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Good trading Vietnam

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A wave of change is sweeping over the developing nation of Vietnam. While still a single-party state, power continuing to lie with the Communist Party of Vietnam, the appointment of relatively young politicians into newly created ministries is considered a significant generational change and a sign of the reformationist culturebringing the country into the 21st century. With an astounding 60 percent of the population under 30 years of age, the masses have never been so well educated, well connected or well travelled. The demand for brand names and luxury items is exploding, as awareness and wealth accumulate, providing Australian exporters a willing consumer market filled with repression-based desire for all things western. Senior manager and international growth specialist at the NSW Business Chamber Ian Bennett says, "Australian exporters are not giving Vietnam sufficient consideration. Most people are still thinking of Vietnam under the old cadre system; they don’t realise that the technocrats and modernists have taken over." Vietnam is one of the 10 members of the Association of South East Asian Nations (ASEAN), and Australian exporters looking to build relationships have never had easier conditions in which to do so now that the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) is in force. The agreement provides a progressive reduction or, in most cases, elimination of tariffs on Australian goods exports, and an elimination of all Australian tariffs from AANZFTA parties. This advantage over other countries that are yet to sign an FTA with Vietnam is substantial, yet fleeting, as it is in negotiation with many other countries for FTAs. The economy, once centrally planned but now market-based, withstood the global financial crisis relatively well. Tony Burchill, senior trade commissioner at Austrade, says the market is expecting growth of around six percent this calendar year. Bennett continues: "Vietnam wasn’t really affected, simply because they don’t have hedge funds and derivatives like other, more sophisticated, markets." Current Australian exports to Vietnam are worth almost $1.25 billion, with wheat, copper, aluminium and cereal preparations the major Australian exports. While trade relations with Vietnam appear to be at an all-time high, exporters must be aware of remaining obstacles.

New exporters

"It’s a good complementary market for Australian exporters on a number of fronts," Burchill says. "Where Vietnam offers a lot of scope, particularly for new exporters, is in the services area. Vietnam needs technology and advanced skills, so we’re seeing a lot of companies coming over to work in the energy sector, and in the building and property sector: for instance, engineers, architects and surveyors." The growth of the middle class has created a desire for premium brands and labels, especially clothing, food and wine. "A lot of Vietnamese people have travelled widely overseas and seen what’s available in other markets, and they want those things. They can also see the health benefits of eating and drinking well," Bennett explains. "With the evolution of the Vietnamese economy, there’s increasing wealth at various levels and now they can afford these products," he adds. Grain is a particular area of focus in the food industry, as it is required to make the increasingly popular noodles eaten around the country, while luxury automobiles have become a must-have status symbol in recent times. Cold storage systems for food were once an issue, but it’s now less difficult because of the entry of German hypermarket, Metro, into the community. Bringing their own cold storage supply chains with them, they have helped to improve the overall market by making it more competitive. AANZFTA has paved the way for the professional services sector to become a growth market, due to the relaxation of many of the requirements that practitioners previously had to meet. "The nation’s rapid commercial and industrial growth has led to an increase in the demand for international legal services firms, human resources and accounting practices. There are increasing opportunities for an array of business consulting firms through the many multilateral project activities that occur in Vietnam, including those of the Asian Development Bank and World Bank," Burchill says.

Existing exporters

The financial services sector has seen a lot of growth in Vietnam, particularly Australian products and institutions. ANZ won a licence to open a fully owned bank in Vietnam, only the third foreign-owned entity to do so; HSBC and Commonwealth Bank have also established presences in the region. Education services are also growing exponentially; Vietnam’s increased demand for quality higher education and vocational training makes it one of the fastest-growing international student markets for Australia, growing at a year-on-year rate of over 50 percent in 2009. Vietnam is entering an energy crunch, according to Burchill. He predicts the oil industry, while already well developed, will change tack and increase its downstream petrochemical activity due to the country’s first oil refinery opening in Quang Ngai Province last year. Natural gas also appears to be a promising industry for skills and technology transfer, thanks to the large untapped gas reserves off Vietnam’s coast, which will drive further exploration and energy-resource production. Mining is not as much of a lucrative sector for foreign entities, due to the monopoly the state-owned entities have over the mines, however equipment and service providers are doing and will continue to do quite well. "Bigger companies who want to invest in mineral resources in Vietnam are finding that mining laws are insufficient for foreign investors, and that the state-owned enterprises tend to be pretty territorial; the key is to work with the big Vietnamese companies," Burchill notes.

Advanced exporters

Infrastructure is predominantly seen as the strongest growth sector in Vietnam. Exporters entering the sector are finding a burgeoning nation that cannot keep up with its own growth, and our skills and technology are highly valued. "There’s an increasing number of infrastructure bottlenecks, which signifies clear opportunities for Australian exporters [in development and implementation]. Vietnam needs to streamline its infrastructure, particularly ports, rail, roads, power stations and telecommunication systems," Burchill says. Infrastructure is more of a complex export market, however. "To enter this sector, you’d need to have a relationship with the state-owned enterprise," he explains.

Barriers

The Vietnamese government’s reputation as difficult and controlling has not really abated, according to Burchill. "Government regulations can be quite opaque," he says. "Exporters have to get a good sense of the industry being entered, and a sense of the white elephants in the room, particularly when it comes to state-owned enterprises." He commends the legal system for supporting foreign entities, but says that the law isn’t really the main issue to keep in mind. "The problem is more the enforcement of the law. It’s not unusual in developing countries to have discord between the judiciary and the executive, especially when it comes to commercial codes. There have been commercial judgements in favour of foreign firms, but actually getting the local police or commercial officials in far-off provinces to enforce that judgement is a different issue. You’re better off not having to go to court in the first place. You must be certain of who you’re dealing with from the outset." The cost of freight to Vietnam is a key issue, as is the customs department once goods arrive to the shore, according to Bennett. "The customs department are still pretty tough at the front door," he says. "If you haven’t got all your pieces of paper in the right folder in the right format, it will be tough to gain entry. In other countries you can sit down, have a chat and iron out the problem, whereas in Vietnam you have to go back to the beginning and start all over again." Language is still a problem, however less so as time goes by. "It’s improving and becoming more widespread, simply as a matter of necessity for business," notes Bennett.

The future

The landscape of this developing country has changed significantly as the middle class has grown and the young population accumulates wealth. Calling the people of Vietnam "homogenous" and "aspirational", Burchill says: "There’ll be an increase in the number of foreign players, simply because the middle class is growing so quickly. There’s a lot of suppressed demand that’s just bursting to get out of there and that’s going to take the economy a long way.

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