Return to Home Page Vietnam: Between Communism and Consumerism, a society in transition Paul Herbig Executive Summary 23 years after the end of the Vietnam war, almost 10 years after the beginning of the Doi Moi opening up policy, and 2 years after the re-establishment of diplomatic and economic relations with the US, how is Vietnam doing? The term Market Leninism that has been created to describe China’s system could as well apply to Vietnam. If the people have adopted a consumerism philosophy, the Communist party is still in charge and still needs to dilute its absolute political power. Vietnam has a huge potential. It is now becoming both interesting to sell and produce in Vietnam. To produce, the western businessmen will have to avoid the bureaucratic tangles and understand the business practices of the new member of ASEAN. They will also need to be realistic and adopt an ad-hoc attitude regarding corruption. To sell, Westerners need to understand the state of mind of Vietnamese. After years of deprivation, consumerism is coming to Vietnam. Vietnamese are highly conscious of status and available brands. Their attitudes are quite different from those of many other developing countries. Before all, the American businessmen will need to understand the Vietnamese culture. To summarize, The Vietnamese are high context, they take time to make wise decisions, they are formal and respect the elder people. This paper will develop all these themes, and will try to provide a guide in order to break into or produce in Vietnam. Introduction After 20 years of isolation, Vietnam is re-emerging as a hot topic. Vietnam is one the last so-called communist countries. It is interesting to study a society which is evolving from a war economy to a peace economy and from a Communist economy to a Liberal system of exchange. The potentials of the Vietnamese Market are huge. Not only the historical background of this country is tremendously different from Western Countries but the cultural aspects of South Asia create additional barriers which foreign investors have to overcome in order to do business with Vietnam. This country of 75.3 million inhabitants is full of resources and is experiencing a tremendous growth. One International Banker advises: “Don’t come in three years- Come in now”. In order to invest and break into the Vietnamese Market, business men should be aware of the cultural differences and their implications on business practices. The Vietnamese society is a society in transition. Vietnam represents one of the nations the least understood countries, despite having been one of the most publicized. What is the Vietnamese culture and what the country has to offer are a far cry from the perceptions. If people seem to have adopted the "consumerism philosophy", the Vietnamese Communist government on the other hand has not changed and is set on putting regulations that are in contradiction with the free trade policy. "Socialism is whatever brings happiness to people". Communism is now very flexible when it comes to gaining development through a free market, but is less flexible when it deals with human rights. This quote of General Vo Nguyen Giap could finally summarize the contradictions of the Vietnamese society. In order to understand this complex society, it is essential to report and understand the changes that the Doi Moi opening up policy had on the Vietnamese society (part 1), to analyze the cultural obstacles that separate westerners from Vietnamese (Part 1); in order to give recommendation on how to approach the Vietnamese culture through a business point of view (part 3). 1. A Society in transition: Characteristics of a Growing International Market. The Vietnamese society is evolving. In our attempt to understand the Vietnamese society, we will have to consider the implications of the Doi Moi opening up policy on the overall society. How to be communist and capitalist? What remains from the communist regime? Prior to answer to this questions a brief of the recent history of Vietnam will help us to understand from where the people of Vietnam are coming from. Historical Factors: Politics: Throughout centuries, Vietnam had been fighting against the Chinese. The Chinese conquered the Red River Delta in the second century and ruled Vietnam for almost a millennium. After repeated rebellion, Ngo Quyen vanquished the Chinese army at the Bach Dang River in 938 AD. During the next few centuries, Vietnam repulsed repeated invasions by China, and expanded its border southwards from the Red River. In 1858, French and Spanish -led forces stormed Danang after several missionaries had been killed. A year later Saigon (Ho Chi Minh City) was seized. By 1867 France had conquered all southern Vietnam, which became the French colony of Cochin-China. Communist guerrillas under the leadership of Ho Chi Minh resisted the French domination. Ho Chi Minh’s declaration of independence after WW2 sparked violent confrontations culminating in the French military defeat at Dien Bien Phu in 1954. The Geneva Accords of 1954 temporally divided Vietnam in two zones (the communist in the North and the anti-Communist, pro US in the South. Political and ideological opposition rapidly turned to armed confrontation prompting the USA to commit troops in 1965. The Paris peace Agreements, signed in 1973, provided an immediate cease-fire and signaled the withdrawal of US troops. Saigon eventually capitulated to the Communist forces in April 1975. Vietnam then invaded Cambodia in 1978. It was the end of the trade relation between China and Vietnam. Since Vietnam strong re-emergence, the two countries have just decided to re-establish cross border railway. The end of the Cold War and the collapse of USSR in 1991 caused Vietnam and Western Nations to seek rapprochement. In 1987, Vietnam slowly embarked on Doi Moi, which aims to facilitate private foreign investment. July 1995 marked the end of the US embargo and the re-establishment of diplomatic relations with Hanoi. But Vietnamese did not discover trade in the 1990’s, Dutch, Japanese and Malaysian merchants headed here in the early 19th century to trade silks, spices, and wood. Today the Vietnamese skills for trade are pushing the country towards a great development. Religions: Four great philosophies and religions have shaped the spiritual life of the Vietnamese people: Confucianism, Taoism, Buddhism and Christianity. Over the centuries Confucianism, Taoism and Buddhism have melded with popular Chinese beliefs and ancient Vietnamese animism to form what is know as Tam Giao (the triple religion). Today Buddhism is the principal religion but there are also sizable Taoist, Confucian, Hoa Hao, caodaists, Muslim and Christian minorities. Economic Factors: Vietnam has become the investment darling of Southeast Asia as multinational firms rush to penetrate this promising market. And for good reasons: It has vast resources, including a literate and disciplined work force, timber, oil, fisheries, arable land, and alluring tourist destination. After a decade of economic reform, 1996 prove to be the turning point for Vietnam. The GDP is now worth $23.9 billion. The economy grew by 9.5%, the industrial production was up by 13.9%, and agricultural out put increase by 4.5%. Services went up as well by 10.9%. External Trade also blossomed with exports valued at $6.8 billion, and imports of $10.2 billion. Investments by country were as followed: Country Number of projects Total Capital (in millions) Taiwan 273 4,100 Japan 167 2,696 Singapore 148 2,507 Hong Kong 188 2,390 South Korea 174 2,319 United States 63 1,319 Malaysia 51 1,006 France 79 760 Thailand 66 700 Source: World Bank, General Statistics Office . With such an economic growth there are lot of emerging markets: Emerging Markets: After centuries of deprivation, consumerism is coming to Vietnam. Vietnamese are thirsty for goods. What we consider as everyday products in the Western World is considered as small luxuries products in Vietnam. Those goods are appreciated since they carry social status. For instance, Vietnamese consumers favor small luxuries products such as Coca Cola or Pepsi. (Coca Cola aims to produce 154 millions bottles of soda a year thanks to its new Joint-venture.). The “entertainment/ pleasure” products are welcomed. Marlboro and Johnny Walker have already broken into the market. And, there are many other consumer products still lacking in Vietnam. A product meticulously developed and promoted will probably be a great success. There are many opportunities to manufacture and sell. Example of products that are taking off are services and hardware. For instance the spread of refrigerators in household is a recent phenomenon; 20% of the households own one (Schultz, Clifford,1996). The banking infrastructure also needs expansion. Much of the population has no knowledge of using basic bank services. MasterCard has already signed up four banks to issue cards, and will be the first credit cards issued in Vietnam. Entertainment should experience tremendous growth. More than six golf courses have already been built around the country. The fees are very expensive but this sport is now very popular amongst the new upper class businessmen and the Nomenclature of the Communist party. However, Vietnam has a large population within little in the form of modern entertainment to cater to them. There is little to do in Vietnam for the moment. Studies show that Vietnamese only spent 40 minutes per day in front of a TV set. When they are not moonlighting, they hang out with their friends and family. Infrastructure such as bowling alleys, amusement parks, shopping malls will be needed. Vietnam is also greatly lacking in infrastructure products. For example, much of the electricity distribution problems are due to outdated, simple equipment and components, not due to lack of resources. It is estimated that Vietnam will need to invest $20 billion, overall to improve its infrastructure. (Pangea consultants,1996). Vietnam is an important market for a wide range of American goods and services, particularly capital goods, telecommunications equipment, power generation, aviation and avionic equipment, food processing and packaging, textile machinery, financial and legal services, and consumer products. Many of Vietnam’s priority development sectors coincide with the Administration’s National Export Strategy Big Emerging Sectors, (Some do not!!). Projects in these sectors are very large-scale and costly. Most investments pouring into the country over the past several years has flowed into the tourism, light/heavy industry and service sectors. Investments by sectors in Millions: Sources: World Bank, 1997. SECTOR No of Projects Total Capital Heavy industry 960 11,324 Hotel/Office/Apartments 260 7,320 Oil/Gas 260 7,320 Telecom /post 23 1,187 Industrial Zones 10 624 Agriculture 51 388 Finance/banking 19 265 EPZ 60 203 Health services 72 143 Services 72 126 Hanoi government now wants to diversify development. What’s really irritating the international community in Vietnam are the regulations and the bureaucracy that the government came up with. Emergence of a Consumer Culture rather than a Government Policy. The government culture is still very strong. What a business man has to avoid are the bureaucratic tangles, which are often attributed to Vietnam’s history as a colonial subject of the Chinese(and their tradition of Confucian bureaucracy) and then of the French (who invented the word bureaucracy). Rules are changing rapidly. The centralization of the system of the decision making process for large scale projects is a threat for potential investments. Recently the government is set on developing the whole territory -meaning that project will be allocated between the North, South, and Central regions. French Oil Giant, Total SA, found this out by losing out the government’s demand that the first oil refinery be built in the central region (as opposed to southern region where it economically made more sense). The company eventually pulled out of the project which was worth $1.2 billion. A recent amendment to the Doi Moi policy limits 100% foreign ownership in several areas, including hotel, telecommunications and insurance as well as construction of ports and airports which are areas where the boom of development is supposed to be the biggest in the future as we have seen earlier. Furthermore the right of ownership of land-use rights has been limited to state enterprise only, and reinvestment incentives have been narrowed. One thing that is irritating international businessmen is a decision by the government to accommodate the formation of communist party cells, or cadres, within their Vietnam operations within six months of starting a project. According to the head of government-controlled union - the only organized labor group with official sanction- there is no room for negotiations. “If the foreign joint venture refuse, we will insert people by ourselves. We need to have party cells in every one”. (Anonymous, World Trade, 1996). Still, Vietnam continues to make efforts to improve the efficiency of government. Vietnam’s National Assembly approved plans to re-structure the state bureaucracy. Eight government offices will be merged into three super-ministries. Also, in a fight against corruption, Vietnam’s civil servants were told they would be sacked or demoted if they were caught taking brides in their dealing with the public. Public employee were instructed to be more courteous and to put in a full working day. In addition, Vietnam is lifting up a lot a barriers that remained despite of the Doi Moi in order to meet the requirements set up by the ASEAN. New regulations prod the country’s cumbersome bureaucracy into developing industries that would reduce the needs for import into Southeast nation and help it meet its tariff reduction target mandated by the Association of the Southeast Nations. But more than the government policy, it is the cultural differences that constitutes an obstacle for doing business in Vietnam. 2. Cultural differences and obstacles for doing business in Vietnam Who are the top 5 foreign investors in Vietnam? Taiwan, Japan, Singapore, Hong Kong and South Korea. Asian companies have been more successful than western companies in securing project approval due to their understanding of both the approval-getting practices and the way of conducting business negotiations. All cultures have developed certain styles, methods and actions considered appropriate for inter-personal communication. Like most Asian cultures, Vietnam is considered to be “high-context”. In such a culture, the context - situation, place , attitude, non-verbal behavior, and gestures is more important than the words spoken in a meeting. Americans are on the contrary low context; words carry the message and the context in which they are spoken is relatively unimportant. Vietnamese attitudes are different from those of Americans in the following area: Concepts of time, Personal Relationships, Individuals and group dynamics, Gender issue and ages. This will be followed by a review of the business protocol in Vietnam which includes Business entertainment and Making conversation. Attitudes toward time: “American measure the time by the clock, Vietnamese by the monsoon”. Vietnamese have a more extended concept of time than that of most Americans. The concept of deadline does not cover the same meaning for Vietnamese and Americans. Although the attitude towards time is changing, Vietnamese can be expected to take a longer view of time and be suspicious of the need for urgency in making decisions or culminating a business deal. Two elements can explain this attitude towards time: First the agrarian nature of the traditional Vietnamese society focuses more on season than on days or week. In addition, the Confucian tradition of the respect for earlier generation considers that time should be given in order to make wise decisions. In any case, patience remains the ultimate weapon in a business negotiation. Personal relationships: Vietnamese tends to be very formal. The formality decreases the uncertainty surrounding interpersonal contacts in Vietnamese society and is carried over into business for the same reasons. On a first meeting, little business can be done, the Vietnamese will concentrate on getting to know you (background, expertise, character). Americans show they are listening respectfully by staring into the speaker’s eyes as he talks. In Vietnam staring directly into a person’s eyes is considered as discourteous. Keeping one’s eyes lowered while someone in authority is speaking is a sign of respect.(Edmond D. Smith, Jr. and Cuang Pham, 1996). Vietnamese society is comprised of an interconnected network of personal relationships, all of which carry obligations on both sides. Americans need be sensitive to the serious nature of what may seem to them casual business relationships. Failure to do so may result in a loss of trust and eventually a loss of business opportunities. Individual and Groups Dynamics Vietnamese consider themselves part of a larger entity. Individual are subordinate to the group. Conformity to familial and social norms is an important goals. Praising or singling out an individual for attention in public is embarrassing for the concerned individual and will be likely to be counter-productive. The same rule is even more important when it comes to criticism. Saving face is the most important. Any public criticism can result in a loss a face and be extremely damageable. For this reason criticism should be handle privately and if possible indirectly. (Edmond D. Smith, Jr. and Cuang Pham, 1996). In Vietnam the ultimate goal of all personal interactions is harmony. Gender Issues and Age Du to the Marxist ideology, the Vietnamese society tends to be egalitarian, but continues to exhibit paternalistic, male-dominant attitudes in business. This means that women holding a key position will be accorded the respect du to that position, even if it not the case in their personal lives. Foreign professionals are accepted in Vietnam, particularly if they have high status in their company. But women are fighting for more rights. According to Dr. Cuc, eleven million Vietnamese women belong to the WU (Women Union). The number of women candidates at general elections increased by 3% overall in 1994. They won 20% of elected position at the province level. The WU party is also actively involved in income-generation and job-creation project for women. The Women Union is fighting against discrimination. According to women representative, women rarely reach positions of authority, especially in the private sectors. (Tradeport.org, 1996) Vietnamese believe that elderly is a cardinal virtue. Age carries experience and wisdom. Thanks to Confucianism, in extended family the word of the grand father and the father are the law. The oldest member of a delegation will often be treated with great respect regardless of his official position or rank. Concerning children, efforts are made to fight against illiteracy, according to peoples committee vice president Dao Tan Loc 99% of children under 6 attend school and 66% finish fifth grade. Making Conversation Polite conversation and small talk are an essential part of establishing relationships in Vietnam. As a high context culture, Vietnamese want to get to know you as a person before setting down to business. By understanding your background, they are better able to comprehend your verbal and non verbal communication. Personal distance is generally greater in Vietnam. An American feels comfortable about 18 inches away from the person with who they are talking. Vietnamese do not like to say “no”, because it implies disrespect and interferes with the harmony of the relationship. They are not being dishonest but they are simply demonstrating that that they value the relationship more than a simple fact. To avoid negative answer, avoid close questions, for example instead of saying: Will it be ready on Friday? Ask When will it be ready? Subject to be avoid when engaging a social conversation are sex, politics, Communism, the Vietnam war, and religion. Safe topics for discussion include your background and hobbies, your family, international sports, Vietnamese culture (literature, poetry, music and traditions), language and food. Business will be addressed only after these social niceties are observed. Gifts are expected and should be prepared for presentation during the first days meeting. Business men would be expected to bring enough gifts for all official participants in our meetings.(Asian Business, 1996) Business Entertainment: Usually the host of the foreign investors will arrange a dinner at the beginning of the journey in a famous hotel/ restaurant or in a government facility. As in Japan, business is generally not to be discussed at dinner although it may be at luncheons. Several dishes are put on a table and the guest will be expected to take some of each of them. Chopsticks are used in Vietnam although most of international restaurants do have western utensils. Vietnamese wines and beers will be served with the meal. When toasting , the method consist in standing and raising the glass with both hands in the direction of the senior or the oldest Vietnamese present. A small speech on the Vietnamese’s beautiful scenery or the friendship of the host are appropriate. At the end the American business man is expected to shake hands of all Vietnamese participants and conclude by thanking the host profusely. American and Vietnamese have different values and customs. In order to overcome our differences, the following section will focus on giving some recommendations. 3. Positioning culture in Vietnam : A business approach. Consumer Desire and corporate interest: The Vietnamese consumer is quite different from those of many other developing countries at similar levels of prosperity. The official GDP per capita is $ 317 but in Hanoi and Ho Chi Minh City, it’s around $800. However the spending power reflects higher incomes, largely due to the pooling of resources by several members of each household and the fact that many Vietnamese hold several jobs through moonlighting. The Vietnamese are highly conscious of status and of available brands. Sony televisions, are sold at a premium over equivalent brands, but command a strong position. This is a good example of consumer preference. Honda Dream 2 though costing approximately $300, which is more than rival brands from Taiwan, commands a leadership position in sales. In many ways it is the ultimate status of symbol of average Vietnamese. (Pangea Consulting, 1996). Brand loyalty is being built and Sony , Samsung, Lacoste, or Ralph Laurens have understood this phenomenon. More than half of the population is under 15. For these customers , the Vietnam War is little more than an history lesson. America is Ray Bans and Pepsi, Rap Music and Mel Gibson, Mickey Mouse and IBM, Motorola etc.. Through Vietnamese tend to be thrifty people, they are not shy about shelling out the cash for luxuries such as branded products and quality restaurants, within the limits of each household. Often, finding the best bargain is not as important in Vietnam as in other developing countries. Television channels and other media are rapidly expanding as well as infrastructure (i.e. electricity, telecommunications), allowing greater reach to remote areas. This provide better access to consumers. The Vietnamese pay great attention to advertisements, especially television commercials which act as true education tools. Then again, du to the recent opening of Vietnam and the traditional structure of the society, it is good to know that Vietnamese only spent 40 minute per day watching TV when people in most Asia Pacific Country spent more than two hours. However companies should be aware of some policies and radical change of attitudes. At the beginning of 1996, there was a crackdown on anything Western. Westerns magazines were burned in the streets. Western ad agencies are only allowed representative offices and financial transactions are done outside Vietnam, slowing down payment to media.(Ad age international, 1996). Recommendation to entry the Vietnamese market: Companies considering investing and doing business in Vietnam should be aware that it is an extraordinary difficult market. For an American business person, who may still be influenced by the images of the War that ended in 1975 and who may view the country through the prism of American experience, it is important to learn about the nuances of the Vietnamese culture and its social customs and taboos while finding common grounds.(Kissane, 1996) Business practices and language: Business practices are very different. Businessmen should not be surprised if their Vietnamese counterparts are simultaneously negotiating with several of the competitors. It is a mistake to believe that Vietnamese have the same idea of what fair dealing means regarding business matters. Concerning contracts, Vietnamese often insist that the Vietnamese language version of an agreement prevail over the foreign language in the event of a dispute. Due to the differences in the language, it is wise to make the Vietnamese accept that the Vietnamese and the foreign versions will be of equal authenticity and validity in the event of a dispute. Need to investigate, Check and be realistic: One of the reason s why everything needs to be checked. The answer of “no problem” when inquiring if something is going smoothly. Many Vietnamese have a tendency to answer without prudently thinking through potential consequences. This is du to the fact that Vietnamese like many other Asian put greater importance on the harmony of your relationships than on the accuracy of facts. It is important not to loose face and to avoid a confrontation. For a joint venture or a business cooperation contract, make sure that the party that your partner or associate is trustworthy and responsible. Finally, during the first meetings when little business is done, American businessmen should take the opportunity to assess their partners as they will assess them. There are a lot of foreigners investing money in Vietnam, a lot of them are loosing money because they committed themselves into a non profitable relationship with a Vietnamese business partner. Human resources: The people you employ to work in Vietnam can either make you or break you. Vietnam is not a place for beginners. Mathilde L. Genovese, Chief representative of Kingship-Ltd. Vietnam Consultants, states that “many companies make the mistake of sending employees with little or no Asia experience, or very young people to work in their Vietnamese operations”. Du to the Confucianism tradition young people may not be taken seriously even if qualified. Payments and Corruption: Corruption is a way of life in Vietnam, and requests for payments are often made by various governments officials at different levels of government. For US business people, making payments to obtain a business is an illegal practice (violation of the US Foreign Corrupt Practices Act). Paying is a dangerous game to play. Businessmen should not do it because once it becomes know that they will do so, requests will never end. Furthermore, they are exposing themselves to the possibility of blackmail.( Mitchell Mark, 1996). Trade shows and exhibitions: It is generally wise to make use of trade shows and exhibitions. As we have seen earlier, very few is happening in Vietnam as far as events are concerns. Vietnamese from all walk of life consider major trade shows as a major happening. The country has been deprived of quality products. It is a great pleasure for the Vietnamese to go and be able to see these products. Consumer loyalties are being formed and the chances of their remembering a product are greatest through trade shows and personal contact. (Nick Freeman,1996). Conclusion: In conclusion, Businessmen should be aware of these cultural differences before undertaking any actions in Vietnam. Vietnam is a country full of resources (natural resources and human resources). But it is a difficult market to penetrate because of the system (“Market-Leninism”) and because of the cultural differences (South East Asia culture/ Confucianism). In addition, Patience, formality, small talk, saving face, preserving harmony, giving and receiving gifts-- all of these can spell the difference between success and failure in dealing with the most recent Asian “tiger”. Since the country has a unique civilization and a highly cultured people, it is very difficult to understand Vietnamese. However, for the businessmen that manage to overcome the bureaucratic system of Vietnam while understanding the basics of the Vietnamese culture, Vietnam is full of promises. Bibliography Articles: Anonymous, Reality behind the Myth, Asian Business, October 1996. 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