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From Communism to Capitalism Vietnam’s Economic Transformation
Group 3 Mai M987Z243 Hong Sa M987Z231 Sonny M987Z261 Rahul M987Z207
Contents • Introduction • History of Vietnam’s economic expansion & GDP growth through 2008. • Present Day Vietnam Economic Conditions • Doing business in Vietnam • Where is the FDI going? • The Official and Unofficial Economy • How things changed after the economic transformation • Discussion Question 1 • What is the future of Vietnam’s economy? • Potential and Risk • Discussion Questions 2 & 3 • Conclusion • Q & A
General situation of Vietnam economy • 1990s, Vietnamese problems of macro-leading are poverty alleviation and economic restructuring in the direction of flow access to the region and internationally. • For a decade, united Vietnam’s economy was plagued with inefficiency and corruption in state programs, poor quality and underproduction and restriction on economic activities and trade. It also suffered from the trade embargo from the US and most of Europe after the Vietnam War. Hanoi, before 1975
General situation of Vietnam economy Economic variables in Vietnam period 1997 - 1998 under the influence spread from the financial crisis-the currency of East Asia, as a member of the regional economy.But a decade later, 2007 - 2008, inflation and declining growth occurred almost simultaneously with the global credit crisis, derived from "problem" loans below the houses in the United States and quickly soon negatively impact on the international financial system, including Vietnam.
General situation of Vietnam economy In October 2001, United States President George Bush signed an agreement that created a United States – Vietnam free trade area. The signing marked yet another milestone along Vietnam’s path toward a more open market, the timeline for which includes the following: In 2/ 1994, United State President Bill Clinton ended America’s 19-year economic embargo of Vietnam and opened the door for US companies to target the world’s 12th most populous country. In 7/1995, President Clinton re-establish diplomatic relations with Vietnam.
General situation of Vietnam economy In 1995, Vietnam joined the Association of Southeast Asian Nations. In 1998, the White House announced that it would exempt Vietnam. In 7/2000, US President Bill Clinton signed a trade pact with Vietnam. In 11/2006 the Asia-Pacific Economic Cooperation Summit was held in Hanoi. In 2007, Vietnam joined the WTO
GDP : $256 billion (2009 est.) GDP - real growth rate:4.4% (2009 est.) 6.2% (2008 est.) 8.5% (2007 est.) GDP - per capita:$2,900 (2009 est.) $2,800 (2008 est.) GDP - composition by sector:agriculture: 21.4% industry: 39.9% services: 38.7% (2009 est.) Labor force:47.66 million (2009 est.) Labor force - by occupation:agriculture: 55.6% industry: 18.9% services: 25.5% (July 2005) Unemployment rate:6.5% (2009 est.) 4.7% (2008 est.) Population below poverty line:7.8% (2009 est.) VIETNAM –PRESENT North Dame Cathedral, HCMC
Commercial bank prime lending rate:15.78% (31 December 2008) $25.89 billion (31 December 2008 est.) Stock of direct foreign investment - at home:$47.37 billion (31 December 2009 est.) $40.34 billion (31 December 2008 est.) note: data are in 2009 US dollars VIETNAM –PRESENT • Investment (gross fixed):36.2% of GDP (2009 est.) • Budget:revenues: $21.89 billion expenditures: $30.42 billion (2009 est.) • Inflation rate (consumer prices):7.3% (2009 est.) • 23.1% (2008 est.)
Assess the market opportunities in Vietnam for both consumer-products companies and industrial-products companies. What is the nature of the opportunity? Discussion Question #1 Typical street in Hochiminhcity
MARKET OPPORTUNITY IN VIETNAM Nature of the opportunities for foreign companies: Young population make large workforce with cheap labor cost, set-up cost and material cost Potential market with most players are local companies which small capital Numerous economic laws and regulations have been changed to attract FDI Although the legal process is complicated, stable political (1 Party) and economical environment is one of Vietnam strong point.
MARKET OPPORTUNITY IN VIETNAM For consumer-products companies: Huge potential market with population of 85,789,573 (2009) Purchasing power parity: $241.7 billion (2008 est.) Industrial-products companies Under-developed infrastructure, the need to support Before joining WTO, most of industry companies were Government owned, now it’s opened as a promising land for world giant corporations. Year 2007
Registered FDI capital 2009: US $21.48 billion
Top 3 provinces attracts FDI in Vietnam: Baria-Vung Tau (6.73 bil. $US, in which 2.857 bil.$US of 12 new licensed projects) Quang Nam (4.174, 4.150, 1) Binh Duong (2.502, 2.152, 95) Hochiminh City and Hanoi are ranked number #7 and #8 accordingly. Where is this investment going? Typical industrial park
Official & Unofficial Economy Most of company has 2 parallel system of accounting: 1 fake financial report for the taxation, 1 for the Board of management only. In Government owned companies, only relatives or trusted person of the director hold key positions, even the recruitment is public. Although the Gov is trying to prevent, corruption is there. Illegal foreign exchange transaction is everywhere, with exchange rate sometimes 8x higher than the central bank's mid-point reference rate.
How things changed after economic transformation With the presence of most MNCs, bring more jobs and income for Vietnamese people, also they’re now are brand-oriented, they have more choices from local goods to famous brand goods. Instead of limited to just Gov-owned companies, employees now become more active to join international workforce. With new technologies, people living standard is higher With the joining of WTO, international banks, healthcare and education could enter the sectors that belong only to Gov before, which bring competitiveness and lots of benefits for local people Opera view Bldg- HCMC
Future of Vietnam Economy Some Highs There is considerable debate about the economic future of Vietnam. Pessimists focus on the country's inadequate physical infrastructure and its powerful state bureaucracy which makes doing business in Vietnam complex and difficult. They also point to persisting ambiguities in Vietnam's evolving legal structure and issues of corruption First, Vietnam has the good fortune of having access to Pacific ports and being strategically and centrally located near China, India, and Indonesia, all among the world's largest countries. These are potentially huge markets for possible Vietnamese exports. Second, with its Confucian traditions, Vietnam has demonstrated a strong commitment to education and human resource development. The country's overall literacy rate is an impressively high 93.7 percent Third, Vietnam shares a number of common characteristics with Japan and now seems in a number of ways similar to Japan during its post-war phase of development, though, of course, Vietnam does not have the industrial pre-war base that Japan had however both were highly motivated to rebuild their societies and economies after suffering from war.
Fourth, Vietnam has excellent tourism potential which can be a valuable source of foreign exchange. It also benefits from substantial and increasing international remittances of overseas Vietnamese Fifth, in fighting the Chinese, the French, and then the United States, the Vietnamese demonstrated impressive courage, determination, flexibility, and creativity. These traits bode well for the entrepreneurial potential of Vietnam. Sixth, the October 2001 approval by the U.S. Congress of a trade agreement between the 2 countries will provide Vietnam with greatly improved export access to the large U.S. market for a wide variety of products. Here there is also a parallel with the earlier economic history of Japan. Membership in the WTO, in theory, will bring three main benefits to Vietnam’s economy: Firstly Vietnam will gain increased access to export markets, including the United States and Europe, secondly Vietnam will be in a better position to attract foreign direct investment and thirdly There will be increased pressure for economic and administrative reform.
Future of Vietnam Economy Some Lows First is that workers will still not have the means to protect their rights. Foreign companies will establish operations in Vietnam to gain access to inexpensive labor. The priority of these companies will not be the rights or employment conditions of Vietnamese workers. Second is that the benefits from economic integration will be concentrated within the ruling minority. Cooperation between authorities and “red capitalists” will mean that peasants and small, privately-owned businesses, which do not form part of this exclusive network, will not enjoy a level playing field. Third is that certain industries that face intense competition inevitably will be hurt. When Vietnam’s markets open, all domestic firms will need to compete on equal terms with foreign companies. It is likely that the Government will provide financial assistance and subsidize losses for state-owned enterprises. Meanwhile private enterprises that have only just emerged will not benefit from the same protectionist policies. This will mean that many domestic firms may incur substantial financial losses or face insolvency, because of their inability to compete effectively.
Fourth is the risk of environmental degradation, which will have long and lasting consequences for later generations of Vietnamese. Current policy trends indicate that the leadership in Vietnam will adopt a development program, similar to that of China’s, which is not geared toward environmentally sustainable development, but only has short term benefits in mi Fifth and most important is that that the Vietnamese Communist Party continues to consciously hinder the nation from progressing forward. This is the most difficult of all challenges. Guided by the objective of maintaining power and serving the interests of the ruling minority, the Vietnamese Communist Party’s policies will continue to hinder the nation’s ability to fully integrate into and benefit from the global economy, specifically because: The Vietnamese Communist Party continues to abuse the legal system for its own ends at all levels of government. In addition to the economic costs, this is an environment in which various forms of corruption thrive The Vietnamese Communist Party continues to control all forms of media to restrict the people from accessing information and knowledge, particularly through the Internet.
#2: Nike and several other well-known American companies are sourcing some of their production in Vietnam, thereby taking advantage of a labor force that is paid the equivalent of $2 per day or less. Are goods labeled "Made in Vietnam" likely to find widespread acceptance among American consumers? Discussion Question #2 Cyclo in Hanoi
#2 Answer Nike was one of the first US companies to shift its manufacturing from China to Vietnam. With this move came increased criticism of worker exploitation and poor working conditions. Nike spends an enormous amount of money on marketing their products while seeking the lowest possible cost of production. As a capitalist study, the company does well. However, consumers are exposed to reports of these practices and often respond to the pressure by avoiding Nike products. The effect is short term as Nike answers the criticism with proactive PR campaigns that seek to re-establish consumer trust. American consumers are notorious for their short attention spans, and with each athlete endorsement or innovative marketing move, their opinion quickly shifts to a more neutral or positive perception of Nike. In recent years, many other companies have followed Nike's lead and this has led to even more expansion in Vietnam. The textile industry produces high quality products that are sold to American consumers through a variety of brands and retailers. Has the "Made in Vietnam" label caused concern? Yes, some consumers do reject the products and choose to purchase products that are produced in the USA or in companies they feel more comfortable with. However, the majority of consumers are more value and brand conscious, and readily purchase products made in Vietnam. Furniture, textiles, and more electronic goods are produced in Vietnam as every year passes, and American consumers pressured by a decline in purchasing power and choosing to spend their money on what is perceived as the best value. With major retail chains like Target and Wal-Mart stocking these goods, the decision is more often than not based on the price of the product and not where it originates from.
#2 Answer This is a list of some popular clothing brands being produced in Vietnam.
Some critics have argued that Cuba is more deserving of diplomatic and trade relations with the United States than Vietnam. What are some of the factors behind this argument? Discussion Question #3 Rice field in Sapa
#3 Answer Cuba vs. Vietnam: Doesn't Cuba deserve the same favorable relationship with the United States? The question of Cuba is a strange one. The American policies toward Cuba have remained hostile for 50 years. As Castro grew in power and influence, Cuba became the one country in the Caribbean that the USA or Europe could no longer dominate. By resisting American pressure and avoiding assassination, Castro moved Cubans down a socialist path that led to high rates of literacy and some measure of self-sufficiency. Cubans enjoy free medical care, education, and public transportation.
#3 Answer Yet by American standards, Cuba is far from prosperous and humanitarian groups have pushed for improved relations. Strangely though, the American government continues to treat Cuba as an enemy and state sponsor of terrorism. Vietnam in contrast exists in a neighborhood of countries where American colonialism is absent. Cuba is David to the American Goliath, and until all traces of Castro's government are replaced with a "friendly" regime, the exclusion of Cuba will likely continue.
Conclusion We believe the economy in Vietnam will continue to grow quickly as the world recovers from the current economic dip. As the workforce in VN is young and educated, we also expect that environmental responsibility will grow as well. The population is becoming globally aware and understands the value of maintaining ecological balance and preservation of the environment. Trade with the USA and Europe will expand as well as trade with other ASEAN partners. As the domestic market matures, VN will continue to modernize their infrastructure and move quickly to compete with countries such as Thailand and others in the region.
Thank You! Q&A Halong Bay, Vietnam