MARKET RESEARCH REPORT:VIETNAM

FOR: ANNIE INTERNATIONAL

BY:
ADRIANA MEJIA
THOMAS REYNOLDS
PAUL WENTZEL
ROCKY PETRONE

DREXEL UNIVERSITY
LEBOW COLLEGE OF BUSINESS
MARCH 2011
TABLE OF CONTENTS

Executive Summary....................................................................2
Vietnam Overview.......................................................................3
History...................................................................................4
Legal System...........................................................................5
Corruption Perception Index......................................................5
Economy.................................................................................6
Foreign Direct Investment.........................................................9
Association of Southeastern Asian Nations (ASEAN).....................10
Tourism................................................................................11
Manufacturing Industries............................................................12
Garment Industry......................................................................12
Plastics Manufacturing...............................................................12
Wood Capabilities......................................................................13
Packaging................................................................................14
Trade Shows............................................................................14
Bibliography.............................................................................25
Bibliography
Executive Summary
The purpose of this paper is to help Annie International in its search
for new vendors in Vietnam. The paper intends to give the reader a
360 view of the “making business in Vietnam” issue. It starts
describing the economic, social, cultural, political environment with a
beauty vendor-searching perspective.
Vietnam Overview
Vietnam is located in southeastern Asia, bordering the gulf of Thailand,
gulf of Tonkin, and South China Sea, alongside China, Laos, and
Cambodia. It is the 65th largest country by area; encompassing
331,210 sq. km of which 21,140 sq. km is water providing a home for
nearly 90 million residents. Vietnam is only slightly larger than the
state of New Mexico by area. Interestingly, the island country is only
50 km at its widest, but 1650 km from north to south.
The Socialist Republic of Vietnam is a communist state whose capital is
Hanoi.

History

From the beginning of the SRV (Social Republic of Vietnam) until 1986
the country suffered economic detriment as a result of their socialist
market structures. Doi Moi the ‘economic renovation’ initiated in 1986
and implemented in 1989, began the trend away from such controlled
markets to set the trend for the Vietnam of the 21st century. The
recent economic expansion has significantly contributed to reduction in
overall poverty mainly through reductions in international trade
barriers. Trade has boosted GDP per capita, has redistributed wealth
and employment opportunity, and through taxation has fueled
government support for its under-served citizens.
In the late nineties (1997-98) Vietnam experienced a financial crisis
involving letters of credit which nearly produced a complete disaster.
The meltdown was avoided narrowly by heavy import controls and
other fiscal measures by the government. The economy did not fully
recover until 6 years later, when in 2005 it regained its pre-crisis GDP
growth rate of 8–9%.
“...the realization that Vietnam needed to create some 1.6 million new
jobs a year to keep up with the young and growing population, and
that the task of job creation at this scale could not be done by the
state sector, finally persuaded the authorities that the private sector
needed to be ‘unleashed’. The second phase of reforms included the
enactment of the Enterprises Law (2001), the Unified Enterprises Law
(2006), and the Common Investment Law (2006), beginning the
process of equalizing treatment (at least in ‘black letter law’) between
state enterprises and the private sector, and between domestic and
foreign firms (Bingham and Leung 2010).”
The previous mentioned measures provided a shift from the historic
agriculture, to labor, services and manufacturing, producing 18 to 24%
of GDP between 2000 and 2007.The Private sector produced nearly
90% of the jobs created during this period.

Legal System
The country’s legal system is based on communist legal theory and
French civil law system; has not yet accepted compulsory International
Court of Justice (ICJ) jurisdiction. It is governed by the Communist
Party of Vietnam or CPV; and celebrates its independence from France
on the 2nd of September (1945). The ruling party faces political
pressures from groups seeking democracy such as 8406 Bloc;
Democratic Party of Vietnam or DPV; People's Democratic Party
Vietnam or PDP-VN; Alliance for Democracy but does not recognize
these groups as valid political parties (Central Intelligence Agency).

Corruption Perception Index

The Corruption Perception Index (CPI) ranks countries according to
perception of corruption in the public sector. In 2010 CPI Vietnam is
ranked 116 with an overall score of 2.7 competing with Tanzania and
Ethiopia for the rank. The scale goes from 10 (highly clean) to 0
(highly corrupt). Corruption is perceived as an obstacle to achieve
progress. (Transparency International)
As Vietnam continues to seek foreign investors on its road to economic
development, the high level of corruption present will impede growth
and present a dilemma for potential investment. Analysts and experts
have concluded that Vietnam ranks second highest amongst competing
countries in the region in terms of perceived corruption. This
widespread fraud and dishonesty can be attributed to several key
factors. First, the government bureaucracy, who is extremely
inefficient, plays a large factor in the breakdown of legitimate business
practices. New businesses are subject to as many as 15 different
inspections by state agencies per year. It is suggested that many
state agents solicit bribes during this inspection process. Secondly,
the Vietnamese judicial system is very weak, so there is little to no
policing of government inspectors or claims of misdeeds. An additional
concern is centered around the rapid rate of growth the Vietnamese
economy has recently experienced; that the corruption in the country
will continue to persist for some time, even gain momentum as foreign
investors continue to open manufacturing facilities. This trend could
serve as a major deterrent as companies look to move parts of their
operations to the region.

Economy
Gross Domestic Product rose at a rate in excess of 7% annually from
1990-2005; this was highly correlated to the increase in exports per
capita from US$11.6 in 1985 to US$390.3 in 2005 increasing its
participation in the local GDP from 4.6 to 62.7% respectively. The
global recession has slowed GDP growth to 5.2% in 2009. Despite the
Socialist political environment, the private sector accounts for more
than 60% of total GDP.

The country has enjoyed steady economic growth for several reasons.
As a whole, the country’s unemployment rate only rose slightly to
2.8%, from 2.0% in 2008. This large workforce comprised largely of
agricultural (20.5%) service (39.2%) and manufacturing workers
(40.2%), is attractive to foreign investors due to low labor costs. The
minimum wage for Vietnamese workers depends on location, job
sector, and overall success of the economy. The highest minimum
wage for foreign invested companies in Ho Chi Minh City was
approximately $70US per month, nearly half paid to workers in
Chinese city of Shenzhen.

Vietnam is poised to continue its emergence in the global market,

despite resent economic turbulence and the country’s communist
government. The Vietnamese economic downturn began in 2007 with
bubbles in the stock market followed by raising prices of food and fuel
contributing eventually to the 2008 inflation rate of 28%. Massive
government spending was used as a stimulus in 2008 to counter the
global downturn. This spending was aimed at assisting struggling
enterprises, namely exporters as well as small and mid-sized
businesses. Furthermore, government funds were directed toward
lending institutions to extend credit and keep these entities afloat.
Although this stimulus plan was discontinued in 2009, the Vietnamese
government is expected to continue allocating public funds toward
continued economic improvement. The IMF reports “A tighter
monetary policy, supported by the end of the subsidized loan scheme,
has reined in credit growth, and with fiscal policy also more restrained,
the trade deficit narrowed in the first quarter of 2010” the report
continued to note that inflation had slowed to 9% in May 2010. The
economic recovery in Vietnam was made successful by the recoveries
of neighboring China, and recoveries around the globe.

The Vietnamese department of labor reported a decline in the

countries poverty rate from 13.2% to 10% through career
development emphasis on agriculture, labor and forestry. The
department provided legal aide, educational services and health
services to its poorest constituents while focusing on improving
housing policies. In the years 2006-10 the Vietnamese Department of
labor reports the creation of 620,000 new jobs – these unemployment
figures were aided by continued growth of manufacturing and trading
enterprises employing nearly 20,000 new workers in the past year.

If Vietnam is to continue developing into a major player in global trad,

the country’s infrastructure is in need of major improvement. As such,
the government is expected to contribute billions of dollars to address
crucial infrastructure deficiencies, such as overloaded ports, overtaxed
electrical grid, and underdeveloped waterways. Rapid improvements
in these areas will keep Vietnam competitive with other developing
countries in Asia throughout the next several decades.
By far the best transportation hubs in Vietnam are their waterways
and marine ports; their 5,000km waterways rank 7th in the world.
The major ports Cam Pha Port, Da Nang, Hai Phong, Ho Chi Minh City,
Phu My, Quy Nhon help Vietnam stay connected to the trading world.
This trade, importing and exporting goods is a key component of
recent and continued economic growth. Besides manufactured goods,
Vietnam exports some of its natural resources such as rice, coffee,
rubber, cotton, tea, pepper, soybeans, cashews, sugar cane, peanuts,
bananas; poultry; fish, and seafood.

Vietnam’s economy depends heavily on exports, and thus the country

has entered several key trade agreements in the last few years. These
bi-lateral, regional, and multi-lateral agreements became
commonplace in 2007, starting when the country joined the World
Trade Organization. From that point, free trade agreements, or FTAs,
were reached with ASEAN members China, Korea, Japan, Australia-
New Zealand, and India. Additionally, a FTA with Chile was being
negotiated starting in 2008.

Foreign Direct Investment

After Vietnam joined the World Trade Organization (WTO) in January

11 2007 (WTO News), its economic growth rate was second only to
that of China, and foreign direct investment spiked until recent years
when growth slowed owing to the 2007 global recession (Leung). The
rapid growth that the country was experiencing has been long awaited,
and anticipated through many chapters of political influence,
revolutions and reform. In 1994, President Clinton reversed U.S.
restrictions on travel to Vietnam which had prevented trade and
tourism. The re- establishment of diplomatic ties between America and
Vietnam inaugurated a new era of commercial and cultural relations
between the two nations. (Agrusa, Tanner and Dupuis)

According to the United Nations Conference on Trade and

Development, there was $4.5 billion worth of foreign direct investment
in Vietnam in 2009. This is down from $6.7 and $8.1 billion in 2007
and 2008 respectively. In September 2010, Asia Pulse News reported
that there had been $11.5 billion worth of FDI in that year and that 57
percent of this was directed towards manufacturing and production,
although much of this was for electricity production. There is some
mismatch in the numbers provided by the UN and those presented by
more localized news sources.

Association of Southeastern Asian Nations (ASEAN)

The Association of Southeastern Asian Nations (ASEAN) was originally

formed in 1967 by a group of countries comprised of Indonesia,
Philippines, Singapore, and Thailand. The group’s charter outlines
seven aims and purposes all focused on improving the social, cultural,
and economic climate of the region. Specifically, two of the overriding
goals stated in the ‘Aims and Purposes’ section are to accelerate the
economic growth of each member country, and to foster an expansion
of trade, whether within the association or through relationships that
ASEAN has developed with other countries or organizations. For
example, ASEAN has external relations with individual countries like
the United States, the Republic of Korea, and Japan (just to name a
few), but also has relations with group entities such as the European
Union, the East Asia Summit, and the United Nations Development
Program.

ASEAN made considerable strides towards increasing its solidarity in

2008, when the ten members of the organization created a new
charter aimed at making the agreement legally binding. The intent of
this new charter was to continue to bolster its community building
efforts, as well as to eliminate economic and political barriers that still
existed between the countries. The ASEAN Charter that went into
force on December 15, 2008, called for rules-based economic
integration, adherence to multi-lateral trade rules, and steady
progress towards the elimination of remaining barriers to regional
economic integration.

The results of the newly amended ASEAN Charter are still inconclusive.
Totals of exports, imports, and total trade within the ASEAN members
and outside of the group declined across the gamut from 2008 to
2009. Total exports declined 17.1%, total imports declined 21%, and
total trade for the organization dropped 19%. Numbers for 2010 are
still not available through ASEAN’s statistical website. A major
contributing factor for the decline in key indicators for the organization
is the global economic slowdown. 2010’s results in terms of imports
and exports should give a more clear indication of how the impact of
the revised ASEAN charter was on the region.

Tourism

Vietnam’s tourism industry has become a prime source of revenue for

the country. There are many desirable destinations for tourists due to
Vietnam’s varying geography and climate. Beach resorts and other
waterfront destinations exist along the 2,000 miles of coastline
touching the China Sea. Moving inland, there are vast jungles and
mountainous terrain. Furthermore, Vietnam’s urban centers of Ho Chi
Minh City (also known as Saigon) and Hanoi offer visitors a sample of
the country’s history, culture, and expanding retail markets.

Tourism in Vietnam was becoming a major force in overall GDP

throught 2007, however the global financial crisis accounted for over
an 8% loss in revenue in 2009. As the worldwide recovery continues,
there are signs that Vietnam will once again reap the benefits of a
profitable tourism market. According to their official tourism web-
page, over five million international visitors came to Vietnam last year,
including 450,000 in the month of December alone (a 19% increase
from December 2009). The annual total accounts for a 35% rise in
visitation from 2009. For more about Vietnam War Veteran Tourism-
see appendix.

Manufacturing Industries
According to the General statistics offices, value-added output from
manufacturing expanded by 8.4% from 2009-10. The manufacturing
base for the types of products that Annie International would like to
have produced is present in Vietnam, but in different stages of
maturity depending on product. Much of the data we were able to find
appears to be from governmental sources that we have not been able
to verify against other sources. All three of the sectors have some
form of government involvement, be it state owned enterprises or
subsidization.

Labor Availability
The labor force in Vietnam is faced with a challenge currently and in it
is predicted to continue into the future. The rapid growth in the
economy and the relative youth of the workforce has left a deficit of
skilled professionals and mid to high level managers to lead the new
and growing enterprises. Guest workers are potentially the way to
overcome this shortage. It has been estimated that there are currently
as many as 40,000 foreign workers in Vietnam to fill these gaps. (
Truong, Q., Heijden, B. I. J. M. v. d., & Rowley, C. (2010).
Globalisation, competitiveness and human resource management in a
transitional economy: The case of vietnam. International Journal of
Business Studies, 18(1), 75. Retrieved
from http://search.proquest.com/docview/821544277?
accountid=10559 )
Garment Industry
Vietnam ranks in the top ten in apparel and footwear exporters
worldwide. The industry in Vietnam is partially state owned and
partially private. Vinatex, the state enterprise accounted for almost
19% of the $11.2 billion (US dollar equivalent) in textile and garment
exports last year. It is predicted that for 2011 exports will rise to $13
billion. Geographically this industry is centered in the red river delta
and the southeastern part of the country.

Plastics Manufacturing
The plastics manufacturing sector is the least developed of the three
sectors of interest for Annie Int. and lacks currently reported reliable
data. Vinaplast, the state owned enterprise, recently as 2006 had 20%
share of the market. In 2008 Vietnam produced approximately $4 BN
USD worth of rubber and plastics goods. (Vietnam GSO) Currently
the industry is comprised of about 1000 enterprises and does about $1
billion in exports. These firms are centered around Ho Chi Min City
and in the southern provinces of Dong Nai, Binh Duong and Long An.

Due to the lack of the processing facilities needed to produce the raw
commodities necessary for the manufacture of plastic goods
domestically, Vietnam currently imports roughly 80% of the raw
materials that are converted to finished goods by this industry. Many
have called for an increase in the waste plastic recycling capabilities of
the country to help reduce this dependence on imported material, but
to date there has been no action.

The ability to build molds for the injection molding of plastics appears
to be present in Vietnam. There is a Danish – Vietnamese joint venture
called Viedam Engineering in Ho Chi Minh City, which was established
in 2003. Although this is only one potential source, the advanced level
of the advertised capabilities at this firm indicate that there should be
the industry available to produce the simple, high volume molds that
Annie International would require. The supply of steel for these molds,
similar to the plastic raw materials for injection molding, is largely
imported. (http://www.sooperarticles.com/shopping-articles/product-
reviews-articles/vietnam-denmark-jv-future-plastic-moulds-exports-
37730.html , http://www.worldsteel.org/pictures/publicationfiles/SSY
%202010.pdf )

Wood Capabilities
The handicraft industry in Vietnam is the most likely source for
wooden handles for hairbrushes. In 2008 Vietnam produced
approximately $1.5 BN worth of wood and wood products. The country
has 2017 craft villages which cover a wide range of skill sets. Pottery,
copper-smithing, and woodcraft are just a few of those available.
There are government initiatives to strengthen the exports from the
handicraft sector as a whole, but the emphasis is not on for hire
manufacturing. Bamboo as a working material is a developing industry
worth keeping in mind as it is readily available in the country and the
facilities for commercializing it are being developed.
Packaging
The basic types of packaging Annie International is interested in for
their products which are poly-bags, clam-shell, and printed cardboard
are readily available in Vietnam. The plastic packaging industry does
face the same challenges as the plastic manufacturing industry as the
raw materials necessary for production is largely imported. Rising oil
prices will increase costs in this sector as the whole supply chain is
dependent on oil from manufacture of the raw materials to
transportation.

Trade Shows
All the industries of interest have trade shows. Vietnamplas is a plastic
industry show that will have an expo in both Ho Chi Min City and in
Hanoi this year. VnPackPrint is a packaging show that runs
concurrently. Vietcraft, the Vietnam Handicraft Exporters Association,
has a trade show for that sector called Lifestyle Vietnam that will be in
Ho Chi Minh City in April. Both Ho Chi Minh City and Hanoi will also
host garment industry trade shows this year. Detailed schedules can
be found in the links in the Appendix.
from the Vietnam Textile and Apparel Association and gives data for
the breakup of this sector in 2009.
Trade Show Links
http://www.biztradeshows.com/vietnam/vietnam-tradeshows.mp?
industry=textiles-fabrics
http://www.biztradeshows.com/arts-crafts/
http://www.biztradeshows.com/vietnam/vietnam-tradeshows.mp?
industry=home-supplies
http://www.biztradeshows.com/vietnam/vietnam-tradeshows.mp?
industry=plastic

Industry Representative Organizations

Garments - Vietnam Textile and Apparel Association
http://www.vietnamtextile.org/en/default.aspx?Matheloai=0
Plastics - Vietnam Plastics Association
http://www.vpas.vn/Default.aspx?lang=en
Handicrafts - Vietnam Handicraft Exporters
http://www.vietcraft.org.vn/en/
Packaging - Vietnam Packaging Association
http://www.vinpas.vn/Default.aspx

“...the Vietnamese Government, when developing a marketing plan for

potential tourists from the USA, should direct its tourism marketing
dollars at target market groups other than American Vietnam
veterans, such as Americans who did not serve in Vietnam and are
curious and interested in the country. With that in mind, another
potential tourism market from the USA that should be considered are
the large number of Vietnamese who emigrated from Vietnam to the
USA (Viet kieu) after the Vietnam conflict, as well as the children of
the Viet kieu who are first generation Americans. Both of these target
market groups have familiarity with Vietnam and might be more
receptive to tours in that country.”
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