vietnam market research

Where is Vietnam

going from here ?

Damien DuhamelDamien DuhamelManaging Director Asia

www.solidiance.com

Where is Vietnam going from here?Damien Duhamel

3 objectives

� We were keen to invest in Vietnam, nowwe will definitely move forward

� We were not so keen to invest in� We were not so keen to invest inVietnam but we may now explorefurther

� We were not very keen to invest inVietnam and now we probably won’t

2

some

basic basic

Vietnam

facts

Where is Vietnam going from here?Damien Duhamel

0

2

4

6

8

10

12

80-90 90-03 2004 2005 2006 2007 2008 2009f

strong GDP growthReal GDP growth 1980 – 2006 (in %)Vietnam’s economic growth - on average –

well above 7% since 1990

� Vietnam has been consistently toppingthe economic growth performance inASEAN since 1990.

� CAGR GDP growth overt the past 15 yearsChina Thailand Vietnam

0

1000

2000

3000

4000

5000

2003 2004 2005 2006 2007 2008 2009f

China Thailand Vietnam

GDP per capita 2003 – 2006 (in US$)

� CAGR GDP growth overt the past 15 yearsis 8% - Only China has better numbers toshow in Asia (9%)

� Despite Vietnam’s impressive growthperformance over the past two decadesit is still catching up with Thailand andChina in terms of GDP per capita. Its GDPper capita is – at this moment – still roughly5 times lower than that of Thailand and 2.5times lower than that of China

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Where is Vietnam going from here?Damien Duhamel

timid and inconsistent FDISteadily growing flow of FDI intoVietnam, more to come.

� Vietnam’s regime has been graduallyliberalizing its economy since the 80s.Further liberalization was and will continueto be facilitated by WTO obligations.

� As a result, Vietnam has becomeincreasingly attractive to foreigninvestors, particularly in light of its strategic

20,000

16,000

14,000

investors, particularly in light of its strategiclocation in Southeast Asia, largepopulation, and abundance of naturalresources

� A steadily growing flow of FDI intoVietnam is testimony to this growingattraction, and underlines the success ofVietnam’s efforts to develop the countryinto a force in Asia to reckon with

Yearly FDI flow 1988 – 2009 (USD M)

2007 2008 2009f

5

Where is Vietnam going from here?Damien Duhamel

asia dominates FDI – where is the EU ?Top 10 Investors in Vietnam 1988 – 2008 (USD B)

Rank Country USD Billions

1 Korea 14

2 Singapore 12

3 Taiwan 11

4 Japan 10

5 BVI 9.5

Asia

5 BVI 9.5

6 HK 6

7 Malaysia 4.2

8 USA 4.1

9 Netherlands 2.6

10 France 2.3

…12 China 1.8

…15 UK 1.5

GC

EU

6

Where is Vietnam going from here?Damien Duhamel

south dominates FDI inflow

25%

FDI is focused on the South of Vietnam

� More than 55% of the total investmentcapital

between was invested into theSouth whilst the North accounted for a littleover 24%

� Besides the key cities, i.e. HCMC and

55%

� Besides the key cities, i.e. HCMC andHanoi,

investment poured mainly into provincesbordering HCMC such as Dong Nai(16.22%), Binh Duong (9.44%), and Vung Tau(5.56%)

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Where is Vietnam going from here?Damien Duhamel

industrial & manufacturing revolution

22%

8%

70%

22%

Key FDI sectors

� Roughly 70% of FDI is undertaken in theIndustry and Construction Sector, 22% in theServices Sector and the remainder in Agro-Fishery & Forestry. The investment intoservices is mostly in the area ofHotels, Offices, Transport and Telecom

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Where is Vietnam going from here?Damien Duhamel

Vietnam 2008 - growing pains…

“25%CPI!”-Overheating economy

-Over speculative mentality -Too fast banking sector

liberalization -Commodity climbing prices

impact-Natural market

readjustment“25% !” readjustment

-FDI still very impressive-Country remains most

attractive in Asean-Pains will ease after Tet 2009

-Vietnam remains insulated-Timed M&A activities

9

vietnam’s little dirty dirty

secrets

should we enter vietnam

now ?

Where is Vietnam going from here?Damien Duhamel

should we enter VN ?� Yes, if…

� You are selling machinery with uniquetechnology and applications

� You are in the IT and e-commerce fields –80,000 IT graduates a year and growing80,000 IT graduates a year and growing

� You are looking for a safe and affordablemanufacturing hub for exports (furniture /textile / CPG / Toys / etc.)

� Your products serve the infrastructure needsof the country or the new consumerism of itspeople

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Where is Vietnam going from here?Damien Duhamel

should we enter VN ?� Not really if…

� If your shareholders hope for immediatequarterly earnings. The Vietnamese havetime, your shareholders don’t…

� If you are in industries with low barriers toentry or solely capitalizing on your IP/Brand.

13

what specific specific

sectors?

Where is Vietnam going from here?Damien Duhamel

what specific sectors?

15

is vietnam still a communist

country?

Where is Vietnam going from here?Damien Duhamel

is Vietnam a communist country?� Yes just like China…� Vietnamese are pragmatic. “Why rock the

boat when it takes us to destination?”Personal economic advancement takesover political challenge.

� Modern and dynamic youth, they also wanttheir MTV… (or youtube as matter of fact)

� Modern and dynamic youth, they also wanttheir MTV… (or youtube as matter of fact)

� Vietnam has embraced globalisationthrough its membership of AFTA (1995), APEC(1998), the US Bilateral Trade Agreement(2001) and WTO (2007).

17

sustainable growth ? probably…

Where is Vietnam going from here?Damien Duhamel

sustainable growth ? probably… � Saving rates have spiraled from 5% to 35%.

Lots of native investment. The Vietnamese arenow taking control of their nation.

� Managed costs by default : Ten yearsago, Vietnam’s manufacturing wage costrepresented 95% of that of China’s.Today, that figure is about 65%, as growth hasToday, that figure is about 65%, as growth hasforced Chinese wages up.

� Unlike neighbors: Political stability. Industriousnation. Investment in education.

� The model of growth is very “Singaporean”

19

a few a few deja vu road

blocks

Where is Vietnam going from here?Damien Duhamel

a few déjà vu road blocks� Infrastructure: The Government has

committed 10% of GDP to infrastructure butthis will not be enough

� Everything is in need of total rehaul: airports /train / road / power / telecom / evencomplete cities. Investment and upgradescan’t cope with demand. Sectors need tocan’t cope with demand. Sectors need tobe liberalized to bring more privateinvestment

� SOE. Like in China they once were thebackbone of the Nation. They still represent30% of GDP. SOE financing and NPL remaina dark cloud

21

how do I sell and get my get my money (safely)?

Where is Vietnam going from here?Damien Duhamel

how do I sell and get my money (safely)? � You don’t !� Like in most developing nations, payments

and financing are an issue. There are nomagic formula for this thorn…

� Suggestions: some home banks have co-financing schemes, use agents (but their risk-carrying has a cost!), take your time and dofinancing schemes, use agents (but their risk-carrying has a cost!), take your time and doyour homework

� Lots of suspicion with foreigners in and out forquick dirty deals (their time is now over).

� Good news, if you sell expensivemachinery, your clients are likely to beSingaporeans…

23

is job hopping a national a national sport?

Where is Vietnam going from here?Damien Duhamel

is job-hopping a national sport? � The rule of supply and demand works the

same in VN. Right now there is lots ofdemand. Expect staff attrition a la Shanghai…

� Successful companies that have been able tosustain growth without HR issues hinderingalong the way have staffed key positions with1/3 expats, 1/3 Vietkhieu, “2/3” locals and1/3 expats, 1/3 Vietkhieu, “2/3” locals andprovided all with First World opportunities asopposed to working in a Third Worldenvironment.

� Wage inflation has shoot up and will continue.Current meltdown brings reality back, butreality will fade away fast.

25

do I need expats in vietnam ?in vietnam ?

Where is Vietnam going from here?Damien Duhamel

do I still need expats in Vietnam ? � Most likely yes. Especially for two positions:

Leadership and Financial “Controller”� Very small local pool of expats� Warning: few expat families survive the

country. Families break, contracts are cutshort, expensive relocations. A previous Asianexperience does not warrant success in VN. Ashort, expensive relocations. A previous Asianexperience does not warrant success in VN. Atough emerging nation experience isprobably best.

� Vietkhieu are more welcome now than in thepast. Employing overseas Vietnamese willdeliver either the best or the worst.

27

“vietnam is (still) hot, don’t get don’t get burned…”

Where is Vietnam going from here?Damien Duhamel

VN is (still) hot, don’t get burned… � Don’t think they don’t know or won’t know…� Don’t go in for a quick buck. It will be quick-burn� Work as diligently as you would elsewhere. Once

you cross to the Dark Side, you are in quick sands� The ATM syndrome. If you start to bribe, you will

never stop� GDP growth does not equate to earnings growth

Where is Vietnam going from here ?

� GDP growth does not equate to earnings growth� Look for growth and returns in three years ++� Learn to navigate the red tape and

bureaucracy, there is no escape� Integrate CSR into your strategy. The authorities

are sensitive to it.

29

Where is Vietnam going from here?Damien Duhamel

Cám òn qúi vi rhâtdamien@solidiance.com

30

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VIETNAMMARKET ACCESS AND LEGAL CHALLENGES

Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in

professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference

to an “office” means an office of any such law firm.

CHALLENGESEurochamber Breakfast Club

Nov 12 2008

Shanghai

Seck Yee Chung

CONTENT

• What is keeping us busy?

• Why?

• What are the legal challenges?• What are the legal challenges?

©2008 Baker & McKenzie 32

WHAT IS KEEPING US BUSY?

• Market access: FDI; M&A; rep offices

• WTO; trade and distribution

• Pharma and health care

• Cosmetics• Cosmetics

• Multi-Level Sales (MLS)

• Property; casino

• ITC; online activities

• Labor

• Customs and tax

• Compliance and dispute resolution

• Banking

• Clean Development Mechanism (CDM)?

©2008 Baker & McKenzie 33

WHY?

• Business does not sleep

• Geo-political stability; insulated

• Export; natural resources• Export; natural resources

• Growth - mid to long term

• Manufacturing; industrial products

• Consumer products

• Foreign investment; M&A

©2008 Baker & McKenzie 34

WHAT ARE THE LEGAL CHALLENGES?

• Rep office; Chief rep; PIT

• Investment Certificate; lease; translation

• M&A: foreign/local; private/OTC; 51%; management

• WTO compliance: Import vs distribution; warehousing; retail and Economic Needs Test (ENT)

• Customs; import valuation; automatic import license

• Selling pharmaceuticals

• Court and enforcement

©2008 Baker & McKenzie 35

Standard Chartered Bank’s Success

A case study

Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in

professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference

to an “office” means an office of any such law firm.

A case study

Simon Taylor

The Deal

• Standard Chartered Bank (SCB) buying shares

and convertible bonds in Asia Commercial Bank

(ACB) from the International Finance (ACB) from the International Finance

Corporation (IFC)

• Took stake from just over 7% to 15%

©2008 Baker & McKenzie 37

The Players

• SCB: Two branches and now a subsidiary in Vietnam;

long-term investment as strategic investor in ACB

• IFC: Active role in Vietnam; but keen to exit ACB• IFC: Active role in Vietnam; but keen to exit ACB

• ACB: Largest listed bank; supportive of transaction

• SBV: Banking regulator

• SSC: Stock market regulator

• HASTC: Exchange

©2008 Baker & McKenzie 38

The Issues

• Trading outside price trading band for listed

shares

• Unclear regulatory approval requirements• Unclear regulatory approval requirements

• Sensitive industry

©2008 Baker & McKenzie 39

The Solutions

• SSC/HASTC approval for one-off trading

mechanism

• Communication with SBV to clarify regulatory • Communication with SBV to clarify regulatory

approvals

• Involvement of ACB in process

©2008 Baker & McKenzie 40

The Lessons

• Be patient; plan for problems

• Maintain and utilize relationship with all key

playersplayers

©2008 Baker & McKenzie 41

THANK YOU …

BAKER & McKENZIE

12th Floor, Saigon Tower

29 Le Duan, District 129 Le Duan, District 1

Ho Chi Minh City, Vietnam

Tel: 848 3829 5585

Fax: 848 3829 5618

Yeechung.seck@bakernet.com

©2008 Baker & McKenzie 42