Vietnam special report

SPECIAL REPORT
VIETNAM’S CAPITALIST
ROADERS
Vietnam is hoping to follow China’s road to prosperity. But its problems
have begun to overshadow its promise. Policymakers face critical choices
that could either make Vietnam the next emerging-market star or deepen
its economic malaise.
JANUARY 2011
VIETNAM’S CAPITALIST ROADERS
JANUARY 2011
VIETNAM FOLLOWING CHINA’S
PATH TO PROSPERITY
By John Ruwitch and Jason Szep
Ho Chi Minh City, Vietnam, Jan 13
N
guyen Duc Tai was on a mission
one sweltering January morning in
Vietnam’s commercial capital, Ho Chi
Minh City.
Flush with cash from his annual bonus,
he wanted to buy his wife a new mobile
phone, a gift for the coming Tet lunar
new year holidays. In a country where the
average annual income is about $1,100,
a good phone is a big investment. Tai
wanted to make the right choice with his
5 million dong ($250).
“It was so confusing. I went to two
shops, but no one could give me the full
picture of what I could get for my money.
They showed me one or two phones.
That’s not enough. If they could show
me 10 at similar prices I could make a
decision.”
Vietnam
200 km
CHINA
Hanoi
The 35-year-old smelled opportunity.
“I said to myself, ‘there’s something
wrong here. I have money. I’m willing to
pay. But I cannot find what I want. There
is a mistake somewhere and if I can fix
that, the customers will support me’.”
Fast-forward six years and Tai is
chief and co-founder of Mobile World,
Vietnam’s largest cellular phone retailer,
part of a new breed of fast-growing
companies tapping a swelling middle
class in the Communist-run country of
nearly 90 million people.
Vietnam has emerged over the past
decade from the hangover of war to
play a central role on Asia’s factory floor,
producing everything from footware to
computer parts. An economy once built
around carpet-bombed rice paddies
now boasts gleaming shopping malls
and towering skyscrapers. BMWs and
Rolls Royces jostle for space on streets
clogged with motor-scooters and bicycle
rickshaws.
As northern neighbor and former
imperial ruler China begins the transition
from sweatshop economy to consumer
society, Vietnam hopes to follow.
Companies such as Mobile World could
lead the way.
But in recent months, Vietnam’s
problems have overshadowed its
promise – from spiraling inflation
to a stumbling currency, red tape, a
debilitating trade deficit and creaking
infrastructure. Policymakers face critical
choices in the next few years that could
either make Vietnam the world’s next
emerging-market star or deepen its
economic malaise.
“China is basically five to
10 years ahead of Vietnam.
So it is a good leading
indicator for what’s coming.”
That forms a sober backdrop to the
ruling Communist Party congress that
began on Wednesday, where delegates
will give their nod to maintaining policy
goals aimed at delivering economic
growth of up to 7.5 percent a year for the
next five years. Addressing Vietnam’s
urgent problems is not on the formal
agenda, although stabilising the
economy is a hot topic behind the scenes.
Even without bold reforms, nimble
companies are shaking up the private
sector, led by executives inspired by
success stories from China.
LAOS
THAILAND
VIETNAM
CAMBODIA
Ho Chi
Minh City
South
China
Sea
A coconut vendor sits in front of the opera house while waiting for customer in Ho Chi Minh City
on January 4, 2011. REUTERS/Nguyen Huy Kham
2
VIETNAM’S CAPITALIST ROADERS
Despite Vietnam’s chronic economic
problems, Mobile World for instance
has grown from seven stores to more
than 70 over the past three years with
nearly 4,000 staff. Revenue doubled
last year to $150 million and is projected
to double again this year. Net profit, $5
million last year, is expected to triple this
year to $14 million. “We don’t care about
politics,” laughs Tai. “We care about the
customer.”
Interviews with business executives,
investors and independent analysts
reckon Vietnam’s burgeoning prosperity
trails China’s by a decade or so. Young
executives, and the overseas’ investors
who back them, have settled on a simple
premise: what works in China, should
work in Vietnam.
“China is basically five to 10 years
ahead of Vietnam. So it is a good leading
indicator for what’s coming,” said Chris
Freund, managing partner at frontiermarket investor Mekong Capital, whose
funds invest in 21 Vietnamese companies
including Mobile World.
Early signs suggest he may be right.
WEB-SAVVY GENERATION
Take Le Hong Minh, the 34-yearold founder of Vietnam’s dominant
Internet group VNG Corp – an online
gaming company that is fast becoming
the country’s answer to Yahoo Inc. and
Facebook.
Modeled on China’s most valuable
Internet company, Tencent Holdings
Ltd, VNG has expanded from 100 staff to
1,300 in five years, attracting investment
JANUARY 2011
Vietnam internet population
Number of internet users – mln
30
25
20
15
10
5
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Sources: Vietnam Ministry of Information and Communications, World Bank, General Statistics Office.
Reuters graphic/Christine Chan
from Goldman Sachs and boasting
millions of users a day with ambitions to
compete with global companies.
After poring over Chinese kung-fu
novels as a child, Minh surfed the Internet
for the first time at Monash University
in Australia where he studied business,
discovering along the way a passion for
martial arts videogames.
Returning to Vietnam, he landed a
finance job that paid the bills but failed
to slake his inner gamer. To do that,
he traveled to Daejeon, South Korea
where he represented Vietnam at the
2002 World Cyber Games. Though not a
winner, he saw how high-speed Internet
and videogames were more than
playthings. They were big business.
Vina Games’ Chief Executive Le Hong Minh poses for a photo at his company in Ho Chi Minh
City on January 4, 2011. REUTERS/Nguyen Huy Kham
10/01/11
At the time, more than half of South
Korea’s Internet users were watching
soap operas and sports on their
computers. But in Vietnam, the Internet
barely functioned. Minh set up a “gaming
room” with friends -- a precursor to
today’s Internet cafés – in 2003. But
for the first six months, there was no
Internet connection, just 40 computers
with standalone videogames.
Minh remembers when that changed,
almost to the hour. It was July 3,
2003. The government opened its first
registration for broadband Internet. He
was among the first in line. “We said
‘this is heaven’,” he recalls. “That’s the
moment online games were born in
Vietnam.”
“I kind of understood the investment
opportunities and we had the passion of
a bunch of guys who liked to play games,
so we formed the company in 2004 and
put together a business plan.”
“VinaGame” was born. A year later,
backed by venture-capital firm IDG
Ventures, they launched their first
product, licensing a martial arts game
from Chinese software developer
Kingsoft Corp Ltd. About 20 friends
fanned across the country to promote
“Vietnam’s first online martial arts
game”, plastering posters in about
5,000 gaming rooms in three cities.
They calculated they could turn a profit
if they had 100,000 customers their first
year. “We had that number in one day,”
recalls Minh. “In the first month we had
500,000, and then after three months
we nearly had a million users.”
3
VIETNAM’S CAPITALIST ROADERS
Five years on, now named VNG, they
compete directly with Yahoo, reaching 60
percent of Vietnam’s 27 million Internet
users, compared to Yahoo’s 50 percent,
according to VNG’s own data. Their www.
zing.vn portal offers entertainment,
news and social networking. “For e-mail
and for instant messaging we’re not able
to really compete, but we win with other
services.”
They’ve also developed Vietnam’s
first locally made online game and are
venturing into e-commerce. As they
grow, they are shaking up Vietnam’s
image as a country dominated by textile
manufacturers, computer component
makers and rice growers. Plans for a
public offering are in the works.
“Our mission is to make the Internet
change Vietnamese lives,” said Minh,
whose disarming style and unfussy
headquarters project the youthful zeal
of a Silicon Valley Internet startup. Beanbag chairs rest against a boardroom
wall. He drives a yellow Mini Cooper
and his passion for videogames has not
diminished.
“My wife still complains a lot about me
playing games until one, two o’clock in
the morning.”
On a recent Tuesday afternoon at
VNG’s 8,000 sq ft, warehouse-style
office over a grocery store in Ho Chi
Minh City, dozens of staff crammed into
a conference room where finalists in a
“VNG’s Got Talent” contest performed
on stage – an internal morale boosting
event inspired by the American reality TV
series “America’s got talent”. Some sang.
Others dressed in drag.
It underscores the biggest challenge
facing VNG and other fast-growing
Vietnamese companies: staffing. “Finding qualified people is very, very
hard,” said Minh. “And then growing
people is even harder because we have
a very limited pool of talented and
experienced people. When you are able
to grow them, they are going to be
approached by so many others.”
Despite those concerns, VNG is
attracting interest, including a strategic
partnership with China’s Tencent, known
for its online games, China’s largest
instant-messaging platform and foray
into English-language products.
Henry Nguyen, managing general
partner at IDG Ventures Vietnam, reckons
VNG is still 5-6 years from its peak.
Fueling his optimism is Vietnam’s young
JANUARY 2011
Vina Games CEO Le Hong Minh gestures during an interview at his office in Ho Chi Minh City
on January 4, 2011. REUTERS/Nguyen Huy Kham
population. Ninety percent are below
or within the working age, according
to United Nations data. To paraphrase
former U.S. President Bill Clinton’s 1992
campaign slogan, he said, “To us, it’s the
demographics, stupid”.
Vietnam’s middle-class has more
than doubled in the past decade to
64 percent in urban areas, according
to Asia-Pacific research consultants
Cimigo. Sixty percent of the population
is under 35 years old. The economy more
than tripled to over $100 billion from $30
billion just a decade ago, along with per
capita wealth, although off a low base.
LOOMING RISKS
But doubts are growing over whether
authorities can pilot the economy deftly
enough to turn Vietnam into Asia’s next
tiger.
Some signs are not encouraging,
such as the Finance Ministry’s decision
to sign away proceeds of Vietnam’s
first international bond to state-owned
Vietnam Shipbuilding Industry Corp, or
Vinashin, in 2005, handing over all $750
million from the oversubscribed 10-year
issue.
The arrangement was part of the
Communist Party’s plans to try to
keep the state sector in control of the
“commanding heights” of the economy
by bankrolling the big ones, monopolising
the sectors they operate in, and creating
state-owned conglomerates modeled on
South Korea’s powerful chaebols.
Despite the huge sum, Vinashin’s
chief executive Pham Thanh Binh said
at the time the amount was barely a
quarter of the funds needed to reach its
ambitious shipbuilding targets over the
next five years, during which he expected
30 percent growth. So he sought more
cash – from the government, the capital
markets and foreign lenders.
Instead of focusing on producing
more and better boats, though, Vinashin
sprouted subsidiaries at an alarming
rate, often in unrelated fields such as
hotels, motorbikes and stockbroking.
Then the global economic downturn
“Finding qualified people is very, very hard. And then
growing people is even harder because we have a very
limited pool of talented and experienced people. When you
are able to grow them, they are going to be approached
by so many others.”
4
VIETNAM’S CAPITALIST ROADERS
JANUARY 2011
Vietnam at a glance
Key statistics
GDP*
$101.58 bln
Population
89.57 mln
GDP per capita*
$1,168.72
Unemployment rate
2.88%
60
Average annual
rate of inflation
9.19% (2010 estimate)
6.88% (2009)
40
No. of mobile phone
subscriptions
153.7 mln
No. of internet users
27.4 mln
2000
100
2009
80
20
*$1 = 19,500 dong
15
TV, mobile phone & PC ownership – %
(among 15-64 year olds in Ho Chi Minh City)
TV sets
Data as of 2010.
Cable TV
Mobile
phones
0
PCs
GDP growth – % change y/y
Vietnam
Indonesia
Philippines
10
Thailand
5.3%
4.5%
1.1%
5
0
-2.2%
-5
-10
-15
1990
1995
2000
2005
2009
Sources: General Statistics Office, World Bank, Ministry of Information & Communication, Cimigo, Thomson Reuters.
Reuters graphic/Christine Chan
struck, sucking the wind out of the
shipping industry’s sails. Vinashin’s
debt problems were too big to avoid at
some $4.4 billion by the middle of last
year. The Communist Party declared the
firm on the brink of bankruptcy and the
government ordered it re-organised.
Binh and other executives were sacked
and later arrested.
Vinashin has become a prime example
of the risks inherent in the government’s
industrial policy and has sparked heated
debate within the party, according
to sources close to the communist
leadership.
The government ordered Vietnamese
banks to freeze their loans with Vinashin
to give it breathing room. But as the
company drifted toward default last
month on a $600 million loan by
10/01/11
international creditors, all three ratings
agencies downgraded Vietnam, raising
the cost of capital when it critically needs
to raise funds to improve infrastructure.
Such problems deepen Vietnam’s
macroeconomic
troubles.
Annual
inflation hit a 22-month high in
December of nearly 12 percent, the
currency has lost nearly 25 percent
against the dollar on the gray market
since the end of the first quarter of 2008,
and the International Monetary Fund
said foreign exchange reserves had sunk
to just 1.8 months of prospective imports
by the end of September.
State-owned enterprises (SOEs) have
been sucking up capital and increasing
risk in the banking system without
producing big advances in economic
growth and job creation.
“In the long term, it’s just not
sustainable what they’re doing,” said
Jonathan Pincus, dean of the Fulbright
Economics Teaching Programme in Ho
Chi Minh City and a former economist for
the United Nations in Vietnam.
“What’s going to happen when
the chickens come home to roost on
Vinashin? I think they’ll just run out of
money. It’s going to get very expensive
for them to get debt and they’re broke,
so what happens if a couple of banks
blow out? They’re not China. They’re not
sitting on $3 trillion in reserves.”
A study by Vietnam’s Central Institute
for Economic Management and the
National Univerity of Singapore’s Lee
Kwan Yew School of Public Policy
presented to the government last month
showed Vietnam’s incremental-capital
5
VIETNAM’S CAPITALIST ROADERS
output ratio, or ICOR, a measure of the
efficiency of capital use, was actually
worsening because of money poured into
SOEs.
Vietnam’s ICOR averaged 4.8 in
2000-2008 and 5.4 for 2006-2008,
substantially less efficient than Taiwan,
South Korea and Thailand during similar
phases of development.
Yet the party seems as committed to
the state sector as ever, a decade after
enacting an Enterprise Law that opened
the floodgates for private businesses.
The result is a warped competitive
environment that puts private business
at a disadvantage.
PRIVATE SECTOR CHALLENGES
Examples are plentiful.
Jetstar Pacific, an airline partly owned
by Australia’s Qantas Airways Ltd, has
had many setbacks in Vietnam, where
the skies are dominated by flag carrier
and SOE Vietnam Airlines. In April 2008,
for instance, it had trouble securing
deliveries of fuel from the state jet fuel
monopoly, Vinapco, a company under
Vietnam Airlines.
In the grocery store space, South
Korean supermarket Lotte Mart, part of
Lotte Shopping Co Ltd, opened its first
shop in Ho Chi Minh City in 2008 but
faced long delays getting approval to
open a second in the city where homegrown and state-owned Saigon Co.op
Mart has been eager to cling to its
market share.
“The SOEs really do see it
as their right to monopolise
the market.”
The excuse, said Fred Burke, a
managing partner at international law
firm Baker & McKenzie, was that it did
not meet an “economic needs test” that
Vietnam was allowed to retain under
its 2007 World Trade Organisation
agreement. In reality, he said, it was pure
protectionism.
“The SOEs really do see it as their right
to monopolise the market,” Pincus said.
Big investments in the state sector
squeeze the fiscal balance and
exacerbate inflation pressures. More
state spending, plus inefficient use of
capital translates into less output per
dollar and higher prices for goods.
JANUARY 2011
Vietnam GDP per capita growth
GDP per capita – current $
GDP per capita growth – %
1200
Global
downturn
Asian
Financial
Crisis
1000
8
7
800
6
600
5
400
4
200
3
0
'90
'91
'92
'93
'94
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
2
Source: World Bank
Reuters graphic/Christine Chan
11/01/11
“If I go in and say ‘American management gurus say you
should do this, and this and this’, it is in one ear and out the
other. But if I ask them who was Buddha being as a leader,
they will get it and try to apply it.”
Preferred access to land and capital only
make the problems worse.
Deputy Prime Minister Nguyen
Sinh Hung has made privatising state
enterprises a priority over the next four
years after about 144 sold shares to the
public last year. That’s good news to
Andy Ho, managing director and head of
investment at VinaCapital, the country’s
largest private equity firm.
“We look at dilapidated, beat up
companies where we can make a
difference. We love the SOEs,” he said.
“We invest in a lot of businesses that
cater to the consumer growth.”
But Vietnam’s war-scarred past poses
unique issues for private equity. Years
of war and communist central planning
wiped out a generation of entrepreneurs.
Big investments by overseas-backed
funds are often accompanied by training
for local CEOs or, if the state retains
control of a newly privatised firm,
extensive talks to convince bureaucrats
to think of the bottom line.
“We sit down with them and say, ‘there
are certain changes you need to make to
grow your business’.” About 75 percent
of the companies listen, said Ho, whose
firm manages $2 billion of investments.
Mekong Capital’s Freund, a Chicago
native and religion scholar from
Mekong Capital’s Managing Director Chris
Freund poses for a photo at his office in
Hanoi January 7, 2011. REUTERS/Nguyen
Huy Kham
University of California, Santa Cruz, runs
classes for executives teaching them to
think like Buddha.
“If I go in and say ‘American
management gurus say you should do
this, and this and this’, it is in one ear and
out the other. But if I ask them who was
Buddha being as a leader, they will get it
and try to apply it,” said Freund, a former
Templeton Asset Management Ltd
portfolio manager who founded Mekong
Capital in 2001. A simple look at
Vietnam’s stock market shows how the
6
VIETNAM’S CAPITALIST ROADERS
country dearly needs such leaders.
The global liquidity that coursed
through the world’s emerging markets
last year missed Vietnam, whose 10-yearold Ho Chi Minh City Stock Exchange lost
about 3 percent in the year compared to
gains of more than 40 percent in both
Thailand and Indonesia.
Ho at Vinacapital says his clients
thought the risks were just too great but
are now taking a second look, partly due
to extraordinarily low valuations, the
cheapest in Southeast Asia. The Vietnam
Index is down 59 percent from its March
2007 peak.
“We’re already seeing some investors
coming back,” said Ho, citing gains in
VinaCapital’s exchange-traded funds
listed in London. The VinaCapital
Vietnam Opportunity Fund Ltd is up
about 9 percent from mid-November,
better than the Thai market’s two percent
rise in the same period.
“We’re seeing signals people are
interested in Vietnam.”
INFERIOR EDUCATION
Henry Nguyen, of IDG, is effusive about
Vietnam’s prospects but he isn’t blind to
the risks.
His background gives him unique
perspective. In 1975, at the end of the
Vietnam War at age two, he fled the
Communist invasion of South Vietnam
with his family. He spent seven months
in a refugee camp in the Philippines
before moving to Virginia, where he
grew up with little interest in his former
homeland, answering his parents’
Vietnamese with English and going on to
Harvard University.
He only returned in the mid-1990s,
reluctantly, as a travel writer for the
Harvard student-run Let’s Go series. “I
fell in love with the place,” he said.
After finishing medical and business
school, he worked as a tech stock picker
at Goldman Sachs in New York under
famed Microsoft analyst Rick Sherlund,
but soon felt the pull of Vietnam again.
He returned in September 2001,
arriving on the day the World Trade
Center in New York was attacked. He
watched the aftermath on TV, trying to
contact friends.
“I think something tripped inside me,
and I thought maybe not living in the U.S.
is not such a bad thing,” he said. Three
years later, he got an offer from Bostonbased IDG’s founder Pat McGovern to
JANUARY 2011
Vietnam’s
under-35
age group is
driving growing
demand for
residential
property,
making that
sector a good
bet, says
VinaCapital
open shop in Vietnam. He now oversees
two funds, one worth $100 million, the
other $150 million.
Not only did he fall in love with the
country, Nguyen soon fell in love with,
and in 2008 married, Prime Minister
Nguyen Tan Dung’s daughter.
Yet he is frank about Vietnam’s
challenges.
“There are three issues that keep me
up at night long term,” he said.
At the top of the list is physical
infrastructure – a long-standing problem
in Vietnam, where from the early 1900s
until the early 1990s development was
on hold by conflict and ill-conceived
collectivist policies.
“Even when I say Vietnam is China circa
‘97-‘98, it’s actually much further behind
in terms of physical infrastructure,”
he said. Vietnam’s existing ports are
overstretched, it lacks highways and
the electricity grid is chronically short of
power making blackouts common.
Second is governance and corruption.
“In the end most people feel pretty
cynical about government, and probably
in most cases rightfully so.”
“I think something tripped
inside me, and I thought
maybe not living in the U.S.
is not such a bad thing.”
And third is education, perhaps the
most common refrain among business
owners and investors. He notes, for
instance, that nearly 2 million students
sit for exams annually for 750,000 seats
at full time universities.
A policeman stands guard next to a floral decoration with the communist logo at the National
Convention Center, the venue for the 11th Party Congress, in Hanoi on January 12, 2011.
REUTERS/Nguyen Huy Kham
7
VIETNAM’S CAPITALIST ROADERS
JANUARY 2011
The quality of tertiary education in
Vietnam is failing, too.
“It’s a crying shame when you have
people who are so ambitious, want to
try hard, want to work hard, and most
of them are getting the crappiest of
education that you can imagine,” he said.
Those barriers have kept many
competitors out of Vietnam’s growing
consumer market – from McDonald’s
Corp to Starbucks Corp and Wal-Mart
Stores Inc, all of which have made big
inroads in China.
Starbucks chairman and chief
executive Howard Schultz said in July
he wanted to “explore opportunities” to
enter Vietnam. But thick red tape might
force the world’s biggest coffee chain to
franchise its stores, something it does
not do in most other countries.
Red tape is “Vietnam’s biggest nontariff barrier,” said Burke at Baker &
McKenzie.
Policymakers, he added, have deeply
rooted concerns over competition,
including a fear of Chinese companies
taking control of Vietnam’s rice supply if
they open private trade too quickly.
“Protectionism is still a problem,”
said Burke, a founding member of the
American Chamber of Commerce in
Vietnam.
“If Wal-Mart, for example,
wants to come in and set
up huge stores that will
transform the future of
retailing in Vietnam, they
are going to have to jump
through a lot of hoops.”
But he is encouraged by a threeyear-old reform plan known as Project
30 that promises to cut administrative
procedures by 30 percent.
The World Bank’s 2010 “Doing Business
report” says it takes on average 44 days
and nine administrative procedures to
start a business in Vietnam, compared
with an average of 39 and eight in the
rest of Asia.
While Starbucks ponders its future in
Vietnam, local chain Highlands Coffee
is snapping up choice real estate and
gaining share in a country whose thirst
for caffeine sipped at Parisian-style cafes
dates to French colonialism.
A woman dressed in the traditional Vietnamese “ao dai”costume serves tea to Prime Minister
Nguyen Tan Dung (front R) during the opening ceremony of the 11th Party Congress in Hanoi
on January 12, 2011. REUTERS/Nguyen Huy Kham
Its founder, Vietnamese-American
David Thai, saw Starbucks rise from
his hometown of Seattle into an
international coffee powerhouse. He
sniffed opportunity and now operates 40
cafes.
“Right now foreign retailers have not
made a dent in Vietnam,” said Freund
at Mekong Capital. “If Wal-Mart, for
example, wants to come in and set up
huge stores that will transform the future
of retailing in Vietnam, they are going to
have to jump through a lot of hoops.”
Wal-Mart has no plans to enter the
market, said spokesman Kevin Gardner.
Compare that to China, where Wal-Mart
operates 189 outlets with more than
50,000 workers.
EXPLOITING THE INTERNET
Perhaps not surprisingly, Nguyen Duc
Tai, the chief of fast-growing Mobile
World, does not fear foreign competition.
But he’s using technology and exploiting
the Internet to keep his position safe.
Before setting up his company with
four friends, he knew he had to solve
the problem that vexed him while trying
to buy a phone for his wife. Consumers
need good information, he reasoned, so
before opening his first store he set up a
website detailing the prices and specs of
phones he would sell.
It was the first of its kind on Vietnam
and a hit. But that led to another
problem: how to keep prices the same on
his website and in his growing network
of shops, especially in a market prone
to surges in demand and currency
fluctuations.
His solution: digital price tags that are
centrally updated twice a day and linked
to the website. That paved the way for a
primitive e-commerce system in which
customers buy goods by inputting their
phone number. Within 30 minutes, a
Mobile World official calls, takes the
order and sends a courier on a motorbike
8
VIETNAM’S CAPITALIST ROADERS
JANUARY 2011
A woman looks at a product catalogue while visiting a Saigon supermarket in Hanoi on May 5, 2010. REUTERS/Nguyen Huy Kham
to deliver the phone and collect the
money.
The website generates about $1 million
a month, enough to make Mobile World
Vietnam’s biggest player in e-commerce,
an industry in its infancy in a country
where most people do not have credit
cards and use cash for almost every
transaction.
“This is a good weapon for us to
compete with other retailers,” said Tai,
leaning forward in a chair in one of his
shops.
Another weapon is Dinh Anh Huan,
his business development director,
who travels once a month to China to
study how companies there operate. “In
Vietnam, the culture and the economy
are very similar to China’s. So every
month I go to China. I go to the stores.
I see the suppliers, the manufacturers, I
go to their factories. I buy the products.
I watch and study. I go back home and
every day I study Mandarin,” he said,
referring to the main Chinese dialect.
In the northern capital of Hanoi, Dao
The Vinh also has a taste for China. The
38-year-old chief executive of Golden
Gate Trade & Service, a fast-growing
restaurant chain operator, is modeling
his business on China’s Little Sheep
Group Ltd which has more than 350
chain stores around the world.
“That is our case study,” he said, “But
of course our culture is different and we
have to find our way of doing things.”
Five years ago, Vinh and two friends
set up a restaurant specialising in
“mushroom hotpot” -- a savoury mix of
mushrooms, meat and vegetables boiled
in a salty broth and eaten from a gasfired vessel. Within two years, he had six
shops. By last year, he had 34.
“Our vision is in the next three years
to increase profits 40-50 percent a year,
and at the end of 2013 to have about 90
or 100 restaurants,” he said.
His rival, seven-year-old Pho 24, a
network of soup noodle shops that has
become the biggest restaurant chain in
Vietnam with 60 stores, has expanded
abroad with 19 restaurants. Founder
and chief executive Ly Qui Trung said he
expects the number of franchised stores
to double or triple in the next five years.
But mom-and-pop shops still hold
sway over the Vietnamese consumer .
In congested Ho Chi Minh City, a city
of about eight million people, shoppers
elbow their way through crowded Saigon
Plaza, whose two floors of small rented
stalls sell everything from clothing and
jewellery to knock-off handbags and
children’s toys.
“There’s a lot of variety here and the
prices range from low to high. Best of
all, you can bargain,” said Te Vinh Loc,
a 34-year-old designer as he snaked his
way through a maze of second-floor stalls
on a Thursday afternoon. “Sometimes
I look at the high-end places, but they
don’t have what I’m looking for so I come
here.”
A few shops away, saleswoman Quynh
Thi Bich Lai sells a blue-and-white soccer
shirt with the Adidas logo for $6.
“It’s just good business,” said Quynh,
who moves about 200-300 units of
9
VIETNAM’S CAPITALIST ROADERS
JANUARY 2011
Golden Gate CEO Dao The Vinh at his office
in Hanoi January 7, 2011. REUTERS/Nguyen
Huy Kham
clothing a month in a stall no bigger
than 2 sq metres. Retailers at Saigon
Plaza pay rent of about $600 a month
and generate about $2,000 in revenue,
pocketing about $500 a month in profit.
Down the street, at the sparkling new
Vincom Center, store attendants sat
quietly in mostly empty stores, some
thumbing messages on their phones. At
a Versace store, women’s handbags were
on sale for around $2,600 each – more
than double the annual salary of an
average Vietnamese worker. Business is
“not good but ok,” said salesman Nguyen
Anh Tuan. The shop attracts about 50
shoppers a day, he said, though only
about five make purchases.
But the potential for future growth
means the luxury brands can’t afford
not to be in Vietnam.In usually staid
Hanoi, paparazzi at a rope line snapped
celebrities arriving in stretch limos for
the September opening of a Gucci store
opposite the landmark century-old
opera house and Hanoi stock exchange
building. Most days, however, shoppers
are scarce.
On a Monday afternoon, Nguyen Trong
Minh had the plush shop to himself
while buying a pair of sunglasses for
his mother. The 24-year-old consultant,
People eat Golden Gate’s Kichi-Kichi hotpot restaurant in Hanoi January 7, 2011. REUTERS/
Nguyen Huy Kham
Luxury items are displayed for sale at a Saigon supermarket in Hanoi May 5, 2010. REUTERS/
Nguyen Huy Kham
who recently returned to Vietnam after
studying for five years in Minnesota,
paused when asked how long it would
take for a store like Gucci to really take
off. “It’ll be a while.”
Additional reporting by Bradley Dorfman in
Chicago; editing by Bill Tarrant
Cover photo: Commuters in Ho Chi Minh City cruise past a poster promoting Vietnam’s Communist Party Congress
on January 4, 2011. REUTERS/Nguyen Huy Kham
For comments or queries:
Bill Tarrant Enterprise Editor, Asia
william.tarrant@thomsonreuters.com John Ruwitch
Bureau Chief, Vietnam
john.ruwitch@thomsonreuters.com
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