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


0

2

4

6

8

10

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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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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

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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

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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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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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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

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vietnam’s little dirty dirty

secrets

should we enter vietnam

now ?


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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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.

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what specific specific

sectors?


what specific sectors?

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is vietnam still a communist

country?


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).

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sustainable growth ? probably…


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”

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a few a few deja vu road

blocks


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

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


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…

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is job hopping a national a national sport?


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.

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do I need expats in vietnam ?in vietnam ?


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.

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


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.

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Cám òn qúi vi rhâ[email protected]

30

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China

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Singapore

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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)?


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


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


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%


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


The Issues

• Trading outside price trading band for listed

shares

• Unclear regulatory approval requirements• Unclear regulatory approval requirements

• Sensitive industry


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


The Lessons

• Be patient; plan for problems

• Maintain and utilize relationship with all key

playersplayers


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

[email protected]


vietnam market research

Business

south of vietnam

somebasic vietnam facts

fdi inflow fdi

growing flow of fdi

inconsistent fdi

damien duhamelvietnam

damien duhamelsouth

damien duhamelasia