
Nguyen Thi Phuong Thao
Nguyen Thi Phuong Thao was named Vietnam’s second billionaire by Forbes in March 2017 with a net worth of US$1.2 billion, after her budget airline, Vietjet Air, went public in February. She is the first self-made female billionaire in Southeast Asia and remains on Forbes’ list of 100 most powerful women in the world. Her current net worth is US$2.3 billion.
She also started her success with a scholarship to Moscow, and while still in university, she began trading consumer goods between the then Soviet Union and Japan, South Korea, and Hong Kong and made her first million dollars at 21.
Returning to Vietnam, she first invested in finance and real estate through Sovico Holdings, a company owned by herself and her husband. She was one of the founders of Techcombank and VIB and is currently vice chairman of HDBank. Sovico Holdings also owns Furama Resort Danang and two other resorts in Khanh Hoa, and Ho Chi Minh City’s Dragon City project.
However, Nguyen Thi Phuong Thao is best known for being the CEO of Vietjet Air. She launched the airline in 2011 with a successful advertising campaign featuring bikini-clad flight attendants. It is the first private airline allowed to operate in Vietnam, and after five years it has gained 40 percent of the country’s flights.
Trinh Van Quyet
A newcomer in the real estate scene in Vietnam, FLC Group’s chairman Trinh Van Quyet is in fierce competition with Pham Nhat Vuong for the number-one spot in the list of richest people on Vietnam’s stock exchanges. He started his first business, a tutoring center, while attending Hanoi Law University, and then moved on to trade mobile phones. Upon graduating, he founded an investment consulting firm, which later became SMiC Law Firm in Hanoi, with offices in HCMC and Singapore.
FLC Group was established in 2010 and quickly made its name as an investor in many large-scale projects, such as its popular resorts in Sam Son, Thanh Hoa, and Quy Nhon, Binh Dinh. However, parts of these projects were constructed without a proper licensing process, leading to unregulated use of forest land, as later found out by the Ministry of Construction.
Tran Dinh Long
Tran Dinh Long is the chairman of Hoa Phat Group, a conglomerate in the steel industry, and this earned him the nickname “King of Steel”. He is the third-richest person on Vietnam’s stock exchanges. He has been with Hoa Phat since the 1990s and turned it into one of the largest and most profitable companies in the steel industry, producing 21 percent of Vietnam’s steel market in 2016, according to the Vietnamese Steel Association. The company’s profit in 2016 was almost US$300 million.
Doan Nguyen Duc
Doan Nguyen Duc became one of the richest people in Vietnam around 10 years ago when Hoang Anh Gia Lai was listed in 2008. In the same year, he bought the US$7.5 million Beechcraft King Air 350, realizing his childhood dream of having a private airplane.
He started a small business making students’ chairs and desks in 1990, after four failed attempts at entering a university. Hoang Anh Gia Lai JSC was established in 2006, as the business expanded into other industries such as minerals, hydropower, rubber, real estate, and football. Since 2015, however, Hoang Anh Gia Lai has been facing losses and big debts, and falling stock prices. Doan Nguyen Duc had to sell his shares, and now only owns 35 percent of the company.
Nguyen Dang Quang
The Bloomberg Billionaires Index recently named Nguyen Dang Quang, chairman, and co-founder of consumer conglomerate Masan Group, the third internationally recognized Vietnamese billionaire, with a net worth of US$1.2 billion. Quang was born in Quang Tri and spent many years in Russia. He has a doctorate in technical sciences from the National Academy of Sciences of Belarus, and an MBA from Plekhanov Russian Economic University.
He was Deputy Managing Director of Techcombank from 1995 to 1998 and Vice Chairman of Techcombank from 1999 to 2000. He founded Masan Investment JSC, an instant noodle and chili sauce producer in Russia, together with Ho Hung Anh in 1996. In 2001, he moved his focus back to the domestic market. Masan Group is now one of the top food brand owners in Vietnam.
SAIGON Inspiration Business VN SUES US FOR CATFISH RESTRICTION
To be updated
Measures imposed by the United States threaten Vietnam’s booming fishing industry
As a result, the southeast Asian country has filed a lawsuit at the World Trade Organization. Vietnam is challenging an import tax on Vietnamese catfish the US imposed to raise the price of fish. US trade authorities have accused Vietnam of “dumping”, or selling catfish at an excessively low price. The tax Vietnam is challenging is necessary to raise the price to a normal valuation, US trade authorities argued when the Department of Commerce won the right to impose the fee in 2003.
This event marks the third time Vietnam has challenged a US trade tax against Vietnamese catfish at the WTO. Vietnamese trade authorities are no amateurs in delivering legal action against trade opponents at the WTO; Vietnam previously twice challenged similar catfish taxes from the US. Vietnam’s exports of fish fillets to the US have increased from US$100 million in 2007 to over US$520 million in 2016, making Vietnam the US’s third-largest supplier following Chile and China.
In 2017, Vietnam’s catfish exports increased overall but its sales to the US have declined slightly as the foreign nation’s stiffer import demands have been enacted. Catfish sales to the US were down 10 percent from the year prior. The US was Vietnam’s top import market for Vietnamese fish, consuming 23 percent of exports, until last year when Europe took first place. The change has come partially as a result of these anti-dumping measures, as well as other means that don’t involve export duties.
Vietnam Net reported that Europe was becoming an unreliable customer because of a misinformation campaign in several countries that slandered Vietnam’s fish. In January 2017, a media outlet in Madrid ran a news report purporting to show that Vietnamese fish were being bred in substandard conditions and even being fed the carcasses of other fish. Similar coverage has appeared in Italy, Germany, and France as well. Organizations of catfish farmers have cried foul play accusing envious European producers and their more expensive fish of spreading false information.
However, Vietnamese fisheries have no shortage of demand. China is quickly becoming a top importer of Vietnam catfish. In 2016, the country purchased US$420 million worth of the nation’s catfish, up nearly 40 percent from the year prior.
Stiffer US Regulations
Last year, the US passed the Farm Bill. As part of the measure, inspections now fall to the stricter regulatory body of the United States Department of Agriculture rather than the US Food and Drug Administration, which had previously been responsible. As of September 2017, the USDA has reclassified the fish. Among other restrictions, it requires catfish production companies to use treated water instead of river water when transporting fish to processing factories via boat. In addition, water used during different phases of transportation would need to be collected and treated after the fish are delivered to a factory.
These fishing and transportation regulations are next to impossible for Vietnamese companies to accomplish and the changes required to meet them would prove monumentally costly. The law subjects all of Vietnam’s catfish exports to examination by the USDA’s Food Safety and Inspection Service. The Vietnam Pangasius Association maintains that the new regulations prevent the industry from maintaining the growth it has achieved over the last decade.
If the WTO rules in Vietnam’s favor, retaliatory trade tariffs could be imposed against the US as a means of compensation for the financial losses suffered by the fishing industry. US agricultural exports would likely be targeted. John Connelly, President of the National Fisheries Institute (NFI), said that this “should come to an as little surprise to those familiar with the decade-old history of this duplicative and wasteful program.” “The program is now poised to negatively impact significant US agricultural exports to Vietnam. Cotton, wheat and other grains, pork, soybeans, beef, poultry, eggs, and fruit, may end up in the crosshairs of retaliatory tariffs.”
“Farmers from Texas to Oregon and California to Georgia, who export tens of millions of dollars worth of their harvest to Vietnam annually, could become collateral damage in a campaign waged by catfish lobbyists to regulate their seafood competition out of the market”, Connelly continued.
The US is no stranger to the kind of litigation being enacted by Vietnam. In a 2015 lawsuit brought against the US by Canada and Mexico, the WTO ruled that meat-labeling requirements imposed by the US violated international agreements and were deemed an unlawful trade barrier. Congress responded by repealing the unfair regulations. US farmers and ranchers would have been harmed by tariff retaliations and loss of access to the markets in those countries.
A Banner Year
Vietnam’s catfish currently sells for around VND30,000 per kilogram in domestic sales. Farmers selling for these prices are making around VND4,000 to 6,000 per kilo of fish meat. In general, the values of domestic catfish sales go down toward the end of the year because the year’s contracts are typically fulfilled by this time. However, an increased interest in catfish has created a persistent demand that remained unfulfilled through the end of the year.
Concurrently, water space allotted to catfish production has also increased. In 2017, the area dedicated to catfish farming in the Mekong Delta expanded by 3.1 percent. This was a factor that led to a 5.4 percent increase in catfish production, 1.3 million tonnes.
SAIGON Inspiration Business KEY OPINION LEADERS: INFLUENCING RETAIL DECISIONS IN VIETNAM
Can KOL make a difference in influencing consumer behavior in Vietnam?
The term “influencer marketing” is a common marketing buzzword used globally by brands and advertising agencies to target specific groups of consumers by involving an individual or personality with a strong social media presence to create branded and unbranded content.
Influencers—also generally referred to as Key Opinion Leaders (KOLs)—are seen as both ambassadors for a particular brand and a representation of the typical consumer with an opinion that goes far and wide, thereby being able to influence consumer choices.
By helping to build awareness and sales among a target demographic—usually the tech-savvy and those who spend more time online than in front of the television—influencer marketing is on its way to becoming more popular than traditional marketing tactics relying on print and television ads.
Vietnam’s Influencers in Various Industries
So who are the notable influencers in Vietnam today?
According to Influence Asia Council, Vietnamese influencers are listed in various categories. Well-known “Beauty” KOLs include Changmakeup, Chloe Nguyen, Trinh Pham, and Quynh Anh Shyn. Decao, Chau Bui, and Kelbin Lei are sought after for their opinions on fashion. And for food, Helen Le, Kiyoshi Jiro, Ninh Tito, and Esheep Kitchen top the charts in terms of followers and social media reach.
Other content categories where these figures are active include health, lifestyle, and parenting. YouTube personalities such as An Nguy, Pho Dac Biet, JVEvermind, and HuyMe Productions are also constantly engaged by brands to incorporate branded and unbranded content into their channels.
Becoming an Influencer in Vietnam
Celebrity endorsements on television commercials are still a common marketing tool for brands. However, these commercials are mostly staged and the personality in question may or may not actually be using these products.
This is part of what gives the opinions of KOLs a stronger edge. They typically have active Instagram and Facebook accounts specializing in a particular topic, and they start to gain recognition as an opinion leader.
Beauty bloggers for example, often start off by highlighting products that they feel are best for their skin and by applying the products in front of a camera. They then post reviews about the product. This format gives consumers a chance to see the products in action, with a credible review by someone who actually used it.
Sometimes the road to becoming an influencer can appear by chance. For example, when popular YouTube content—like video game commentary by bloggers like PewdiePie, or even videos of new products getting unboxed by tech geeks—receives high viewer numbers the content creator can be transformed into an influencer.
Almost Everyone Online Follows One
In Vietnam, influencer marketing has reached new heights with global brands such as Samsung getting into the fray. Samsung recently launched their Galaxy S9 phone with a campaign featuring YouTube personalities creating content using the phone’s camera and highlighting its enhanced slow motion feature.
More than 60 percent of internet users of all age groups in Vietnam have interacted with an influencer by either liking or sharing their content, according to consumer research firm DI Marketing.
Nearly half of internet users have gone one step further and commented directly on the content. Most internet users in the country rely on Facebook or YouTube to follow influencers. According to a 2016 survey by DI Marketing, 84 percent of respondents follow an influencer on Facebook, 61 percent on YouTube and 59 percent rely on online news sites. The wide reach of these influencers is the main reason why marketers in the country are resorting to social networks as key marketing channels.
Three Modes of Engagement
There are three styles that define the way influencers and brands interact.
The first is that of mutual benefit.
Influencers and brands can share a symbiotic relationship by giving influencers the freedom to post content the way they always do while incorporating the brand’s message. This was achieved by Samsung Vietnam, with the Samsung Insider Circle, a community made up of invited influencers with tailor-made content for the brand. This allows influencers to post Samsung-related content on their own channels without veering away from their usual content and still getting paid for it.
One example would be the social media campaign for the new Galaxy S9 phone where KOLs such as beauty blogger Chloe Nguyen released videos of her usual makeup routines that were shot on the phone, using its “super slo-mo” function and uploaded on her Facebook and Instagram accounts. Although the actual video was unbranded, the captions that accompanied the videos, including the hashtags #samsung_vietnam and #WithGalaxyS9 were more than enough for audiences to know what camera the videos were shot on.
The second style is drawing the KOLs by designing events tailored to the influencer’s needs.
Influencer marketing is still a very new trend and many brands view influencers as a media channel, instead of creative in their own right. Le Meridien Saigon solved this by offering a 6-month long campaign that invited influencers to give workshops and be a part of the hotel’s coterie of luminaries.
The third style is to provide a real experience.
The current practice among beauty brands is to provide a sample of their product to an influencer to showcase and review, which usually yields a positive response from the influencer. For the launch of beauty brand Kiehl’s’ Calendula line, for example, they created a creative concept titled Peace, Love, and Calendula and sent out physical invites to influencers for an event at Takashimaya Saigon. At the event, beauty bloggers were invited to the Kiehl’s counter to get exclusive access to the products, and the chance to meet their fans while at it.
This turned what could have just been a digital campaign, into an interactive, offline experience where products could be seen and touched and the audience could see the product applied in real-time on their favorite personality, instead of just through a cold photograph or video on their newsfeed.
If You’re Big, It Pays
As the relationship between brand and influencer continues to evolve, with more integrated brand messaging platforms thanks to digital marketing agencies and influencer platforms innovating ways to reach bigger audiences, being an influencer might just be a legitimate career path for those seeking to establish themselves as a credible source of information while enjoying the spotlight and the many benefits that come with it.
YouTube pays the most, according to Forbes. Those with 7 million followers earned US$300,000 for sponsored content. On Facebook and Instagram, the influencers reported earnings of roughly half that.
Influencer platforms such as Hiip, the largest in Vietnam, have a database of over 2000 influencers with a clientele that includes international brands such as Heineken and Unilever. There are also dedicated media production companies such as Yeah1 Network that specialize in working together with influencers to create video content for them in partnership with brands.
Ultimately, it is up to the influencer to determine if they want to be a credible source of information for their followers, or turn into a media channel themselves by becoming the bridge between brand and consumer, or in an ideal situation, striking the right balance between both. This can only be done by being particular with the campaigns they choose to get themselves into and not be bogged down by posting content they don’t believe in.
SAIGON Inspiration Business CAN VIETNAM PRODUCE QUALITY COFFEE?
Meet The Expert: Interview With a Coffee Master
On a sunny Thursday in August, we went to The Workshop, an artisan coffee shop on Ngo Duc Ke street in Saigon’s District 1, to meet with Dung, a true expert on coffee in Vietnam. The Workshop is located in the same part of the street as Tandoor, but well hidden. Only a blue sign by the entrance indicates that a pearl of worldwide artisan coffee culture can be found upstairs.
The Workshop is nicely decorated with wooden elements. It appears like a mix of a modern designer café and coffee science museum, the tools of trade exhibited on shelves along the walls. In the center, there is the bar, where the trained staff performs the brewing process in front of your eyes. There is an original artwork on the walls and we instantly felt at home. We met Dung in the conference room adjacent to the spacious guest area. We introduced ourselves and he immediately started talking about coffee.
Dung Tuan Nguyen’s first experience with coffee was when he was two years old. His mother gave him coffee and the rest of the night he spend walking around the bed – to the very displeasure of his father who had to get up early. He really started drinking coffee when he was 12 or 13 years old. By the time he was in high school, he used the delicious brew to survive his tests. As a trained architect it was hard to find good work in Vietnam, so he switched between project management and hotel consultancy until he found his passion in coffee.
Working in the coffee business makes Dung feel good, and doing something that changes the fundamental thoughts people have about coffee is fun. His passion for the bean and the confident conversation that comes right to the point shows he knows as much about coffee as the second man. [Answers are paraphrased for purposes of brevity and readability.]
Citypassguide.com: What makes coffee so attractive to people?
Dung: There are several things that make us love coffee. First the reaction of our body and mind to the caffeine. It makes us alert, excites us, and makes the brain work better. Second, the cafés became an intellectual and social place for doing business or politics. And third, it tastes good and smells even better. Alone the smell of coffee makes people happy, even those who don’t drink coffee.
Citypassguide.com: Tell us about the significance of coffee in Vietnam.
Dung: Since the French introduced the coffee plant around 150 years ago, Vietnam became the second biggest producer in the world, right after Brazil. The country is number one in growing robusta. Since 1993, the government focuses on mass production, so many arabica plantations got destroyed and replaced. Today, 99.9% of the coffee grown in Vietnam is robusta and catimor, but the quality is rather poor.
Citypassguide.com: What is the difference between robusta and arabica?
Dung: Apart from the great difference in taste and the shape of the beans, the trees are very distinct. The arabica tree has 22 pairs of chromosomes, while the robusta tree has only 11 pairs. Robusta is, as the name already indicates, very robust and grows in lower altitudes. Arabica trees need much more attention and care. One hectare of arabica trees yields about seven tons of coffee, while the same area planted with robusta gives three times as much, but of low quality.
Citypassguide.com: What is the main constraint associated with the production of more arabica coffee in Vietnam?
Dung: People don’t care about the quality of the coffee. There is not much commitment from the buyer’s side, since they want a high production and a cheaper price. You have to go directly to the farmer and work with him. Just staying in the city and ordering the beans you want remotely is a bourgeois attitude. There are a lot of wealthy farmers in Cau Dat, but many coffee farmers of other regions of Da Lat, like Lang Biang for example, are poor and have to borrow from loan sharks to survive. At harvest time they collect every cherry to pay the interest. Farmers in debt are very common. If you really help them and be transparent about what you do, they trust you and are willing to enter a long-term relationship.
Citypassguide.com: How is coffee, especially more sophisticated specialties, perceived in Vietnam?
Dung: In Vietnam, coffee has to be thick, black, and bitter. That pretty much sums it up. But I am not trying to convert hardcore traditional coffee drinkers. I rather target people who love to drink good coffee, people overseas, people who usually don’t drink coffee, and ex-pats.
Citypassguide.com: What is the greatest weakness of Vietnamese coffee?
Dung: One of the greatest weaknesses of the country is that Vietnam doesn’t have an international brand, not even international recognition when it comes to coffee despite being the second largest exporter in the world. The big brands in Vietnam just screw the people. They just want to get cheap coffee and are obsessed with tons, even if they say they care. It is the same as with rice.
Citypassguide.com: How is the opportunity to create a brand around Vietnam?
Dung: We are at an age where quality and moral production becomes more important. In order to do that you have to be an authentic person, passionate, and have a love for what you do. We have to do things properly.
Citypassguide.com: What is the most important aspect of your work with farmers and customers?
Dung: Transparency. Everything has to be done transparently. If you offer a single-source product, it is pointless if you can’t name the farm where the coffee comes from. Several companies claim to source locally and sustainably, but they don’t disclose the origin. It really is all a matter of transparency and trust.
Citypassguide.com: Tell us something about the taste of coffee.
Dung: Dark roasted coffee usually tastes bitter and burned. When you roast light, you bring out the specific types, which we divide into seven general categories: Floral, fruity, herbal, honey/molasses, acidic/wine-ish. There is a lot of fruitiness in Kenyan and Colombian beans, while coffee from Laos, Panama, and Ethiopia is more floral. Vietnamese coffee is more fruity than floral. Check out the taste wheel at scaa.org to get a better idea of the flavors.
Citypassguide.com: How to create a perfect cup?
Dung: Nothing is perfect. Working with artisan coffee is a world of trying and experimenting. In the past, people thought dark roasted beans make the best coffee. The community of specialty coffee lovers discovered that roasting light brings out the best flavors. We always try new things. But to make a good cup of coffee, you need great beans, filtered water, and the right temperature.
However, the most important piece of equipment is the grinder. Invest in your grinder. You can buy a decent machine for around VND 700,000 up to VND 2,500,000. Electric grinders may be even pricier. The coffee should be ground evenly and not like dust or sand.
If you crave to taste Dung’s expertise firsthand, I recommend visiting The Workshop at 27 Ngo Duc Ke, Ben Nghe, District 1 ( on the 2nd floor) yourself. Pick one of the three beans they have on the menu, combine it with your favorite brewing method and you’re ready to go.
SAIGON Inspiration Business TIPS ON STARTING A BUSINESS IN VIETNAM
Things you must know when creating a business in Vietnam?
Whether you want to start an LLC, JSC, franchise, or any other sort of local entity in HCMC, there are myriad problems – from cultural precautions to transparency to taxes – that ultimately drive away the uninitiated.
LLC or JSC?
For the purposes of brevity, we’ll look at two particular local entities: the jointly-owned foreign Vietnamese LLC, and the JSC. The following information has been gathered with the aid of the Healy Consultants PLC website.
Joint-venture LLC – There are two shareholders in a joint-venture limited liability company: a foreigner and a local. This entity allows entry into many industries and foreign ownership can range from a maximum of 49% to 99%. These companies are required to have an appointed local legal representative, a capital account at a local bank, and a Foreign Investment Certificate (FIC).
Also required are a registered local address, a certificate of deposit from a local bank for the share capital ($50,000), and yearly audited financial statements. This entity is best for foreign business owners who want access to partially restricted industries, and when the business owner has a local partner they trust. It takes about three months to set up.
JSC – For a joint stock company, there must be three shareholders of any nationality, although one of them must be appointed as the legal representative of the business. If that representative is a foreigner, they will be required to get a work permit and show proof of at least one year of management experience.
In addition, requirements include a bank certificate as proof of the funds available for investment ($10,000), the opening of a capital account with a local bank, an FIC, and annual submission of audited financial statements. A JSC is a useful entity for anyone looking to start a business with more than two partners. The lower investment requirements are also a plus. It takes about two months to set up.
Labour and Tax
Kenneth Atkinson, the Executive Chairman at Grant Thornton Vietnam, pointed out two big factors to keep in mind:
The tax regime and labor laws are the two most important things to keep in mind. Both are quite complex. In the context of taxes, structuring your investments from a tax-planning perspective is very important. You have to ask yourself questions like, are you investing from your personal name? Are you investing through a corporate structure? What double tax treaties exist that make it beneficial to invest from, say, Singapore, instead of Hong Kong or the U.K. What is the impact of those regulations if you exit the business through a sale?
A thorough read of the Labour Code (vietnamlegal.com.vn is a useful resource) is a must, and when it comes to local taxes, Grant Thornton’s 2021 Doing Business in Vietnam report has a great overview of tax requirements.
If you’re coming from an Asian country, you’re likely to understand the cultural ways here better than Westerners. Gone are brash negotiations, rapid-fire contracts, and cutting to the chase. Vietnam in general is a long-term game that requires patience above all else.
The client meetings at karaoke bars (now slowly being overtaken by beer club meetings), the formal business cards exchange, the contract-over-drinks approach, the sheer politeness of it all – it’s all part of getting to know you as a person. People do business with whom they trust, and foreigners here seem to like these practices enough to uphold the local business culture. As Mr. Atkinson points out: “I actually prefer being handed a business card rather than some American guy flicking it across a table at me.”
A final story from Mr. Atkinson: In 1999, we had a fairly big project with the Asian Development Bank and the Ministry of Finance. I first went to dinner with these guys at the introduction of a Vietnamese friend. We had an enjoyable dinner and a few bottles of wine. Once it ended, my friend said they liked me, but they didn’t know Grant Thornton. So I said to one of the guys, What football team do you support? He said Manchester United. I said That’s great because we’re the auditors to Manchester United. Then two bottles of brandy appeared on the table and we stay there for another hour and a half. In the end, we actually got the job.
SAIGON Inspiration Business NETWORKING: YOUR GUIDE TO BUSINESS NETWORKING IN VIETNAM
Shall you invest time to strengthen your networking activities in Vietnam?
• Networking defined
• Cultivating deep connections with the people you want to collaborate with
• The secret to keeping your connections alive
Professional relationships are at the heart of every successful business networking can branch out to many opportunities if you are able to build a genuine connection with the right people. The question is, how do you get from where you are now to a well-connected businessman? Find out how you can effectively build your own network to pursue your goals, keep those connections alive, and get help from the right people.
Let’s Get Started – What Is Networking?
Networking is simply the process of interactions for establishing, building, and maintaining relationships for personal and business purposes. Networking will help you develop and improve your skill set, stay on top of the latest trends in your industry, keep a pulse on the job market, meet prospective mentors, partners, and clients, and gain access to the necessary resources that will foster your personal growth and support your career and business development.
Keep in mind that networking doesn’t begin or end at an event such as at a chamber of commerce or professional association. Networking can be done anywhere: at a bookstore, over lunch, or during a conference. It can continue long after the initial contact was made, and in the best cases, it will branch out into other opportunities to grow your professional community.
Before you get out there for some live, face-to-face interaction, it’s a good idea to get into the right mindset. One way is by developing an elevator pitch: a short description of what you do, who you work with, and the value you offer to your customers or clients. The goal is to be able to deliver this ‘pitch’ in 60 seconds or less, in a conversational way.
Professional relationship development expert, Keith Ferrazzi, recommends creating a relationship action plan for every professional goal that you have. Make a list of people who can be instrumental in helping you achieve a goal, even individuals you don’t know but do admire, and reach out to them. Ferrazzi also suggests writing down why each person is important, and how you would categorize the strength of your relationship on a scale of zero to five. This will help you develop a strategy to pursue your goals—and home in on getting help from the right people.
Connection Is Essential In Vietnam
Before you go out armed with business cards and an elevator pitch, be careful not to mistake networking for a face-to-face cold-calling opportunity. You are more likely to be successful if the people you want to influence know you, like you, respect you, and trust you. An immediate sales pitch will not build that type of relationship.
Successful networking aims for quality connections, not quantity. Instead of casting a wide net, direct it toward cultivating deep personal connections with the people you actually want to collaborate with. Figure out what you and the other person have in common—whether you went to the same school or love the same sports.
“I've learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.”
– Maya Angelou, Poet
It’s also helpful to know what others are truly interested in, from charities they support to any awards they’ve received. This shows your sincere interest in the other person as an individual, and also helps you understand how you can be of service. If you can offer something specifically geared to what’s important to them, they’ll be more open to connecting with you.
Always be real, humble, and vulnerable. I’m the Chairman and Chief Connecting Officer of the Business Executive Network in Vietnam. We have a membership of CEOs, Country Managers, and Senior Directors. It is not easy to impress these people with professional accomplishments. Instead, I recommend keeping it real and genuine, being ‘open’ and authentic, I even recommend ‘boasting’ about your weaknesses; this draws people to you quicker and wins sincere admiration and trust.
Put Others’ Needs Ahead Of Your Own
One of the biggest networking mistakes people make is asking for too much too soon. One cardinal key of successful networking is ‘Give before you can get. I can’t emphasize this enough: if you want to form a relationship with another person, you first need to show them how they’ll benefit, says Keith Ferrazzi.
As it is when you bring a small gift to a dinner party, it is a good idea to offer a potential partner a token of generosity. The gesture can be as simple as forwarding a relevant article or providing an introduction to someone who can further the person’s own interests. It’s helpful to think of networking like a bank account: you have to make deposits before making a withdrawal.
“The successful networkers I know, the ones receiving tons of referrals and feeling truly happy about themselves, continually put the other person's needs ahead of their own.”
- Bob Burg, author of The Go-Giver
Value The Strength Of Diversity
We tend to hang out with people similar to ourselves. But leveraging on a diverse group of skills, knowledge, and personalities is key to professional networking. Seek relationships with totally different people who can introduce you to brand-new social clusters. Not only will you gain access to potentially influential individuals whom you’d otherwise never meet, but it will help you stand out from the pack.
Someone I know became a member of an organization of women business owners. They allow men to join, so he asked a female friend to sponsor him at a meeting. Everyone remembered him because he was one of two or three guys there and ended up getting a lot of business out of it.
“Everyone you will ever meet knows something you don't.”
- Bill Nye
SAIGON Inspiration Business WHAT IT TAKES TO RUN A SUCCESSFUL RESTAURANT IN SAIGON
The restaurant market in Ho Chi Minh City is competitive
• Vietnam’s Economic development Drives the F&B Market to innovate and internationalize
• Restaurant Success in Saigon is about internal and external connections
• Successful brands should know and adapt to the local culture
Saigon’s food scene is as vibrant as it is dynamic; filled with wholesome energy of freshness, family, and tradition that permeates the social fabric of Vietnam. Here, gathering among kin in small family kitchens, streetside cafes, and restaurants serving fresh, abundant, and varied dishes reign supreme. Accordingly, it comes as no surprise that British Business Group Vietnam found fresh food to be the number one essential expenditure for Vietnamese households.
That proves what is no secret to the world: food is one of the major gateways to the heart of Vietnamese culture. The Vietnamese kitchen is where learned hands combine culture and tradition with creativity and concept to craft tastes, textures, and tones that connect people in a spirit of sharing and enjoyment. As Saigon’s booming economy drives foreign investment, an expanding middle class, and immigrant populations, restaurants old and new in the food and beverage scene are being forced to innovate while remaining connected to the hearts and stomachs of locals.
Development Drives Saigon’s, F&B Market
Vietnamese people have a long-standing entrepreneurial and service-oriented spirit that is now reaching global heights. In 2017, Vietnam ranked sixth in the Global Retail Development Index, making it one of the most promising retail markets. People are making and spending more than ever on high-quality food and beverages, and an enthusiastic, efficacious millennial generation is driving the city’s restaurant scene to innovate, trend, and internationalize while staying true to its Viet roots.
The city’s food obsession and the trends towards fusion are apparent everywhere you look. Joints serving Indian, Korean, Italian, French and more seem to sprout up quicker than rain clouds in October. Interestingly, even though the Vietnamese show a strong interest in the novelty of eating popular foreign foods or frequent foreign food brands, the market for local food is still two to three times stronger.
Besides the most obvious things like cost and menu, what does it take for a successful medium to the large restaurant to carve out a name for itself in the belly of this hungry beast? To find out, I caught up with a few food and beverage entrepreneurs to get a closer look, and the consensus is clear: success is all about connections and culture.
In Saigon, Restaurant Success Depends on Human Connection
Human Resources Can Make or Break an F&B Venture in Saigon
A successful restaurant in Saigon is like a human body: there are many working parts that must act cohesively. Asif Mehrudeen, the CEO and Creative Visionary of AHM Lifestyles, believes the sustenance of any F&B business in Saigon lies in the management and human resources provided.
Mehrudeen is a dynamic character who merges the mind of an accomplished entrepreneur with the ethos of an artist to bring to the city unique and inspiring F&B concepts that pay homage to the incredibly diverse Asian palate.
With 20 years of experience in the local industry as an executive chef, F&B concept creator, and owner with world-class Saigon projects including Sorae Japanese Restaurant, San Fu Lou Cantonese Kitchen and Di Mai Vietnamese Restaurant, he says his success lies with his team.
“Most [restaurant] success comes from above; you need to have strong management, ethics, philosophy – it’s not all about the money”, advises Mehrudeen. As an executive chef at Park Hyatt group, he realizes how a kitchen is never a one-man show and places his team at the heart of the soul of what he does. Together, they meticulously craft remarkable dining experiences for the city.
He’s been investing in cultivating connections within his team by providing outstanding human resources to ensure each person feels they’re an integral part of the mission. “To do that, you have to make sure to provide a great career path, speak to [staff], see how they are doing, invest in them, share opportunities with them…”.
“Developing strong Human Resources is the most important but also the most difficult thing for restaurants to do,” agrees Hung (Kevin) Bui. For him, strong connections with the community surrounding the company are of equal importance.
Kevin is a young, enthusiastic businessman who hails from Hanoi and is the perfect representation of Vietnam’s growing demographic of young working professionals investing in and driving the local economy. With a Master’s in Accounting from Texas Christian University, he works as an investment advisor while running Italiani’s Pizza, the kitchen at Indika Saigon, and an Online Pizza Pub.
As a fresh face on the scene opening Italiani’s Pizza on his own back in 2016, his success has also depended on communal relationships. “For new owners specifically, building a place, finding contractors, construction companies etc. is hard when you don’t know how to find reputable contractors. That’s why you have to build connections with other F&B entrepreneurs, the community around your location, and especially connect with the local authorities, People’s Committees and others, so that you can get assistance when it comes to navigating regulations and licensing”.
Successful F&B Brands in Saigon Engage with the Local Culture
Eating out with kin is a prominent feature of Vietnamese culture. A study from Vietnam Briefing found that in 2017, Vietnam saw 328.6 million visits to food service outlets. With Saigon being home to the country’s largest urban population, the fastest growing economy, and a growing populace of people from every region of the country and world, locals enjoy an effervescent and abounding foodscape.
This is easy to see if you frequent the street sides during meal hours, when everything from humble kitchens and food carts to canteens, hot pots, and barbecues fill with the clamor of hungry Vietnamese workers. This is precisely why new F&B ventures in Saigon need their concept to speak to the local culture: they know what they love and they will find it.
Carlo Anzo, a Saigon F&B veteran of 20 years and owner of Pendolasco—the original authentic Italian food spot in town—says it’s important that aspiring names in the industry “be realistic, and although you are following your dream to open the ‘best’ and ‘most original’ restaurant, don’t forget the social environment where you are”.
“Vietnamese like a sharing environment, so most things are about sharing because of the culture. Offer platters and let them help themselves. Culturally they eat together and they share, and they love to relax, enjoy themselves, and sit sipping a coffee for hours”
– Asif Medhrudeen works with a team of local designers to create dining experiences that emulate the food culture.
Kevin adds, “If you want to be successful here, you have to know and adapt to Vietnamese customers’ needs. Even if you serve Western food, you need to adapt the ingredients to speak to locals”.
Great F&B Ventures in Saigon Have Key Ingredients
Ho Chi Minh City is changing rapidly. In most industries, there are major shifts taking place thanks to an expanding economy, changing generational influence, and distribution of wealth. Locals like Kevin and foreigners like Muhredeen and Anzo are riding a palpable wave of excitement for both groups as the city transforms before their eyes.
Ultimately, what underlies the success of a restaurant in Saigon is a dash of human connection, a pinch of respect, and a sprinkle of mutual partnerships with the local community and culture. Add to that a passion for creating memorable and meaningful dining experiences for the people who call this city home, and you’ve got an authentic Saigonese recipe for restaurant success.
SAIGON Inspiration Business solar-energy-in-vietnam-high-hopes-little-action
To be updated
Vietnamese electricity is cheap and—largely—dependable, but is it green?
At the moment, government-owned Vietnam Electricity (EVN) is the sole provider in the country, and this job is getting more and more demanding by the day. In 2000, the energy usage per capita was listed at 294.04kWh. In 2014, when the data ended, usage skyrocketed to 1,439.16kWh, propelled by expansive electricity coverage in rural regions and the proliferation of high-energy manufacturing plants.
At EVN, coal reigns. More than half of the energy in the country comes from coal burning, the rest from oil and gas; renewable energy sources are negligible.
The Vietnamese government aims to raise the renewables rate to 6.5 percent by 2020, and 10 percent by 2030.
In terms of megawatts, the current 850 MW generated by clean energy would be increased to 4,000 MW by 2020, and 12,000 MW by 2030. Experts doubt whether even the new numbers will be met.
Full of Energy
This isn’t for lack of trying. As Ocean Nguyen from Red Sun Energy JSC told us, “Our government wants companies to use solar energy. They want to reduce the amount [of traditional electricity] they use.” So far, this has been a primarily top-down approach. For one, government subsidies are available for companies committed to producing alternative forms of energy. Additionally, Nguyen said that a plan is in place to use solar power for government buildings, as well as large government-owned companies.
Vinamilk is one high-profile company with a commitment to solar, having introduced sun energy in its dairy farms; others are likely to follow suit.
With a stated commitment to improving renewable energy usage, the question becomes: why isn’t the adoption coming quicker? In September 2017 a highly publicized pilot auction program was circulated, and announced in a conference held by The World Bank and the Ministry of Industry and Trade. The main takeaway from the document was the introduction of an official Feed-in-Tariff—the amount of money per kilowatt-hour paid to owners of solar energy sources who sell their energy to EVN.
At 9.35 US cents, the rate falls below the standard of other Southeast Asian countries, and by fixing the price in USD, potential investors worry that the rate could be affected by shifting foreign currency rates. Nguyen recognizes that some potential customers are turned off by the fact that setting up solar power capabilities is still relatively expensive compared to using traditional electricity, though in five years he says enough energy has been generated to pay for itself. For the time being, it seems focusing on companies rather than individual consumers will make the most impact.
The Domestic Sun Rising
Despite potential problems, multinational companies like GE have been turning to Vietnam as a potential place of business, though at the moment local companies are most active. In October, Sao Mai Group partnered with USAID to invest in a 210 MW solar power project worth US$193.35 million, to be located in An Giang Province. HCMC-based TTC Corporation is also getting some skin in the game, initiating several projects in central and southern Vietnam. The projects will be worth around VND3 trillion (US$133,500 million) and will start construction in Q1 of this year. However, until residents begin to embrace alternative energy sources as readily, the country will likely be looking at coal for some time in the future.
SAIGON Inspiration Business HOW TO DO BUSINESS THE VIETNAMESE WAY
Foreign direct investment has never been so high in Vietnam, and more people are doing business in Vietnam every year.
But as every CEO knows, business is about developing and maintaining good relationships more than anything else. Here are some cultural considerations to keep in mind when setting up a business meeting in Vietnam.
In Vietnam, Bring Business Cards
Business cards are very important in Vietnam. Handing one out is usually the first contact point when meeting someone new or entering a meeting. When receiving and giving out business cards, always use both hands: it is a sign of respect. Spend a moment reviewing the card and never tuck it in your pocket. Keep it near you until the meeting’s end and then put it away. Tip: get a separate card case to store your cards so they look fresh when you present them.
In Vietnam, Eat What You Are Served
If you are offered tea or water at a meeting, acknowledge the hospitality. It is considered rude to not take at least a polite sip. You don’t need to finish your drink. The same applies to food placed onto your plate. Furthermore, if you are sharing a family-style meal with a business partner, do not pick up the last piece of food. It is meant to be there. However, should someone put it onto your plate, it is open season for your belly!
Write Ahead of Time
In the earlier stages of a business relationship, there should be a larger emphasis on formalities and civilities. Before meeting a potential partner, it is best to engage in written correspondence. All business communication should be written in a very formal style.
Meet the Vietnamese People
Vietnamese people prefer to build working relationships through face-to-face meetings. Invest some time in establishing a solid personal and business relationship. Generally, initial meetings are solely used to get to know one another better.
Watch Your Body Language
Use your whole hand to point things out instead of using only a single finger. Also, keep your hand gestures to a minimum. Gesticulation in business meetings can be construed as rude and tends to make Vietnamese uncomfortable.
Bring a Gift
It is customary to bring a small gift if you are meeting a partner for the first time or on special occasions such as Tet, birthdays, and anniversaries. The gift does not have to be expensive, but make sure that there is enough for everyone. If the gifts are of different values, the most senior person gets the most expensive. Bonus points if you wrap it in colorful paper.
Know a Bit of the Language
Vietnamese are not expecting you to grasp the language fluently, but knowing a few phrases goes a long way in business relationships.
Vietnam is notorious for its bureaucracy. You might have to go to the same ministry several times due to minuscule changes in the law or some other seemingly inane shred of red tape. Just take a deep breath and bear it.
SAIGON Inspiration Business BURGEONING CONSUMER CULTURE BRINGS VIETNAM NEW CREDIT, DEBT
To be updated
Borrowing money from banks, especially for consumer goods is a relatively new concept for most Vietnamese consumers.
When Jonas van Binsbergen first decided to found his own coffee company in Vietnam, there was one thing he knew he didn’t want to do: borrow money from a bank. It wasn’t so much a fact that he was doing business in Vietnam, but rather that he was doing business in general.
“Especially for entrepreneurs, not having a loan means that you’re free in how you can spend your time, how you want to make your own decisions, what you want to do,” he said. If you take out a loan, “maybe you also become, in a way, more dependent.”
Van Binsbergen attributes this business decision to a byproduct of coming of age in the heart of the financial crisis of 2007/2008. Though he was never personally affected by the debt crisis, he “heard a lot of stories”. Today, he has opened five of his Shalom Coffee shops in Ho Chi Minh City, starting in District 2 and slowly expanding outward when he had enough capital to do so. It’s the control he values most, and it’s just this control slowly slipping away from many private consumers in Vietnam.
Following the Ups and Downs
The fact that Van Binsbergen never borrowed money from the bank does not mean that he never borrowed money at all. Instead of dipping into a professional institution, the business owner preferred instead to borrow money from friends and family. “We did this in the past and we paid that back, and I think for Vietnamese business owners this is very OK,” he said.
Today, personal finances have taken a more systematized approach. For Ralf Matthaes, Managing Director of consumer research company Infocus Mekong Research, the change happened in 2007 and 2008, smack dab in the middle of both the financial crisis and Vietnam’s entry into the WTO. While Vietnam’s long-awaited entry meant good things for international trade, it also profoundly affected the country’s financial environment domestically.
“A lot of these consumer finance companies came in, and [they would lend] anything from US$1,500 to US$3,000 if you want to buy a new bike, or whatever else,” he said. “So I think that sort of spawned it.”
The largest of these companies, Home Credit Vietnam, came from the Czech Republic and set up camp in Vietnam in 2009. Other notable companies include FE Credit (a branch of the Vietnamese VP Bank, established in 2010); SHA (in cooperation with SHB, established in 2006); and Prudential Vietnam Finance (the UK, established in 2007). All advertise quick, professional service and money delivered fast.
Independent lending houses have sprung up alongside a spate of financial institutions developed within both state-owned banks (BIDV and Vietinbank are big players) and commercial banks (Sacombank and ACB also have a part of the action)—a necessity as regulations stipulate that only certified finance companies are allowed to carry out consumer credit activities.
Today Vietnamese consumers use these companies to borrow money of wildly varying amounts, and the number of customers is increasing every year. According to a market report by StoxPlus, a “robust surge” of 18 percent occurred in 2014, while the market increased 44.1 percent in 2015. Loan balances shot up alongside: US$10.5 billion in December 2014, and US$15.12 billion at the end of the next year.
Whether these loans will eventually lead to outstanding debts is another issue entirely. According to the same report, in 2016 the outstanding loan balance reached US$26.65 billion, 11.4 percent of the total loan value in Vietnam. While outstanding loans might not necessarily mean they are bad debts, it does point in a troubling direction—one that might potentially affect the current, official, very low non-performing loan (NPL) rate of under 3 percent.
Chris Kapfer in theasianbanker.com sate that in Vietnam "Between 2019 to 2022, banks will launch full digital banking blueprints, making more structural changes at the back office to tap fully into a rapidly growing consumer banking market."
Though the number looks manageable, many experts believe the lack of transparency in the system, as well as a changing definition of what an NPL actually is, means that the number could actually be much higher. After experiencing a 17.2 percent official NPL rate in 2012, during the height of Vietnam’s own banking and real-estate crisis, encouraging faith in the financial system has been hard-fought, but also recently won.
2021 Interest rates on bank credit to the private sector
“We’ve been working with some of the banks recently, and the portfolio of products that they have is really quite astounding, what’s happened over the past 10 years,” Matthaes said.
His own research company has recently focussed on mobile banking trends of 2017, and according to his numbers, the outlook for an increased presence of banking in digital form is good, and perhaps the key for companies looking to invest in consumer financing in the future. The Ministry of Finance has worked to encourage the bank account adoption for decades.
From 2010 to 2012, interest rates soared from 8 percent to 15 percent in four short years, topping at the height of the financial crisis. Just as suddenly, they dropped precipitously down to 6.5 percent in 2015. Today, 6.25 is the average, a cut made in July 2017 despite advice by the International Monetary Fund to keep the rate where it was; the State Bank of Vietnam defended the decision, saying it would boost the economy and raise the GDP closer to the 6.7 percent target for 2017.
Offering loans and providing credit is not in itself bad, or inherently bad for an economy; even debt, at least what is termed “good debt” (investment that will likely lead to capital gains in the future, such as a loan for a university degree or for a house to put up for lease), can actually strengthen an economy. For Vietnam, in the past few years, the trouble has come from grey areas surrounding the lending system in general.
“There’s a catch-22,” Matthaes said. “What is considered a bad loan? There aren’t clear bankruptcy laws, and the financial institutions aren’t [in] positions or don’t have the resources to actually be able to collect the bad debt. So what they do is extend your loan and lower your interest rate, so they can get their money back.”
Vietnamese law does reference alternative loan repayment, though the terms are vague. Sales of secured properties are committed, either through an auction centre or a “qualified enterprise”, which has set auctioning as its business line; the properties go to the lender once the value of the property is determined, though by all accounts this procedure rarely happens. Even rarer is declaring for bankruptcy, so much so that no system for financial reorganization is in place.
Huong Pham, a former employee of ACB who spent five years in the organization’s valuation department, said that the financial system depends on a five-tiered system called nhóm nợ (group debt), organized by an overarching Credit Information Centre (CIC), launched in 1992 and controlled by SBV. Today the system is used by all banks in Vietnam, commercial and state-owned alike.
Depending on how late a payment is, the customer slowly travels down the tier, with opportunities to renew the loan under different terms depending on multiple factors. By level five, the loan is considered an NPL, though this isn’t a guarantee that the bank will sue the individual for defaulting on the payments; property seizure is by all accounts considered a last resort.
“There’s not enough transparency in the system to understand what is considered a bad loan and what isn’t,” Matthaes said. “I think it just gets shuffled around.” During Pham’s experience at ACB, one of the few banks in Vietnam that has an in-house valuation department, real estate collateral is usually used to insure a loan and is usually used for larger loans.
For smaller loans, between US$1,000 to US$3,000, and for people who do not own property, the system becomes a bit more nebulous—these smaller loans are exactly the ones that have been rising in popularity. According to Matthaes’s recent debt survey done across Vietnam, four out of 10 urban dwellers have taken out a loan in the past year. A staggering 42 percent listed the reason as “personal”, a broad category that includes everything from vacations to new computers to upgraded smartphones. Further, 30 percent used the loan for real estate, 32 percent for business, 6 percent for automotive payments, and 10 percent for education.
“Obviously that doesn’t add up to 100 percent,” Matthaes noted. “It adds up to more, but that’s because people are taking out multiple loans a year.”
With most loans supporting personal products that won’t lead to income in the future, if the customer defaults on the loan, this automatically becomes bad debt. Matthaes does not see it as a potential problem for the country, but rather as a necessary step as the economy continues to develop. “Everybody has to go through it,” he said. “Thailand went through it, Indonesia went through it. In many ways, I think Vietnam is ahead of the curve, simply because the people are more industrious.”
As lending practices grow and become more legitimized in daily life, and digital devices become expected parts for every urbanist, money management has become a priority for some. For Cong Le, COO of the popular app Money Lover, the creation of the account-management system was born not out of opportunity but necessity.
“[Founder Ngo Xuan Huy] created the app as a personal solution, for his own reasons. He wanted to control how much he spent, and his cash flow, and he couldn’t find a product on the market that did it well and simply. He wanted an app, and he could only find systems online,” Le told us.
Created in 2012, the free app—it also comes with a premium version available for a monthly fee—is an intuitive system that allows customers to log purchases and deposits. By labeling the reason for each expense, the program creates a personal pie chart and makes suggestions on overspending or budgeting. If a personal goal has been set, the app will alert the user when spending becomes untenable for it.
The app was voted the Best App of 2017 by Google Play, and currently has 1 million active users in Vietnam. Le said the popularity has spread abroad, mainly to the United States. Currently, the Money Lover team plans to push marketing in neighboring Southeast Asian countries, such as Malaysia and Cambodia. Le said the app currently doesn’t work with banks, though the company is in the process of developing connections with two at the moment. He declines to specify which.
“Right now, you can only manage personal finances in cash [with the app], but when we work with banks, we can manage credit money and loans,” he said.
Developing in tandem with banks in Vietnam is a major priority for Le’s team. “We’ll redesign the product, which will help banks provide tools for customers, and help them make loan recommendations.” Le himself says he’s never taken out a loan. Asked if he only uses cash and a debit card, he said, “I have a credit card. I like it, I can just pay for it when I get paid every month.”
The benefits of credit cards are high, though Le notes that many Vietnamese don’t have credit cards yet, simply because the requirements for approval require larger salaries than many workers have at the moment. This is likely to change in the next year. In October 2017, Korean giant Lotte announced intentions to introduce its Lotte Card to the Vietnamese market in partnership with Techcombank. FE Credit has also been pushing a credit card service.
“Vietnam has gone from a cash country to a debit country to a credit company to a debt country in 10 years,” Matthaes said.
SAIGON Inspiration Business HONG KONG AND SINGAPORE INVESTORS SEEK OPPORTUNITIES IN VIETNAM
To be updated
Vietnam’s new laws for foreigners, released in July 2015, have already had a great impact on the local housing market in the country.
Particularly, investors from within the region are amongst the first ones to actively seek investment opportunities in the country. Savills Vietnam has seen great interest and real demand from foreign buyers based in Singapore and Hong Kong. To better understand the reasons for their aggressive moves it is important to look at the local housing market in these respective countries.
Property markets in Singapore and Hong Kong have been heating up over the last decade due to ever-increasing demand from local and foreign investors. While Singapore is a preferred investment destination for buyers from Malaysia, Indonesia, and mainland China, the market in Hong Kong has seen tremendous investment from the latter.
“Property markets in Singapore and Hong Kong have been heating up over the last decade”
To react to the social problems caused by the price increases – such as lack of affordability for first-home buyers – governments in both destinations have put cooling measures in place. These are now showing effect with a considerable drop in transactions, and prices are expected to drop in both countries.
In Singapore and Hong Kong, the governments reacted as early as 2009 with a variety of cooling measures, which included:
Increase of Buyer’s Stamp Duty (BSD) for purchases of multiple properties of up to 15% in Singapore and 8.5% in Hong Kong respectively, particularly for non-resident foreigners and entities.
Seller’s Stamp Duty (SSD) on the resale of properties with short holding periods in Singapore for periods of less than one year, which was later increased to three years. And in Hong Kong for two to three years.
Limits on loan-to-value for multiple unit purchases, meaning that buyers could not leverage purchases by using bank loans. Especially relative to foreign buyers or those who purchased multiple units.
These measures were specifically introduced to curb property investment and speculation – particularly by foreign investors – rather than preventing first-home buyers from purchasing units. The effects are finally starting to show with transactions and prices decreasing in both markets, and talks of property market crises making the rounds. More importantly, the yield potential in these markets has declined due to the additional purchasing costs.
Taking into consideration that Hong Kong and Singapore investors are amongst the most active in the region, Vietnam is seen as one of the most attractive destinations for property investment in Southeast Asia. With excellent yield potential and prices at a fraction of those in Hong Kong and Singapore, investors can purchase multiple units at the value of one property in their home markets.
“Vietnam is seen as one of the most attractive destinations for property investment in Southeast Asia”
Savills Vietnam was among the first real estate agencies to take advantage of this by creating an international sales department to actively promote Vietnam’s properties in these key markets; in collaboration with Savills regional offices.
“We have seen great interest in local developers to market their projects abroad, and have scheduled a series of sales events in Hong Kong and Singapore over the year 2016. Our offices in both countries are excited to promote Vietnam’s properties given that the easing of restrictions allows foreign investors to take advantage of low prices and excellent yields in comparison to their local markets,” says the head of International Residential Sales for Savills Vietnam. “Since the inception of the department, we’ve transacted nearly US$20 million in sales to foreigners without bringing projects abroad. We are confident that this number will increase dramatically over the coming months.”
The opening of the Vietnamese property market to foreign investors is expected to draw more foreign investment into Vietnam from private and institutional investors.