Vietnam business forum 2010

Vietnam Business Forum 2010 Challenging Opportunities within the Realm of an Emerging Tiger

Progress Report

Volker Girrulat MBA

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Executive Summary

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Vietnam Business Forum 2010, Frankfurt/Main Volker Girrulat MBA Page 1

Photos by Volker Girrulat, respectively, provided by Messer Group and

Pepperl+Fuchs

Organizations involved

The Vietnam Business Forum was conducted and organized by Viet

Trade Center in Frankfurt/Main in cooperation with Commerzbank

Frankfurt on March 15, 2010. Furthermore it was an event on the oc-

casion of the bilateral German-Vietnamese Year, under the auspices

of the Consul General of the Socialist Republic of Vietnam, Mr.

Nguyen Huu Trang

Executive Summary

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Executive Summary

18 years ago when the Asian miracle happened and the tiger states of East Asia bared their

economic "claws" for the world to see, many observers predicted that Vietnam would join

the ranks of these rapidly growing East Asian economies soon afterwards.

Since Vietnam had been recently rediscovered as an attractive diversification alternative in

South-East Asia, it has gained the awareness of the international investor community in

terms of a new Asian tiger, which is emerging, being resource-rich, hungry for capital im-

ports to industrialize its economy and as a potential entrepreneurial playground with a

budding financial sector market. Vietnams "Doi Moi" or "Renewal" policy was enacted in

1986, sometimes seen as the Vietnamese Perestroika, 8 years after Chinas gradual open-

door policy began. Since then the country is undergoing a steadily evolving transition

process from a planned command economy to global market orientation with a socialist

countenance by incremental steps. Through this the Government of Vietnam (GOV)

strives for the achievement of its Millennium Goals to be an industrialized nation by 2020,

because the whole country has to be rebuilt in general. In the tide of that strategy Vietnam

has received an ample influx of transnational-related FDI and remittances from overseas

Vietnamese, the so-called Viet Kiu , as well as the country is a major recipient of ODA

from different international donor agencies. These investments reduce the need for bor-

rowing while keeping debt servicing low.

As a reformist Communist country introducing market economy concepts Vietnam is fol-

lowing the Chinese example. Due to Vietnams culture, its political system and economic

reform process are perceived as very similar to Chinese transformation patterns, Vietnam is

increasingly seen as an alternative or a "second leg" towards a China investment in terms of

searching for a location with low labor costs and a stable political environment for global

investors. Sectors which already have attracted foreign investor interest in Vietnam include

light manufacturing, IT outsourcing, ICT infastructuring, tourism, infrastructure, health

care and the banking sector.

Executive Summary

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Vietnam's economic growth rate in the recent past has been second only to China in Asia,

averaging 7.4% for the period 2000-2006 compared to China's 9.5% and India's 6.7% in

the same period. Vietnam is likely to grow at about the same speed as India and China in

the next one and a half decades at an estimated annual growth rate of 5.7%. Hence, in

2020, Vietnams GDP per capita will have reached approximately the same level as that

from China today. The country is coping well with the current global economic downturn,

although it came away with its consequences, but the future prospects are still sound that

Vietnam might emerge as one of the winners out of the crisis. Today Vietnam is not far

away from graduating to a middle-income-country according to World Bank standards in

developing Asia.

The content of this paper is inspired by a business forum held by the Viet Trade Center in

Frankfurt/Main, Germany in cooperation with Commerzbank, as well as its topics lean on

the reports and presentations of the different speakers and representatives who joined the

forum. The Vietnam business forum was only one out of many similar FDI promotion

roadshows organized and conducted by the Vietnamese government and its representatives

allover Europe and throughout the globe in attracting potential foreign investors to take

Vietnam as a possible production site location into account, alternatively to China. There-

fore this paper briefly presents an overview of the current business environment, as well as

the contemporary political and economic situation of the country, also against the back-

drop of the current economical slump, and points out several investment opportunities and

the according business behavior in the realm of that rapidly emerging market. Besides an

actual legal framework, elaborated by the Vietnamese government to facilitate investment

and registration procedures, three exemplary case studies of German companies, who have

entered the Vietnamese market successfully, are furthermore provided. On the other hand

Vietnams great efforts concerning its deepening integration into the worlds economy and

to industrialize the country by 2020 had not been left unmentioned. A reflecting future

outlook approximates the challenges related to Vietnams rapid industrialization, increasing

urbanization, aging and population growth, as well as the voracious hunger for energy in

the next two decades. The information provided in this paper is mainly based on a com-

prehensive literature review and primary data gathered through interviews and talks with

the respective referees and representatives on the Vienam Business Forum 2010.

List of Figures

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List of Figures

Figure 1: Defining the Business Environment ............................................................................ 18

Figure 2: Map of Vietnam and its Neighbors .............................................................................. 21

Figure 3: Fixed Telephone Market Shares in 2008 ..................................................................... 34

Figure 4: Mobile Phone Network Operator Market Share ....................................................... 35

Figure 5: Top Five Internet Service Providers and their Market Share ................................... 35

Figure 6: Commerical Websites providing selected Services 2004 ........................................... 37

Figure 7: Protecting Investors Index ............................................................................................ 51

Figure 8: Industry Agglomeration and Fragmentation .............................................................. 65

Figure 9: Remittances as Percentage of GDP ............................................................................. 68

Figure 10: Remittances and FDI ................................................................................................... 69

Figure 11: Remittances and ODA ................................................................................................. 69

Figure 12: Local Currency Development (Source D&B, 2010) ................................................ 78

Figure 13: GDP and Inflation (% Change year-on-year) ........................................................... 80

Figure 14: UN Development Index for Asia in 2008 ................................................................ 84

Figure 15: GDP Growth Development of Vietnam (%)........................................................... 85

Figure 16: ODA Struture by Sectors and Areas, MPI, 2009 ..................................................... 95

Figure 17: Stages of Catching Up Industralization ..................................................................... 99

Figure 18: The Manufacturing Plus Plus Strategy of Malaysia ................................................ 100

Figure 19: Cultural Differences ................................................................................................... 101

Figure 20: German Beer Market - Dividing up the Pie ............................................................ 171

Figure 21: Trends in urban and rural Population in Vietnam ................................................. 182

Figure 22: Aging Trend in Vietnam 1990 - 2050 ...................................................................... 184

Figure 23: GDP and Population.................................................................................................. 185

Figure 24: Final Energy Demand ................................................................................................ 185

Figure 25: Primary Energy Demand ........................................................................................... 186

Figure 26: Electricity Generation Mix ........................................................................................ 187

Figure 27: Investment Requirements .......................................................................................... 188

Figure 28: Co2 Emissions by Sector ............................................................................................ 188

List of Tables

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List of Tables

Table 1: Market Overview Telecommunications Equipment ................................................... 32

Table 2: Market Overview Telecommunications Services ........................................................ 32

Table 3: Exchange Rates (Source D&B, 2010) ........................................................................... 79

Table 4: Selected Economic Indicators (%) ................................................................................ 81

Table 5: Germany and Vietnam in Comparison ......................................................................... 86

Table 6: Economic Indicators - Outlook 2010 ........................................................................... 87

Table 7: Salaries and Wages within the ASEAN 2009 ............................................................... 88

Table 8: Survey among Managing Directors in Vietnam ........................................................... 89

Table 9: Vietnam in regional Comparison ................................................................................... 90

Table 10: Accumulated FDI's until 2009 ..................................................................................... 91

Table 11: Production Site Vietnam - Japanese Point of View .................................................. 92

Table 12: Planned, signed and total ODA by Sector 2006-2008 and 2008-2010 ................... 95

Table 13: Top Donors (bilateral and multilateral) in Vietnam 2005-2007 in Mio. USD ...... 96

Table 14: ODA Flow Type (Grants/Loans) Shares ................................................................... 96

Table 15: Vietnamese Beer Market Volume Forecast .............................................................. 173

Table 16: Estimated Beer per-Capita Consumption in Vietnam ............................................ 174

Table 17: Top Premium and Premium Beer Forecast ............................................................. 174

Abbreviations

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Abbreviations

ADB - Asian Development Bank ADSL - Asymmetric Digital Subscriber Line ADSO - Administrative Department of Social Order APERC - Asia Pacific Energy Research Center AFTA - ASEAN Free Trade Area AHK - Aussenhandelskammer ANZ - Australia and New Zealand Banking Group APEC - Asian Pacific Economic Cooperation ASEAN - Association of South East Asian Nations BCC - Business Cooperation Contract BIT - Bilateral Investment Treaty BOO - Build-Operate-Own BOT - Build-Operate-Transfer BRA - Business Registration Authority BRC - Business Registration Certificate BT - Build-Transfer BTA - Bilateral Trade Agreement BTO - Build-Transfer-Operate CAFTA - Central American Free Trade Agreement CEPT - Common Effective Preferential Tariff CPI - Consumer Price Inflation CPRG - Comprehensive Poverty Reduction and Growth Strategy CR - Corporate Responsibility CSR - Corporate Social Responsibility DDA - Doha Development Agenda DVD - Digital Versatile Disk DVN - Dong Vietnam EPZ - Export Processing Zone EC - European Commission FIL - Financial Institution Letter FOREX - Foreign Exchange Market FYP - Five Year Plan EU - European Union EUR - Euro EVN - Electricity of Vietnam Corporation F - Fahrenheit FDI - Foreign Direct Investment FIE - Foreingn Invested Enterprise FTA - Free Trade Agreement FTZ - Free Trade Zone GATS - General Agreement on Trade in Services GATT - General Agreement on Tariffs and Trade

Abbreviations

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GDP - Gross Domestic Product GHG - Green-House Gas GMT - Greenwich Mean Time GNI - Gross National Income GOV - Government of Vietnam GSO - General Statistics Office GTZ - Gemeinschaft fr technische Zusammenarbeit HASTC - Hanoi Securities Trading Centre HCMC - Ho Chi Minh City HEPZA - Ho Chi Minh City Export Processing and Industrial Zones Authority HERA - Higher Education Reform Agenda hl - hectolitres HMI - Helioseismic and Magnetic Imager HOSE - Ho Chi Minh City Stock Exchange HR - Human Resources HSBC - Hong Kong and Shanghai Banking Corporation IC - Investment Certificate ICC - International Chamber of Commerce ICT - Information and Communication Technology ICB - International Competitive Bidding ISP - Internet Service Provider IT - Information Technology ICOR - Incremental Capital-Output Ratio IMF - International Monetairy Fund IPO - Initial Public Offering IPR - Intellectual Property Rights ISO - International Standards Organization JBE - Department of Electricity and Gas Supply (Malaysia) SIRIM - National Organization for Standardization and Industrial Develoment (Malaysia) JSB - Joint-Stock Bank JV - Joint Venture JVC - Joint Venture Company JVE - Joint Venture Enterprise LLC - Limited Liability Company LOE - Law on Enterprise LOI - Law on Investment M&A - Mergers and Acquisitions Mbps - Megabit per second MDG - Vietnam Millennium Development Goals MFN - Most-Favored Nation MIC - Ministry of Information and Communication, Vietnam MNC - Multinational Corpopation MOF - Ministry of Finance MOIT - Ministry of Industry and Trade MoNRE - Ministry of Natural Resources and Environment MPI - Ministry of Planning and Investment Mtoe - Million tonnes of oil equivalent NAFTA - North American Free Trade Area

Abbreviations

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NGO - Non-Govenmental Organization NIE - New Industrializing Economies NSEP - National Security Education Program NTR - National Trade Relations ODA - Official Development Assistance OECD - Organization for Economic Cooperation and Development OTC - Over-the-Counter PBA - Program Based Approach PC - Peoples Committee PPP - Purchasing Power Parity PRSC - Poverty Reduction Support Credit QCD - Quality, Cost and Delivery REER - Real Effective Exchange Rate SARS - Severe Acute Respiratory Syndrome SBV - State Bank of Vietnam SC - Shareholding Company SCIC - State Capital Investment Corporation SEDP - Socio-Economic Development Plan SHI - Social Health Insurance SME - Small and Medium Enterprises SOCB - State-Owned Commercial Bank SOE - State-Owned Enterprise SSC - State Securities Center SUV - Sport Utility Vehicle R&D - Research and Development TFP - Total Factor Productivity TISI - Thai Industrial Standards Institute TRIMS - Trade-Related Aspects of Investment Measures TRIPS - Trade-Related Aspects of Intellectual Property Rights TSP - Total Suspended Particulates TWh - Terawatt-hours (Billion kWh) U.S. - United States UN - United Nations UNCITRAL United Nations Commission on International Trade Law UNCTAD United Nations Forum on Trade and Development UNDP - United Nations Development Program UNIDO - United Nations Industrial Development Organization USD - U.S. Dollar USSR - Union of Soviet Socialist Republics VAT - Value-added Tax VBLI - Vietnam Business Links Initiative VCAD - Vietnam Competition Administration Department VCC - Vietnam Competition Council VCCI - Vietnam Chamber of Commerce and Industry VDSL - Very High Rate Digital Subscriber Line VIAC - Vietnam International Arbitration Center VNCI - Vietnam Competitive Initiative VNNIC - Vietnam Network Information Center VoIP - Voice over Internet Protocol

Abbreviations

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VoV - Voice of Vietnam VTC - Vietnam Trade Center VTV - Vietnam Television WB - World Bank WiMax - Worldwide Interoperability for Microwave Access WTO - World Trade Organization

Official Referees and Representatives

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Christof Gabriel Maetze, Area Chief Executive Financial Institutions, Commerzbank AG

Frankfurt/Main Opening Speech

Nguyen Trong Luat, Managing Director Viet Trade Center, Frankfurt/Main

Opening Speech

Nguyen Huu Trang, Consul General of Vietnam SR Welcome Speech

Nicola Beer, State Secretairy Hessian Ministry of Justice, Integration und European Af-

fairs, Wiesbaden Welcome Speech

Norbert Noisser, Hessian Department of Commerce, Wiesbaden

Hessia in the German-Vietnamese Year

Jan Nther, President of German Foreign Chamber of Industry & Trade, Ho Chi Minh

City, Vietnam

The Tiger shows ist Claws

Ayumi Konishi, Country Director Vietnam, Asian Development Bank, Hanoi

Supporting Developement Projects (ODA) in Vietnam

Dang Thanh Tam, Chairman Saigon Invest Group, Ho Chi Minh City, Vietmam

Attractiveness of Industrial Zones for Business Ventures


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Le Thanh Cung, Deputy Chairman of People Committee Binh Duong

Province and. Vo Son Dien, Advirsory and Marketing Director

Becamex IDC Corp, VN

Opportunities for sustainable investment in Binh Duong Province, Vietnam.

Bjrn Stegemeyer, License Consultant, Bitburger Braugruppe GmbH, Bitburg

Vietnamese Beer Market Quo Vadis? Vietnam Market Entry

Tran Thi Trung Chien, Former Minister of Healthcare

Current Situation of the Healthcare System in Vietnam

Van Hung Albert, Representative Vietnam, Fuhrlnder AG

Establishing Wind Energy in Vietnam

Diana Buss, Vice President Corporate Communications, Messer Group GmbH

Corporate Values Corporate Culture? Establishing a Family Business in

Vietnam

Kim A. Odhner, Investment Director of SGI Capital, Ho Chi Minh City, Vietnam

Real Estate Market and Asset Management in Vietnam

Peter Born, Director Representative Office Commerzbank, Ho Chi Minh City, Vietnam

Vietnam - The New Tiger in Asia ? Opportunities and Risks when doing Business

in Vietnam

Moderated by Volker Bock, LLM, Ernst & Young

Content

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Content

Organizations involved............................................................................................ 1

Executive Summary ................................................................................................ 2

List of Figures ......................................................................................................... 4

List of Tables .......................................................................................................... 5

Abbreviations .......................................................................................................... 6

Official Referees and Representatives ................................................................... 10

Content ................................................................................................................. 12

Introduction .......................................................................................................... 15

1 Socio-Economic Key Features at a Glance ..................................................... 18

1.1 Country Snapshot ................................................................................................. 19

1.2 Vietnams Transition Timeline ............................................................................. 24

1.3 Business Environment and Infrastructure in Vietnam .......................................... 26

1.3.1 Domestic Workforce, Education and the Question of Skilled Labor .................................... 26

1.3.2 Physical Infrastructure ......................................................................................................... 28

1.3.3 Supporting Industries .......................................................................................................... 29

1.3.4 Telecommunications, Internet Access and E-Commerce ..................................................... 31

1.3.5 Energy Supply ..................................................................................................................... 38

1.3.6 Environmental Issues .......................................................................................................... 39

1.3.7 Fresh Water Supply and Sewage Treatment ......................................................................... 41

1.3.8 Health Care Sector .............................................................................................................. 44

1.3.9 Financial Sector ................................................................................................................... 46

1.3.10 Investor Protection and Dispute Settlement ........................................................................ 49

2 Globalization and Industrialization Strategies ............................................... 52

2.1 Preface ............................................................................................................. 52

2.2 ASEAN Membership ....................................................................................... 53

2.3 U.S. Bilateral Trade Agreement (BTA) ............................................................. 55

2.4 WTO Accession ............................................................................................... 56

Content

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2.5 Competitive Intelligence and Globalization Efforts .......................................... 58

2.6 Domestic SME Promotion and Capacity Building ........................................... 60

2.7 State of Industry Clustering .............................................................................. 63

2.8 FDI Promotion ................................................................................................ 66

2.9 Importance of the Viet Kiu Diaspora .............................................................. 67

2.10 Vietnams Overseas Operations ........................................................................ 71

2.11 Shortcomings ................................................................................................... 71

3 Economic Situation ....................................................................................... 73

3.1 Impact of the Global Economic Crisis on Vietnam and Countermeasures ........ 73

3.2 Understanding Vietnams Inflation .................................................................. 76

3.3 Current Situation and Scope ............................................................................. 79

4 Vietnam South East Asias next Destination for Global Investors? .............. 83

4.1 Preface .............................................................................................................. 83

4.2 Vietnam 2010 The Tiger shows its Claws ....................................................... 84

4.3 Vietnams Transition to a Middle Income Country Changing Role of ODA ... 93

4.3.1 Role of Development Agencies ................................................................................................ 93

4.3.2 Avoiding the Middle Income Trap ........................................................................................ 98

4.4 Cultural Idiosyncracies impacting Business Success ....................................... 101

4.5 Vietnams Industry Parks Potentials and Investment Opportunities ............. 105

4.6 Wind Energy in Vietnam ................................................................................. 109

4.7 Private Equity Role of Funds and M&A Issues in Brief ................................ 111

4.7.1 Private Equity ................................................................................................................... 111

4.7.2 Funds and Securities.......................................................................................................... 113

4.7.3 Mergers & Aquisitions (M&A) .......................................................................................... 115

5 Legal Framework on FDI and FIEs in Vietnam .......................................... 119

5.1.1 Forms of Investment......................................................................................................... 119

5.1.2 Investment Procedures ...................................................................................................... 124

5.1.3 Project Implementation ..................................................................................................... 128

5.1.4 Starting a Business in Vietnam........................................................................................... 137

5.1.5 The new Law on Investment (LOI) ................................................................................... 145

5.1.6 The new Law on Enterprise (LOE) ................................................................................... 153

Content

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6 Exemplary Company Case Studies for Successful Market Entry ................... 157

6.1 Preface ............................................................................................................. 157

6.2 Messer Group.................................................................................................. 158

6.3 Pepperl+Fuchs ............................................................................................... 166

6.4 Bitburger Braugruppe GmbH ......................................................................... 171

6.5 Role of the Viet Trade Center Fankfurt/Main Germany ............................. 175

7 Reflections and Lessons learned ................................................................... 179

References ............................................................................................................ 191

Photos from the Business Forum ......................................................................... 204

Introduction

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Introduction

The development-integration nexus takes a very special form in East Asia. Growth has

been attained through the very existence of the East Asian region as an arena for economic

interaction among its members. One by one, countries in different development stages

initiate economic growth by participating in the dynamic production network spanned by

private firms. Linked by trade and investment, an international division of labor with clear

order and structure has emerged in the region. Industrialization has proceeded through

geographic spreading on one hand and structural deepening within each country on the

other. Japanese corporations have been the chief architect of the East Asian production

network, together with EU and U.S. multinationals. The extensive business networks of

Taiwan, Hong Kong and overseas Chinese, as well as bold business moving by Korean

cheabols have also invigorated this region. Since the 1990ies the emergence of China as an

active producer and investor became a new important factor. No other developing region

has formed such an organic and dynamic interdependence as East Asia.

Vietnam is the latest comer to the East Asian network, and as a one-party Communist state

it has generated one of South-East Asias fastest growing economies and has set its sights

on becoming a developed nation by 2020. It became a unified country in 1976 after the

armed forces of the Communist north seized the south the previous year. This followed

three decades of bitter wars, in which the Communists fought first against the colonial

power France, and then against South Vietnam and its U.S. backers. . In its latter stages, the

conflict held the attention of the world. The jungle war produced heavy casualities on both

sides, atrocities against civilians and the indiscriminate destruction and contamination of

much of the landscape. Vietnam struggled to find its feet after unification and tried at first

to organize the agricultural economy along strict collectivist lines.

Vietnams economic performance in the last two decades has been quite remarkable. The

country took decisive steps in regional and global integration, received substantial FDI and

ODA, liberalized trade and investment incrementally, and introduced competitive pressures

and systemic reforms. Despite these achievements, however, Vietnam is still a tiny player in

Introduction

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terms of absolute size and the level of technology. The continued high growth has elevated

Vietnams international standing, albeit from a very low base.

Vietnams growth mechanism changed significantly in the middle of the 1990ies. From one

of the worlds poorest countries with GDP per capita of USD 98 Vietnam has transformed

itself from an agro-based poor country in international isolation whose industrial produc-

tion was dominated by SOEs and collectives to a globally integrated player fueled by FDI

and private investment. In 2007, with the GDP per capita estimate of USD 833, Vietnam

was quickly approaching the status of a lower middle income country by the World Banks

standard.

The growth impetus came mainly from the incentive effects of internal economic liberaliza-

tion. A series of reforms undertaken in the 1980ies and the early 1990ies, including agricul-

tural reform, initiation of Doi Moi, this special kind of Vietnamese perestroika, the end

of rationing, price liberalization, approval of private commercial activities and the first

wave of SOE reform, unleashed private dynamism which had been suppressed under state-

run command economy planning. After the mid 1990iess, growth further accelerated

thanks to large inflows of foreign capital and transfers. After a mild setback in 1998-99,

inflows of foreign fund resumed strongly in the 2000s and generated the symptoms of

overheating such as construction and consumption booms, rising inflation, as well as land

and stock market bubbles.

Until the mid 1990ies, the incremental capital-output ratio (ICOR) was low and contribu-

tion of total factor productivity (TFP) to growth was high, which indicates that growth was

achieved through improving efficiency without large investment. In the latter period, ICOR

rose, and TFPs contribution to growth declined while capitals contribution increased sig-

nificantly. That is an indication of investment-driven growth. ICOR is computed as in-

vestment ratio divided by real growth. The higher the ICOR, the more capital formation is

required for growth (e.g., investment is less efficient). TFP is a broad definition of produc-

tivity calculated as residual growth after accounting for the impact of increases in factor

inputs such as labor and capital.

Sustained rapid growth is generating new social phenomena, both positive and negative,

such as higher living standards, Western yardsticks, labor mobility, urbanization, income

gaps, pollution, traffic problems and social evils.

Introduction

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Still as ever SOEs are a substantial part of the Vietnamese economy. Despite of one fourth

of these enterprises do not operate efficiently, they are at least responsible for 40% of the

industrial output and for 35% of the Vietnamese exports. Meanwhile 3000 of 6000 SOEs

in total had been equitized or part-privatized. However, SOEs settled in sensitive areas like

national defence, publishing or railroad services still remain 100% state-controlled.

With a trade volume of more or less 10 billion USD in 2007 the EU had been the second

important trading partner for Vietnam, shortly behind China. The Vietnamese exports into

EU exceed the imports more than twice. Within the EU Germany is the most important

trading partner for Vietnam. Partnering- and cooperation agreements, as well as the free

trade agreement between the EU and Vietnam, currently negotiated, will be of great signi-

ficance in the future. Behind 3.3 billion USD in 2006, a trade volume of 4 billion USD had

been achieved between Vietnam and Germany in 2007. Exported goods from Vietnam to

Germany are footwear and garments. Black pepper and Vietnamese coffee find their big-

gest market worldwide in Germany as well.

The increasing demand for machines and technical equipment on the Vietnamese side

shows clearly that Vietnam wants to put forth its industrialization efforts, which is a special

interest of German enterprises in that industry sector. Due to an increasingly emerging

quality consciousness in Vietnam and because of the fact, that German products enjoy an

excellent reputation in Vietnam, German manufacturers of industry products can capitalize

on that especially.

In the years to come, East Asian catch-up type industrialization will continue to be basically

applicable to Vietnam. Vietnam is expected to meet the challenges that were faced by Asian

NIEs (Singapore, Hong Kong, Taiwan, and Korea) and ASEAN4 (Malaysia, Thailand, In-

donesia, and the Philippines) in the past. By overcoming these challenges Vietnam should

become one of the key players in the East Asian value chain and supply chain, as well as

catching up steadily to a high income level, coping with the China challenge, and achieving

the national goal of industrialization and modernization by 2020.

1 Socio-Economic Key Features at a Glance

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Business Environment

Policy and Legal Framework

Regulatory and Administrative Frame-work

Institutional Arrangements

Sector-Specific Business Environment

Sub-National Business Environment

Public-Private Dialogue

Investment Climate Open Markets,

such as finan-

cial, labor etc. Rule of Law

Policy Stability Infrastructure Economic Pre-

dictability

Figure 1: Defining the Business Environment


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1.1 Country Snapshot

Capital: Hanoi

Largest Cities: Ho Chi Minh City

Hanoi

Haiphong

Area: 329.247 km2 (127.123 sq miles)

Population: ca. 87 Mio.

Languages: Vietnamese (spoken by about 90% of the population);

English (increasingly favored as second language); some

French; a little Russian and German; minority lannguages

Such as Hmong, Thai, Khmer, in more remote rural areas

Major Religion: Buddhism

Life Expectancy: 72 years (men); 76 years (women) (UN estimates)

Monetary Unit: Dong (DVN) Average exchange rate 2008: 16.440 : US$1

Main Exports: Crude Oil, rice, coffee, pepper, clothing, sea food,

footwear, handicraft

GNI per capita: US$ 890 (World Bank 2008)

Internet Domain: .vn

International Dialling Code: +84


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Weights and Measures: Metric System. Local land measurement: 1 mau (3.600

sqm in the North, 5000 sqm in the Center)

Time: 7 hours ahead of GMT

Public Holidays: January 1st (New Years Day)

January 25th 29th (Tet, Lunar New Year)

April 30th (Liberation of Saigon)

May 1st (Labor Day )

September 2nd (National Day)

Media: Hundreds of newspapers and magazines, TV is the do-

minant medium. Vietnam Television (VTV) broadcasts

from Hanoi and is available via satellite to the wider re-

gion. Many provincial stations, some foreign channels are

carried via cable. State-run Voice of Vietnam (VoV) op-

erates six radio networks, including the VoV 5 channel in

English, French and Russian.


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Hanoi in the north, the seat of the national government, although somewhat reserved, is

very elegant boasting new tourist infrastructure. From Vietnam's northern terrain, mostly

mountainous or hilly, with some highland areas covered by a thick green blanket of jungle

(about half the total land area), to the Red River Delta and coastal plains in the lowland

part of the North are heavily populated and intensively cultivated (almost entirely by rice

fields).

The southern part of Vietnam is dominated by the estuary of the Mekong River system and

is low, flat, and frequently marshy. Vietnam's weather is as enigmatic as the country. In the

north, a hot rainy season prevails from May to September. The average temperature in Ha-

Figure 2: Map of Vietnam and its Neighbors


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noi is about 86F during this period, with very high humidity. Flooding caused by heavy

rainfall and/or typhoons can create hazardous conditions to people's health and property.

Flooded streets slow down traffic and provoke accidents. Houses and furnishings can suf-

fer as a result of leaky roofs and other sources of water damage. Food supplies are also

affected. During the cooler, dry season in the north from December to March, the average

temperature is 68F, with overnight minimums sometimes around 40-42F. Due to the lack

of heating in most shops and offices during the dry season, it will feel considerably colder.

To the south, Ho Chi Minh City & the Mekong Delta experience a year-round tropical

climate with daily temperatures normally exceeding 88F. The rainy season in Da Nang and

Hue in the centre of the country lasts from October to March. Saigon is the proper name

for the old part of the city, whilst Ho Chi Minh refers to the larger metropolitan area.

Both parts of the city are an eclectic mix of the old and new, the old off-setting the new

and offering the benefits of both to the ever welcome 'foreigner,' the word that is used,

without malice, when referring to anyone who is not of Vietnamese heritage.

Political Structure:

Official Name: Socialist Republic of Vietnam

Form of State: One-party rule

The Executive: The cabinet is constitutionally responsible to the na-

tional Assembly, which is elected for a five-year term

Head of State: The president


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National Legislature: The unicameral 493-member Quoc Hoi (National

Assembly) meets biannually; an election takes place

every five years. The assembly appoints the president

and the cabinet

Local Government: Centrally controlled provinces and municipalities are

subdivided into towns, districts and villages, which

have a degree of local accountability through elected

People!s Councils

Legal System: The regional people!s courts and military courts op-

erate as courts of first and second instance, with the

Supreme Court at the apex of the system

National Elections: Elections for the National Assembly and People!s

Councils took place in May 2007; the next are due in

2012

National Government: The Communist Party of Vietnam, and in particular

its politburo, controls both the electoral process and

the executive

Main Political Organizations: The Communist Party of Vietnam, the Vietnam Fa-

therland Front


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1.2 Vietnams Transition Timeline

1986 - Proclamation of Renovation Policy (Doi Moi)

1987 - Foreign Direct Investment (FDI) law passed

1988 - First steps in agricultural liberalization

Initial reform of banking system

Establishment of two-tier banking system

Resolution No. 10 Allocation of land use rights to households

1989 - Dong revaluation to market rates

Operational autonomy for State-Owned Enterprises

Export subsidies eliminated

Tax system revised

1990 - State Bank rules on banks, credit cooperatives and financial companies passed

Law on companies and private enterprises dated Dec.

1991 - Currency exchange trading centers created

State monopoly over international trade dismantled

Decree 322-HDBT Export Processing Zones Regulations dated Oct.

1992 - New liberal constitution adopted

1993 - Extensive land-use rights for farmers announced

Bankruptcy law passed

First enterprise privatized

Elimination of export quotas begun

Full price liberalization


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1994 - State conglomerates founded

Securities market founded

Lifting of the U.S. embargo

Labor Code dated June

Ordinance on rights and responsibilities of foreign organizations and individuals

In Vietnam dated Oct.

1995 - Relations finally normalized with United States

Vietnam joins Association of Southeast Asian Nations (ASEAN)

First Civil Code

1996 - New Land Law on Foreign Investment dated Nov.

1998 - Accession to the Asian Pacific Economic Community (APEC)

1999 - Law on Enterprise dated June

2000 - Enactment of a new Enterprise Law

2001 - Ratification of the Bi-Lateral Trade Agreement (BTA) with the U.S.

Law on Organization of the Government

2004 - Law on Corruption and Law on Competition

2005 - Standardization of the Law on Investment and the Enterprise Law

2007 - WTO Accession

2008 - Standardization of the Law on Income Tax

2009 - Hesitant Implementation of distribution rights based on WTO regulations

2010 - Expecting further implementations related to WTO regulations


______________________________________________________________________


1.3 Business Environment and Infrastructure in Vietnam

1.3.1 Domestic Workforce, Education and the Question of Skilled Labor

One of Vietnam's main investment advantages is its large (over 45 million people), literate

(GOV reports a literacy rate of over 90 percent), inexpensive and young (over 75 percent

of the population is under 40) labor force. The labor pool continues to increase by over 1.6

million workers annually due to the post-war population explosion.

However, inflation is driving up demands for wages, sometimes resulting in strikes. Slow-

ing exports at the end of 2008 was reportedly forcing some industries to close, a trend that

will require special attention throughout 2009.

Minimum wages vary depending on the composition of the ownership and the geographi-

cal zone. By 2012 Vietnam will set a single nationwide minimum wage.

The government joint may temporarily exempt certain ventures from paying the minimum

wage during the first months of an enterprise's operations or if the enterprise is located in a

very remote area, but the minimum monthly wage in these cases can be no lower than

VND 800,000 ($50). The GOV suspended the implementation of most minimum wage

increases in early 2009, concerned that it may worsen the business climate amidst a worsen-

ing economic situation. Foreign investors can hire and recruit staff directly, but only after

exhausting a 15-day period using a state-run employment and recruitment bureau. In prac-

tice, many employers omit this step and hire their personnel directly without going through

the bureau. All personnel must be registered with the GOV.

The 2007 Labor Law introduced an extensive process of mediation and arbitration to deal

with labor disputes. According to the Labor Law, workers cannot go on strike until media-

tion procedures have been exhausted. New sections of the Law also require that at least

50% of the workers in enterprises with fewer than 300 workers must vote for the strike and

75% in industries with 300 workers or more.

Vietnams education system is in crisis. While its primary and secondary enrollment ratios

are good, there are serious concerns about quality. The high failure rates recorded in the

most recent national high school graduation exam reveals that many students are not ac-

quiring the basic level of knowledge the Vietnamese government has determined that its


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citizens require. Too few Vietnamese people have university degrees, and the number of

new graduates is growing too slowly. The 2005 enrollment ratio of university students was

16 percent in Vietnam compared to 17-19 percent in China and Indonesia and 43 percent

in Thailand. On top of this, the quality of Vietnamese universities and education are sub-

standard. Professors and lecturers at Vietnams best universities publish few articles in in-

ternational, peer-reviewed journals. Half of university graduates in a hot job market were

reported to be without a job related to their main area of study only one year after gradua-

tion. There has been a huge expansion in student numbers since 1990 but only a modest

growth in faculty, with the result that system is under increasing stress.

Both foreign and domestic firms report that recent university graduates have virtually no

economically relevant skills. The unsatisfactory results achieved by the existing system are

not due to a lack of money. In fact, as a percentage of GDP, Vietnam spends more on

education than most countries in the region. The problem is how these resources are used,

and in particular the governance structures of educational institutions at all levels. Vietnam

is said to spend USD 1 billion a year on overseas education, much of it financed by fami-

lies. This is one indication of the level of popular dissatisfaction with the domestic universi-

ty system. While foreign graduate education is arguably a good investment, overseas under-

graduate education is expensive and better quality programs in Vietnam would reduce the

need for going abroad.

Vietnams human resource development has many problems. On the policy side, the lack

of clear industrial positioning vision prevents effective formation of strategies for industrial

skill build-up or labor demand and supply matching. On the side of students, the popularity

of computer science, finance, and business administration as subjects and the correspond-

ing lack of interest in engineering and industrial technical training is a problem. On the side

of workers, short-terminism and materialism create preference of higher salaries and great-

er benefits today instead of striving for higher technical competency in the long run, which

leads to high incidents of job hopping. On the side of managers, enthusiasm to learn tech-

nology and conduct aggressive marketing to become business partners of foreign compa-

nies is frequently missing.

In general it is problematic that the private universities in Vietnam, which do not enjoy a

good reputation, are degraded in the world public. Poor quality as well as the equipment


______________________________________________________________________


had been criticized recently in several articles. Furthermore it had been stated that Vietnam

has too much universities, which renders the support of new facilities superfluous.

This claim can be refuted by the circumstance that the university enrollment level of Viet-

namese students is relatively low compared to neighboring countries like Thailand or Chi-

na. At present Vietnams population is rather young, but it is expected that the number of

students will triple or even quadruple until the year 2020. Therefore Vietnam wants to be

prepared according to its Higher Education Reform Agenda 2006 2020 (HERA). Hence,

the large number of universities is not the problem, but quality and managerial capabilities

in the education sector require improvements moreover.

The fact, that education makes a severe contribution to Vietnams further economic devel-

opment might represent an additional opportunity for foreign investors to establish private

universities or exchange programs in Vietnam.

1.3.2 Physical Infrastructure

The rapid economic growth of Vietnam is leading to corresponding growth in the demand

for energy and transport infrastructure. Energy generation and rural electrification projects

are being carried out throughout Vietnam both with and without international assistance.

Major transport projects such as the Ho Chi Minh Highway as well as urban and rural road

network development are evident for those efforts. Key environmental management issues

include a lack of strategic environmental assessment of master plans and regional plans.

Implementation of of appropriate safeguards during project construction and operation is

weak. Considering the ecological footprint that they create, strengthening the process that

integrating environmental considerations into the design, construction, and operation of

transport and energy projects will play a vital role in managing the environment in Viet-

nam.

The road system consists of over 200,000 km network including over 10,000 bridges.

However road conditions are not ideal, less than half of the national highways have two

lanes or more. In addition, road congestion is increasing in major cities. In recent years, the


______________________________________________________________________


Government has mobilized a significantly large amount of capital to upgrade the highway

system with financial support from international lending agencies.

Viet Nam has eleven major seaports. Ho Chi Minh City serves most of the South and now

boasts modern container loading facilities. Just a few hours drive from Hanoi, Hai Phong

serves much of the North. Given the rapid rise in trade volume, increasing port capacity is

a national priority. There are three international airports: Ho Chi Minh City, Hanoi and Da

Nang. Currently, the Government has significantly upgraded international airports to han-

dle the increase in the volume of traffic associated with Viet Nam's invigorated economy.

A new international terminal of the Tan Son Nhat airport in Ho Chi Minh City, capable of

handling up to 10 million passengers a year was opened in December 2007. Noi Bai airport

in Hanoi was upgraded, enlarged and completed for operation in 2002, construction of a

second terminal is expected to start in October 2008 and completed in two years. Four new

international airports are planned to be constructed in Phu Quoc, Dong Nai, Lao Cai and

Quang Ninh provinces. Preparations for the new Long Thanh International Airport, 40

kilometers from Ho Chi Minh City in Dong Nai province is underway. The airport is sche-

duled to open in 2010 and by 2015 it will be further expanded to reach an annual transpor-

tation capacity of 80 to 100 million passengers, becoming one of the biggest airports in the

region. In addition, there are 16 other domestic airports around the country.

1.3.3 Supporting Industries

Despite good performance in growth, institutional reforms and international integration in

the last decade, Vietnams domestic capability in manufacturing has not improved dramati-

cally. The structure of manufactured exports has not changed very much since the mid

1990s. It still relies heavily on simple labor-intensive products with large import compo-

nents. High quality products are dominated by foreign names while local industrial prod-

ucts serve second-tier domestic markets only.

Vietnam is in the final stage of global and regional integration. Commitments of AFTA,

WTO and other FTAs must be implemented. In particular, protection against ASEAN

products must be completely removed by 2018. As international integration deepens, Viet-

nam must greatly improve the capability of local enterprises in order to survive and effec-


______________________________________________________________________


tively compete with imports and global competitors. Up to now, quantitative expansion has

been achieved through economic liberalization, external opening and large inflows of for-

eign capital. In the years to come, however, the implementation of WTO obligations and

the completion of AFTA liberalization process by 2018 will exert enormous pressure on

local enterprises. If local capability in technology and management remains as weak as to-

day, a large segment of indigenous industries is likely to shrink or even disappear under

severe competitive pressure, and Vietnam will be locked into the position of a producer of

low-value goods under the dominance of foreign firms. The 2020 vision of industrialization

and modernization must be achieved through domestic value creation and highly skilled

manufacturing, not by a continued expansion of simple assembly or copy production with

little domestic value. Vietnam needs to shift to a new manufacturing model to realize this

goal.

Supporting industries are multiple layers of domestic manufacturing establishments that

produce parts and components for machinery assemblers such as electronics, automobiles,

and motorcycles). The term supporting industries was created by Japanese firms to point out

the absence of such industrial activities in Southeast Asia when Japanese FDI inflows to

that region increased in the 1980s. In comparison with the ASEAN4 countries with at least

a few decades of supporting industry promotion, Vietnams supporting industries are in the

very early stage of development. Many developing countries target highest-value compo-

nents such as engines for automobiles and motorcycles, optical devices for DVDs and hard

disks, compressors for air-conditioners and refrigerators, and so on. However, these key

components are usually too difficult to produce without significant foreign help. Even in

advanced countries, only a few firms have the capability to produce them competitively and

their technology is a top industrial secret. Low or middle income countries with only a

short history in industrialization should first strengthen basic skills applicable to a large

number of products instead of trying to leapfrog to the most advanced production tech-

nology.

When supporting industries are undeveloped, assemblers cannot expand since they have no

cost advantage. But when assemblers remain small, no suppliers will invest or expand in

that country since parts cost cannot be reduced with small orders. This is the vicious circle

observed in the early stage of industrialization, which can be broken only by the strong


______________________________________________________________________


policy initiative to invite both assemblers and suppliers in large numbers. This is the realiza-

tion that ASEAN4 have come to after many decades of industrialization effort.

One way to build up supporting industries, especially in early stages, is to absorb a large

mass of FDI suppliers of parts and components. The majority of FDI suppliers are SMEs

that use expensive equipment, and for this reason they need large orders and stable policy

environment to invest in Vietnam). The only two products that have sufficient large opera-

tion scale in Vietnam are motorcycles (for the domestic market) and electronics such as

printers and mother boards (for export). The operation scale of automobiles, TV and au-

dio-visuals are too small to invite foreign suppliers at present. Another way to promote

supporting industries is to strengthen the capability of local suppliers. For this to succeed,

the capability of local suppliers needs to be greatly improved with proper policy support.

Realistic plans for local capability building should be established since some parts and

components, such as precision parts for electronics, may be initially too difficult for Viet-

namese suppliers to produce with QCD.

Quality, Cost and Delivery (QCD), i.e., zero defects, low cost, and on-time delivery, is rec-

ognized by virtually all Japanese manufacturing firms as the source of competitiveness as

well as the criteria for selecting business partners and subcontractors.

Vietnam does not have clear industrial and safety standards comparable to national stan-

dards of neighboring countries such as Malaysias JBE SIRIM and Thailands TISI. The

lack of consistent standards encourages importation of low-quality finished products as

well as low-quality parts, making Vietnam a dumping ground for defective goods. Without

well-established grading criteria of rubber tires, for instance, it is impossible to stop the

inflow of low-quality tires. This is an undesirable situation for consumer protection as well

as for healthy industrial development. Without national standards, it is also difficult for

individual local suppliers to set and aim at their own quality targets.

1.3.4 Telecommunications, Internet Access and E-Commerce

Vietnams telecommunications sector is among the worlds fastest growing telecommunica-

tions markets. The Government of Vietnam (GOV) has articulated its commitment to


______________________________________________________________________


boosting the development of the Information and Communications Technology (ICT)

industry, particularly in telecommunications and Internet infrastructure development, soft-

ware production, Information Technology (IT) education promotion, and other forms of

human capital development. Table 1 and 2 represent unofficial industry estimates.

Telecomunications

Equipment

2008USD

Mio

2009USD

Mio

estimated

2010USD

Mio

estimated

Market Size 2.060 2.575 3.348

Total local Production 735 920 1.196

Total Exports 30 38 49

Total Imports 1.350 1.688 2.194

Imports from the U.S. 170 212 276

Table 1: Market Overview Telecommunications Equipment

Telecomunications

Services

2008USD

Mio

2009USD

Mio

estimated

2010USD

Mio

estimated

Market Size 3.200 4.000 5.200

Total local Production 3.300 4.125 5.363

Total Exports 355 443 576

Total Imports 230 287 373

Imports from the U.S. 90 113 147

Table 2: Market Overview Telecommunications Services

In 1988, just after the doi moi (renovation/open door) policies carried out by the GOV,

Vietnam had less than 200,000 phone subscribers with a teledensity of 0.18 lines/100 inha-

bitants. In 2000, Vietnam grew to approximately 2.6 million fixed-line subscribers and

640,000 mobile subscribers. In 2006, new phone subscribers in Vietnam more than


______________________________________________________________________


doubled the total number of subscribers added in the 25-year period of 1975-2000, and the

number of 18.5 million new telephone subscribers added in 2007 tripled that of the period

of the previous 3 years. According to Vietnams Ministry of Information and Communica-

tions (MIC), as of December 2009, Vietnam has approximately 130.4 million telephone

subscribers (mobile and fixed line), with a teledensity of 152.7 lines/100 inhabitants.

The major technologies used in Vietnam include cable, satellite, and wireless cable. Major

broadband networks are deployed via ADSL (asymmetric digital subscriber line), VDSL

(very high rate digital subscriber line), and leased lines. WiFi is deployed in the major cities,

and local ISPs are seriously contemplating WiMax (Worldwide Interoperability for Micro-

wave Access) as a platform to popularize the Internet nationwide. In terms of network

convergence, voice/data networks are available nation-wide, while triple play networks

(voice/data/video) and broadband services have been growing in the big cities. VoIP

(Voice over Internet Protocol) services are also expanding. Telecommunications companies

own the Internet infrastructure and provide VoIP services. There are also several privately

owned VoIP providers, all of which lease lines from major telecom carriers. Four licenses

for 3G (third generation) wireless technology were issued by MIC in August 2009 to Viet-

tel, Mobifone, Vinaphone, and an EVN Telecom/Hanoi Telecom joint venture. At

present, 3 operators have officially provided their services, namely: Vinaphone, Viettel and

MobiFone. According to industry estimates, Vietnam will have approximately 4.5 million

3G subscribers by 2013. So far, there are 10 local Internet service providers permitted to

run WiMax pilot tests, and MIC is planning to license a selected number of service provid-

ers through a beauty contest in 2010

As a new member of the WTO, Vietnam will continue to implement tax cuts as part of its

commitments under the Information Technology Agreement. Specifically, categories cur-

rently in a 5 % tax bracket will decrease evenly to 0 % in 2010; those in a 10 % bracket will

decline evenly to 0 % in 2012 and those in a 20-30 % bracket will go down evenly to 0 %

in 2014. On November 23, 2009, the National Assembly passed the new Telecommunica-

tions Law and the Ratio Frequency Law, which will take effect in July 2010, and will open

up new opportunities for trade and investment in the telecommunications sector.

As the hi-tech industry continues to develop in Vietnam, prices will continue to go down,

investment capital will increase and the business environment will become more competi-


______________________________________________________________________

Vietnam Business Forum 2010, Frankfurt/Main

tive. By entering the market via the road of equitization/privatization, foreign telecomm

nications companies will best approach this emerging market in a step

As of January 2010, according to Vietnams General Stat

million subscribers, of which fixed telephone and cell phone subscribers make up 19.6 mi

lion and 115.7 million respectively. That is, the number of cell phone subscribers is nearly 6

times higher than fixed telephone ones.

munities nationwide.

Figure 3: Fixed Telephone Market Shares in 2008

At present, there are 8 licensed cell phone network operators in Vietnam. Nearly 90 pe

cent of the mobile phone market share in Vietnam is currently divided between 3 major

network operators: Viettel Mobile, MobiFone, and Vinaphone. According to figures r

ported by network operators to Vietnams Ministry of Information and Communications

(MIC), as of January 2009, with a 86 million population, the total number of mobile phone

subscribers in Vietnam was over 170 million, of which more than 90 percent were pre

subscribers. However, industry specialists estimate that there are only 50 million actual

subscribers (i.e. being operational).

VNPT; 70.98%

Economic Key Features at a Glance

______________________________________________________________________

Vietnam Business Forum 2010, Frankfurt/Main Volker Girrulat MBA

tive. By entering the market via the road of equitization/privatization, foreign telecomm

nications companies will best approach this emerging market in a step-by

As of January 2010, according to Vietnams General Statistics Office, Vietnam has 135.3

million subscribers, of which fixed telephone and cell phone subscribers make up 19.6 mi


times higher than fixed telephone ones. Telephone access is currently available to all co

: Fixed Telephone Market Shares in 2008

At present, there are 8 licensed cell phone network operators in Vietnam. Nearly 90 pe

phone market share in Vietnam is currently divided between 3 major

network operators: Viettel Mobile, MobiFone, and Vinaphone. According to figures r


009, with a 86 million population, the total number of mobile phone

subscribers in Vietnam was over 170 million, of which more than 90 percent were pre


rs (i.e. being operational).

EVN; 15.51%

SPT; 1.01% Viettel; 12.50%

VNPT; 70.98%

Source: GSO Vietnam, 2008

______________________________________________________________________

Volker Girrulat MBA Page 34

tive. By entering the market via the road of equitization/privatization, foreign telecommu-

by-step fashion.

istics Office, Vietnam has 135.3

million subscribers, of which fixed telephone and cell phone subscribers make up 19.6 mil-


Telephone access is currently available to all com-

At present, there are 8 licensed cell phone network operators in Vietnam. Nearly 90 per-

phone market share in Vietnam is currently divided between 3 major

network operators: Viettel Mobile, MobiFone, and Vinaphone. According to figures re-


009, with a 86 million population, the total number of mobile phone

subscribers in Vietnam was over 170 million, of which more than 90 percent were pre-paid



______________________________________________________________________

Vietnam Business Forum 2010, Frankfurt/Main

Figure 4: Mobile Phone Network Operator Market Share

The Internet market has also developed rapidly in recent years. Internet usage has increased

in popularity as evidenced by the entry of many Internet service providers (ISPs) into the

market. As of December 2009, the number of Internet subscribers in Vietn

22.78 million, with 26.55 percent of the population using the Internet regularly. Presently,

the countrys total international and domestic connection bandwidth are 89,619 Mbps and

114,009 Mbps respectively. However, Internet density is not equ

country and is concentrated in the urban centers, especially Hanoi and HCMC.

Figure 5: Top Five Internet Service Providers and their Market Share

VNPT; 51.85%

VNPT; 74.25%

FPT Telecom; 9.09%

Economic Key Features at a Glance

______________________________________________________________________

Vietnam Business Forum 2010, Frankfurt/Main Volker Girrulat MBA

: Mobile Phone Network Operator Market Share



market. As of December 2009, the number of Internet subscribers in Vietn



114,009 Mbps respectively. However, Internet density is not equally spread throughout the


: Top Five Internet Service Providers and their Market Share

EVN; 1.52%SPT; 8.56%Viettel; 38.07%

VNPT; 51.85%

VNPT; 74.25%

FPT Telecom; 9.09%EVN; 1.42%SPT; 2.14%

Viettel; 11.64%

Source: MIC Vietnam, 2008

Source: VNNIC, 2009

______________________________________________________________________

Volker Girrulat MBA Page 35



market. As of December 2009, the number of Internet subscribers in Vietnam stood at



ally spread throughout the



______________________________________________________________________


Vietnam's first communications satellite called Vinasat-1 was launched on April 18, 2008,

providing roughly 15 years of service. This $200 million satellite was manufactured by the

United States Lockheed Martin and has a lifespan of 15 years. Vinasat is a geostationary

satellite, employing 8 extended C-band channels and 12 Ku-band channels to provide

broadcast and telecommunications service (video, data, voice) to countries in the Asia-

Pacific region such as Vietnam, Laos, Cambodia, India, Australia, Japan, Korea, part of

China, and other East Asia countries.

Apart from telecommunications satellites, Vietnam also has plans for another satellite: a

natural resources, environment and disaster monitoring small satellite (referred to as

VNREADSat-1). VNREDSat-1 would be a small-sized earth observation satellite, 150 ki-

lograms in weight with a five-year life expectancy. The satellite is scheduled to be opera-

tional in 2012 and will be used to help Vietnam map its natural resources and provide in-

formation about the environment and disasters. The project would cost an estimated $60-

100 million and help free Vietnam from reliance on satellite images provided by other

countries.

The development and use of Web sites for online purchases by Vietnamese consumers is

another avenue for promoting economic growth and trade. However, e-commerce in Viet-

nam is in a developmental stage, with uneven application across sectors. Some sectors,

such as the burgeoning e-supermarket industrywhereby a single Web site offers access to

a wide variety of products or servicesare experiencing rapid growth in consumer online

retail. Yet most Vietnamese companies with a Web site provide only information about the

company itself (physical address, contact information, and so forth) or product-related

information (pricing) and have no system of online payment Of those companies that do

provide products or services, the percentage selling services far outpaces those selling

goods24.4 percent compared with 5.9 percent, respectively. Of the former, tourism and

ICT (including software) and other value added services continue to lead the way.


______________________________________________________________________


Figure 6: Commerical Websites providing selected Services 2004

1) Product Information 2) Price Information 3) Order Placement 4) Online Payment

5) Customer Services

The major impediment to growth in the online sale of both goods and services is the con-

tinued lack of consumer confidence. Although Vietnam completed its legal framework for

electronic transactions in 2006, much remains to be done to develop its regulatory ap-

proach to data privacy.

As such, the government has taken an increasingly active role in the Data Privacy Subgroup

of the Asia Pacific Economic Cooperation (APEC) Electronic Commerce Steering Group.

In 2004, Vietnam endorsed the APEC Privacy Framework, a set of nine guiding principles

to assist APEC economies in developing approaches that maximize both privacy protec-

tion and the continuity of cross-border information flows, which thus promote electronic

commerce. The recognition of comparable data privacy practices and regulations of other

participating economies (for example, through a voluntary trust mark system) will benefit

Vietnams online consumers and integrate them into the global economy. As consumer

usage of online services grows, Vietnamese citizens are also learning to harness the conven-

ience of the Internet. As part of its October 2005 Strategy for Development of Vietnams Informa-

tion and Communication Technology toward 2010, Vietnam gave immediate priority to the devel-

opment of e-government. Online government services increased in 2006, including license

registration, customs applications, and certificates of origin. However, compared with its

Asian neighbors, Vietnam is lagging behind in providing online government services. In

92.17%

47.83%40.43%

10.47%

47.83%

1 2 3 4 5

Source: MOIT, 2004


______________________________________________________________________


2005, the United Nations ranked Vietnam 11th among Asian nations for e-government

readiness

1.3.5 Energy Supply

Vietnams average annual growth rate in electricity production was close to 14% since 1995

is far surpassing the growth rate of the economy. In line with further industrialization and

electrification, growth in demand is likely to remain very strong and accordingly there is

need for significant investments in the sector. Whilst the electricity industry is currently

dominated by the state owned Electricity of Vietnam Corporation (EVN), foreign com-

panies have entered the market in the form of Build-Operate-Transfer (BOT) projects.

Other players such as Vinacomin, Petrovietnam have recently entered the power produc-

tion market. Furthermore, the Electricity Law of 2004 envisages a competitive market in

the future and draft roadmaps indicate competition to the wholesale market could be in-

troduced possibly in 2014.

Electricity output in 2006 reached 59 billion kWh with foreign invested enterprises ac-

counting for 5.6%. The EVN aims to generate about 70-78 billion KWh in 2010 and as

high as 167-201 billion kWh in 2020. In order to achieve the above targets, the annual

power growth during 2000-2020 should achieve 8.8% to 10% to keep pace with the annual

GDP growth of 6.6% to 8%. The annual investment required to achieve the set target is

estimated to be US$1.5 to US$2 billion per year. Furthermore, Viet Nam plans to complete

its first nuclear power plant by 2020 as an alternative means on meeting electricity demand.

The primary sources of finance for investment in the power sector are from Official De-

velopment Assistance (ODA) grants and loans committed by such international donors as

the World Bank (WB), the Asian Development Bank (ADB), bilateral funds from various

foreign governments, and funds from the Vietnamese Government. Other crucial sources

of finance over the next decade include foreign suppliers credits and EVNs retained earn-

ings.

Vietnam has signed up for a USD 165 million loan from the WB and the ADB to finance

the rehabilitation of the electricity transmission and distribution systems in Ho Chi Minh


______________________________________________________________________


City, Hanoi, Nha Trang and Hue. Soft loans and aid from foreign governments are also

being spent to improve the system.

Additionally, Vietnam has great potential of renewable energy, and its consumption is on

the rise. Under the solar power cooperation program between France and Vietnam, a solar

station was installed in Ho Chi Minh City to provide electricity for the provinces Gia Lai,

Quang Nam, and Binh Phuoc.

1.3.6 Environmental Issues

The Doi Moi reforms and open-door policies have achieved high economic growth in

Vietnam, but such rapid economic growth, coupled with a growing population and a

shrinking natural resource base is straining the nations environmental quality and major

social problems remain, however, most notably the gap between rich and poor, environ-

mental degradation, e.g., air and water pollution, and poor waste disposal, and a rapid in-

crease in motorcycle accidents.

It was estimated in 2002 that approximately 50% of Vietnams land area had poor quality

soils as a result of human activity, while approximately 70% of the country is affected by

soil erosion hazard to varying degrees. Given the high dependence of Viet Nam on agricul-

ture (78% of livelihoods) soil erosion and fertility losses are issues of concern with poten-

tial for significant economic impacts.

The quality of forest cover is decreasing. Rich and medium stocked forests are now con-

centrated mainly on hilltop or steep slope areas that are unsuitable for other land uses.

Identified threats to forest cover include clearing for agricultural land, unsustainable exploi-

tation of timber and non-timber forest resources for subsistence and commercial uses and

forest fires.

Groundwater quality is generally suitable for most domestic purposes, although there are

hotspots of contamination. Groundwater resources are abundant; however, in the Red

River and Mekong River deltas, over-exploitation is leading to falling water tables and sub-

sidence issues.


______________________________________________________________________


In terms of surface water quality, upstream water quality of most rivers remains suitable for

sustaining freshwater ecosystems and/or domestic purposes, while downstream quality is

generally poor, unsuitable for domestic purposes and is causing freshwater ecosystem de-

cline. Water quality is poorest in urban areas, which tend to be in downstream areas near

the mouth of the rivers and the main downstream sources of pollution are untreated indus-

trial and domestic wastewater discharges.

Air quality is considered to be severely degraded in cities and industrial areas throughout

Vietnam. This pollution causes a noticeable and regular occurrence of respiratory prob-

lems. The main pollutant is dust (monitored by Total Suspended Particulates (TSP)), which

is usually 1-5 times higher than national standards. Major stationary sources of pollutants

are factories, power plants and biomass fuel burning mainly for heating in households. Ve-

hicles are the major mobile source of air pollutants. The majority of solid waste disposal

and landfill sites are poorly operated and maintained.

Industrial activities contribute significantly to environmental degradation in terms of noise,

air and water pollution. Low standards of technology, combined with weak monitoring and

enforcement of environmental standards exacerbate problems associated with industry.

Tourism is increasingly realized as an important contributor to socio-economic develop-

ment. Key environmental management issues include the effects

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