“The world economy is going through profound adjustment, and protectionism and unilateralism are resurging.”
These words from President Xi’s opening speech at the first annual China International Import Expo address growing concerns over these sentiments in international politics. With America now imposing heavy tariffs on over half of Chinese imports, people are starting to get nervous regarding their investments in China. And they have every right to be.
The battles between the US and China over trade range far from just passive-aggressive comments at the CIIE. Claims over the South-China Sea, disputes over intellectual property rights, and increased barriers to trade all cast a shadow over US-China relations. Moreover, China has other worrying elements such as an aging population, a dwindling birth rate, and rising levels of income, all of which make sourcing from China less appealing.
But then, if not in China, where? Where is a country that is fit for manufacturing, has a stable and growing economy and warm international relations with the West? In an ironic twist of fate, Vietnam, a country with whom the US engaged in war with only 42 years ago, now may be the US’ greatest ally in the region to stand up to China.
What’s the Deal with Vietnam?
A lot has changed since 1972. From phone booths to instantaneous video calls, the world and our daily lives have transformed drastically. Life for the Vietnamese people has changed significantly as well. In those 40 years, Vietnam has evolved from a war-torn and newly-formed nation to one of the fastest growing market economies in Asia.
How did it get here? With the damage from its civil war hindering the economy and other communist nations beginning to liberalize, Vietnam realized it needed to open up its economy. The journey towards market liberalization started with the Vietnamese government normalizing relations with the US in the 1980s by allowing for the recovery of POWs of the Vietnam War. The next steps in this process consisted of the US and Vietnam opening diplomatic offices in each other’s capitals in the 90s and Vietnam’s accession to the WTO in 2001, which have allowed the country to remove most of its barriers and enter into global trade (Council on Foreign Relations, 2018).
Since then, Vietnam has proved itself to be an economic powerhouse. The country of nearly 95 million people has revealed itself to have a comparative advantage in the production of machinery, textiles, and vegetable products. Furthermore, the country has proudly touted a nearly $11 billion net export trade balance. Interestingly, its largest trade partner is its former rival: the US, which now receives 21% or 43.3 billion dollars of the total exports. Vietnam’s evolved economy and diplomatic relationships demonstrates the nation’s capacity to cast off its troubled past and instead foster a successful and open economy.
Vietnam has come a long way. Everything from building a strong market economy from the ashes of war to constructing then maintaining friendly trade relations with a former foe provides Vietnam with many reasons to impress those viewing the country’s progression. However, Vietnam’s thriving economy is not the only thing that is attracting yearning gazes from foreign investors. The country’s integral role in international relations has also placed immense importance on Vietnam.
Vietnam and the World
Vietnam’s international presence presents a truly inspiring story of an underdog rising to the top. The country went from a French colony, to a divided state engaged in civil war against the world’s largest military, to a newly-born and injured nation, to a cornerstone of Asia’s economy with warm and valued relations with the world’s superpowers . Overall, where Vietnam stands on the world’s stage is extremely impressive for this relatively new state.
For starters, Vietnam maintains warm relations with its Southeast Asian neighbors. As a valued member of the Association of Southeast Asian Nations, Vietnam is committed to, “Accelerate the economic growth, social progress and cultural development in the region…promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields [and] to collaborate more effectively for the greater utilization of their agriculture and industries, the expansion of their trade, including the study of the problems of international commodity trade, the improvement of their transportation and communications facilities and the raising of the living standards of their peoples” (Association of Southeast Asian Nations, 2018).
This agreement demonstrates Vietnam’s dedication to being a well-meaning supporter of this community of Southeast Asian countries, increasing the chances of economic development and growth in its surrounding countries to build friendships and boost its own economy.
In regards to the European Union, Vietnam has established trade agreements that have promoted the values of free and open trade. The European Commission states that Vietnam is the “EU’s second-most important trading partner in the region after Singapore,” and has worked tirelessly to ensure peaceful and gainful relations between the two powers. The trade and investment agreements between the two follow the terms of the Partnership and Cooperation Agreement, which “Works to support the democratic and economic development of a country” (European Comission, 2018). The agreement is entered into for a period of ten years and is automatically renewed if there are no objections, suggesting speculation by both parties for longevity in positive EU-Vietnam relations.
However, while these relationships are important, most of the eyes of the world are fixated on Vietnam’s relations with the United States. With trade with the United States steadily increasing since the 1990s, experts forecast that the relationship between the two nations will continue to grow friendlier under the Trump administration (Export, 2018). This is due to China’s growing influence in the region converging the US and Vietnamese strategic interests, as well as Vietnam’s desire to be recognized as a market economy, a sentiment characteristically appreciated by the US (Council on Foreign Relations, 2018). The government took steps to prove this market designation through a process called doi moi, which has allowed the market to determine prices and wages, especially in regards to goods exported to the United States (CRS Report, 2018).
With a stable government in place, good relations with major world powers and its neighbors, and a thriving manufacturing economy, Vietnam is shaping up to be the next big place for business and especially sourcing.
Opportunities in the Vietnamese Market
Vietnam is still in its early stages of growth, but components within its economy, politics, and demographics forecast it to be one of the most prosperous nations of the 21st century. And there’s proof to back up these claims.
In regards to its demographics, Vietnam is far from facing the age-related issues of China. Over half of Vietnam’s population is under the age of 30, and most of them are hungry for job opportunities in the country’s vast manufacturing industry. The population is well-educated too, with 98% net enrollment in primary schools and a 94% literacy rate (The World Bank Group, 2018). This young and educated population allows for a stronger, more reliable workforce that provides excellent opportunities for companies looking to source from Vietnamese factories.
Furthermore, Vietnam has the largest investment in infrastructure in South East Asia, including in both private and public sectors. With nearly a billion US dollars being spent on new infrastructure projects, Vietnam is serious about increasing the speed and efficiency of its economy. These projects include upgrades and construction of roads, bridges, and railways; construction and development of industrial parks and complexes, and increasing electrical access. All of these upcoming projects will no doubt continue to catalyze the speed and quality of Vietnamese production centers.
However, the concern over SOEs may carry over for business who have previously dealt with the behemoths in China that may seem impossible to compete with. Vietnam, conversely, has been moving to “equitize” (partially privatize) all of its state-owned enterprises that don’t relate to major functions such as banking or infrastructure, which will allow for SMEs to compete with the former SOEs. Without the intimidating presence of SOEs, more competitive prices in manufacturing and sourcing will begin to appear, boosting Vietnam’s status as a quintessential sourcing location.
Concluding thoughts
It’s difficult to predict the outcome of the current US/China trade dispute, but as with some other South East Asian countries, Vietnam has stepped up to be a sanctuary for businesses dissuaded by China’s muddled affairs. Understanding the capability out of Vietnam now is an important part of any ‘China plus plus’ sourcing strategy. Sourcing from Vietnam is easily done, too. With some help from our professionals based out of Ho Chi Minh City, any company, big or small, can find its tailor-made sourcing solution to prosper in Vietnam’s budding economy. Don’t delay, schedule a meeting with one of our sourcing specialists to find your opportunities in Vietnam.
