CoreNet Global Report
VIETNAM: A NEW ASIAN TIGER
by Sonali Tare
EXCLUSIVE
RESEARCH
VIETNAM: A NEW ASIAN TIGER1
VIETNAM:
A NEW ASIAN TIGER
The term “Asian Tiger” has long been used to refer to the
highly developed economies of Hong Kong, Singapore,
South Korea and Taiwan. These regions were the first newly
industrialized countries in Asia and experienced very high
growth rates and fast industrialization for 4 decades prior
to the Asian Economic Crisis of the 1990s, astounding the
world with their progress. Is Vietnam poised to become the
next Asian Tiger?
Vietnam’s path to economic growth has been a checkered
one. After having been under French colonial rule since
1858, Vietnam declared its independence in 1945, leading
to war the next year. Following the French defeat at Dien
Bien Phu in 1954, talks were held in Geneva between the
French government and the Viet Minh, and the country was
divided into North and South Vietnam. The division led to
an ongoing struggle between the two newly formed nations,
culminating in a war that drew in foreign powers such as the
United States. Eventually, Vietnam was reunited in 1976
and emerged as the Socialist Republic of Vietnam.1
Since unification, Vietnam has been led by a communist government and had a fairly closed, centrallyplanned economy until the mid-1980s. In 1986 the government put into place the “Doi Moi” or Reform
policy with the aim of opening up the economy and introducing a more liberal market structure. The
government sought to switch Vietnam from an import-substitution economy to an export-orientation
economy. After Doi Moi was implemented, Vietnam also began participating in an increasing number
Doi Moi had Three Main Elements2
1. Shifting from a planned centralized economy based on public
ownership to a multi-sector economy based on the market;
2. Democratizing social life by building a state on the basis of the rule of law;
3. Strengthening external cooperation with other countries.
1
“Vietnam profile – Timeline,” BBC.com (http://www.bbc.com/news/world-asia-pacific-16568035)
2
“Viet Nam at a Glance,” United Nations (http://www.un.org.vn/en/about-viet-nam/overview.html)
VIETNAM: A NEW ASIAN TIGER2
of trade partnerships, including joining the ASEAN in 1995 and the World Trade Organization in 2007.
“Over the years, Vietnam has added to the number of free trade agreements it has across the globe.
In addition to its membership in ASEAN and WTO, the Trans-Pacific Partnership (TPP) as well as its
agreements with the European Union are great opportunities for the country,” according to David
Jackson, General Director, Colliers International Vietnam.
The Vietnamese economy went through a significant boon once the Doi Moi policy went into effect. Before
Doi Moi, Vietnam had a mostly agrarian economy, a weak infrastructure, and low levels of education
and entrepreneurship. However, the impact of the government’s policy was swift, with GDP averaging
over 7.5% between 1991 and 2006. These policies also impacted the economic structure. In 1988,
agriculture was over 46% of the economy, but reduced to 21% in 2005 and the share of industry and
services when from 21% to 41% and 33% to 38% respectively.3 By 2015, the composition of Vietnam’s
economy had changed even more significantly. Services accounted for 50% of GDP, manufacturing 33%
and agriculture 17%.4
Vietnam’s Annual GDP Growth Rate (percentage):5
Overall, Vietnam has been able to sustain this pace and is still growing at an impressive speed. Even
during the global economic crisis Vietnam continued to grow, albeit at a slower rate than in the prior years.
In 2007, Vietnam’s economy grew at 8.5%, the growth rate slipped to 5.3% in 2009, but recovered to a
growth rate of 6.5% by 2010.6 During the first half of 2016 Vietnam’s economy stalled due to a severe
drought, causing growth estimates for the year to be lowered. However, a boost in the manufacturing
sector as well as an increase in incoming Foreign Direct Investment (FDI) have energized the economy
and it is expected to end the year on a positive note.7 “Improved infrastructure and better connectivity
– more and bigger roads/highway/metro lines/airports – across the country are helping with Vietnam’s
development as well,” according to Marc Townsend, Managing Director, CBRE Vietnam.
3
“The Evolution of Vietnamese Industry” The Brookings Institute 2014, Nguyen Thi Tue Anh, Luu Minh Duc, and VietTrinh Duc Chieu (https://
www.brookings.edu/wp-content/uploads/2016/07/L2C_WP19_Nguyen-Luu-and-Trinh-1.pdf)
4
“Doing Business in Vietnam 2015,” PWC (https://www.pwc.com/vn/en/publications/2015/dbg_2015.pdf)
5
“Vietnam: GDP growth (annual %),” The World Bank (http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?contextual=default&end=2015&locations=VN&start=1985&view=chart)
6
“How deep was the impact of the economic crisis in Vietnam? A focus on the informal sector in Hanoi and Ho Chi Minh City,” The World Bank,
2010 (http://documents.worldbank.org/curated/en/532401468173044270/How-deep-was-the-impact-of-the-economic-crisis-in-Vietnam-Afocus-on-the-informal-sector-in-Hanoi-and-Ho-Chi-Minh-City)
7
“Vietnam’s Economy Remains Outperformer as GDP Climbs 6.4%,” Bloomberg.com, Nguyen Dieu Tu Uyen, September 28, 2016 (http://www.
bloomberg.com/news/articles/2016-09-29/vietnam-s-economy-expands-6-4-in-third-quarter-on-export-boom)
VIETNAM: A NEW ASIAN TIGER3
The Economy – Opportunities and Challenges
Vietnam’s impressive growth record after the Doi Moi policy went into effect has attracted foreign
investors looking for a stable economic and political environment. In addition, the fact that Vietnam has
an abundance of low cost labor and is well situated to take advantage of existing global supply chains
has appealed to corporations as well. Vietnam also does well on “Ease of Doing Business” indices, such
as the one developed by the World Bank. Its global rank is 90, and comparing favorably to other regional
competitors and ranking just above the regional average. The “Ease of Doing Business” report takes into
consideration the challenges and opportunities that corporations looking to conduct business in any
given country will encounter. For example, parameters include, getting a construction permits, paying
taxes, enforcing contracts, etc.
How Vietnam and comparator economies rank on the ease of doing business:8
All of these factors have led to Vietnam attracting ever growing amounts of FDI. From 2.9 billion USD in
2000, to 22.8 billion USD in 2015, the FDI trend has been steady and increasing.9 With its entrance
into the WTO, there was a steep rise in the FDI that Vietnam drew in. Similarly, with the Trans-Pacific
Partnership (TPP) now in place, and with Vietnam’s inclusion in the TPP, FDI into Vietnam is expected
to rise even further.10 “Export growth is still forecast to continue its steady rise as strong FDI flows
continue into the country, particularly in the manufacturing section. Vietnam’s low-cost labor market and
employment conditions are starting to improve its competitiveness as a destination for foreign capital.
A stabilizing trade balance, inflation and currency are also considered to be positive factors,” says Chris
Barnett, Head of Operations and Business Development at OUT-2 Design. He adds that interestingly
Vietnam is attracting the most FDI from its neighbors, with South Korea being the largest foreign investor
in Vietnam, and Singapore, Hong Kong and Taiwan rounding up the top four.
Vietnam is quickly becoming a lower-cost alternative manufacturing location to China. So far, Samsung
has been one of the biggest investors, and manufactures a large part of its telephone inventory in
8
“Doing Business 2016 Vietnam: Economy Profile 2016 Vietnam,” The World Bank, (http://www.doingbusiness.org/data/exploreeconomies/vietnam/~/media/giawb/doing%20business/documents/profiles/country/VNM.pdf?ver=3)
9
“Doing Business in Vietnam 2016,’ Grant Thornton (http://www.grantthornton.com.vn/insights/articles/dbiv/doing-business-in-vietnam-2016/)
10
“Vietnam Sees Record-High Foreign Investment on TPP, Eased Rules,” Bloomberg.com, Nguyen Dieu Tu Uyen, December 7, 2015 (http://www.
bloomberg.com/news/articles/2015-12-07/vietnam-sees-record-high-foreign-investment-on-tpp-eased-rules)
VIETNAM: A NEW ASIAN TIGER4
Vietnam. Similarly, Intel, Canon, and Panasonic have all built manufacturing plants in the country. Much
of the attraction of Vietnam is its lower cost labor. While currently the demands are more for assembly
line type work, if Vietnam is able to improve its talent base, there is a high potential for it being able to
attract more sophisticated kinds of manufacturing. In order to achieve this training, some companies
like Intel have invested in training facilities for their staff on the ground,11 while Samsung has invested in
manufacturing R&D centers in addition to assembly plants.
IT outsourcing has seen a rise in interest as well. According to the Vietnam Software Association the
industry has been growing by 10- to 15% every year since 2011. While this sector still lags behind
outsourcing leaders such as India, the demand for these services is expected to continue growing. In
fact, the estimate is that demand for IT professionals will outpace supply in the coming years.12
These investments have enabled improvement in infrastructure and helped the areas into which they
are made. For example, when Samsung opened its factory in Bac Nihn, associated economic activity
raised the GDP of the province to three times that of the national average. It also brought in opportunities
via the 2000 hotels and restaurants that were built there between 2011 and 2015.13
While electronics manufacturing and export put Vietnam on the technology map, Vietnam is also
attracting investment in other sectors such as shoe and apparel manufacturing. Shoe manufacturer
Wolverine Worldwide has moved much of its production into Vietnam. Vietnam now manufactures 30% of
Wolverine’s inventory, while China’s share has reduced from 90% to 50%.14 “The blend of organizations
investing in Vietnam has evolved,” says Townsend. “Consumer goods companies such as Nestle and
Unilever have recently made significant investments into the country as well,” he concludes.
Though much of what is manufactured in Vietnam is exported, a burgeoning middle class is now
beginning to demand a higher share of what is being produced in the country. As can be seen by the
graph below, consumer expenditure in Vietnam has grown significantly since 2010 and is estimated to
continue its growth pattern. This is an important development, since relying mainly on exports in the long
term would mean that Vietnam would forever be at the mercy of global trade and any disturbance on the
global scale would have a significant impact on the Vietnamese economy.
11
“Electronics Manufacturers Bet Big on Vietnam,” Forbes.com, Will Greene, July 25, 2014 (http://www.forbes.com/sites/techonomy/2014/07/25/
electronics-manufacturers-bet-big-on-vietnam/#c3342543e06e)
12
“Vietnam’s IT outsourcing sector rallies amid economic downturn,” Oxfordbusinessgroup.com, July 24, 2016 (http://www.oxfordbusinessgroup.com/news/vietnam%E2%80%99s-it-outsourcing-sector-rallies-amid-economic-downturn)
13
“Samsung Turns Farmers Into Bigger Earners Than Bankers,” Bloomberg.com, Nguyen Dieu Tu Uyen and John Boudreau, October 5th, 2016
(http://www.bloomberg.com/news/articles/2016-10-05/samsung-turns-vietnam-s-farmers-into-bigger-earners-than-bankers)
14
“Buoyed by U.S. firms, Vietnam emerges as an Asian manufacturing powerhouse,” Washingtonpost.com, David Nakamura, May
21, 2016 (https://www.washingtonpost.com/politics/buoyed-by-us-firms-vietnam-emerges-as-an-asian-manufacturing-powerhouse/2016/05/21/6f117876-1b6a-11e6-b6e0-c53b7ef63b45_story.html)
VIETNAM: A NEW ASIAN TIGER5
Rising Vietnamese Spending Lures Foreign Capital:15
While Vietnam has become increasingly business friendly and has been on a significant growth
trajectory, there are still challenges for corporations to be aware of and to address. There is a need to
improve infrastructure, enhance transparency and expand the talent base. While the government is
already working on improving educational opportunities, the other factors will need to be addressed as
well. As with many emerging nations, infrastructure and lack of transparency are problems that resolve
over time as the economy matures. The World Economic Forums “Global Competitiveness Report” lists
the main difficulties faced by businesses in Vietnam.
Most problematic factors for doing business:16
Inadequately educated workforce
Policy instability
Tax regulations
Tax rates
Access to financing
Poor work ethic in national labor force
Corruption
Inefficient government bureaucracy
Inadequate supply of infrastructure
Inflation
Foreign currency regulations
Crime and theft
Restrictive labor regulations
Government instability
Insufficient capacity to innovate
Poor public health
11.6
10.6
9.8
9.7
9.7
9.3
8.8
7.9
5.9
4.8
3.5
2.2
2.1
2.1
1.3
0.5
0
3
6
9
12
Note: From the list of factors, respondents to the World Economic Forum’s Executive Opinion Survey were asked to select the five most problematic factors for doing business in their country
and to rank them from between 1 (most problematic) and 5. The score corresponds to the responses weighted according to their rankings.
15
“Vietnam’s Consumer Promise Beckons as State Smooths Dealmaking,” Bloomberg.com, Giang Nguyen and John Boudreau, January 12, 2016
(http://www.bloomberg.com/news/articles/2016-01-12/vietnam-s-consumer-promise-beckons-as-state-smooths-dealmaking)
16
“The Global Competitiveness Report 2016–2017,” The World Economic Forum (https://www.weforum.org/reports/the-global-competitivenessreport-2016-2017-1/)
VIETNAM: A NEW ASIAN TIGER6
Young, Urban and Middle Class
Vietnam has a population of
approximately 92 million, with a
median age of 30 years, making it a
fairly young country. Vietnamese is
the official language of the country
and English is increasingly spoken
as a second language.17
As the Vietnamese economy
has improved, socio-economic
parameters have seen an
improvement as well. Today,
Vietnam is considered a middleincome country with the per capita
income being 2100 USD in 2015.
This is a vast improvement over the
100 USD per capita income that existed in the 1980s. Furthermore, Vietnam has been able to reduce
the number of people living in extreme poverty to 3 percent in 2012 from what used to be 50 percent
in the 1990s.18
There is a rapidly increasing middle class in Vietnam, fueling demand for consumer goods. Says Chris,
“With one of the fastest growing middle class populations in Southeast Asia, Vietnam is uniquely
poised to take advantage of this change in its demographics.” It is anticipated that by 2020 the middle
and affluent class in Vietnam will have more than doubled to 33 million from 12 million in 2014.19
Interestingly, this increase will be seen in rural as well as urban areas, with rural regions in some ways
surpassing the urban areas.20
Similarly, the speed of urbanization has quickened. As of 2015, over 33% of the population of Vietnam
was based in the urban areas, while the rate of urbanization was almost 3 percent.21 As with most of
the world, the percentage of urban dwellers will continue to grow, and as the number grows, so will their
impact on the economy.
All of these demographic changes have had an impact on what and how consumers demand. For
example, e-commerce has taken off and by 2015 had increased by 80% over its levels in 2013.22 The
reasons behind this change are numerous, including the fact that there were 3 times as many internet
users in 2015 as there were in 2005 and the increase in number of smart phone users.23 The fact that
Vietnam is also a relatively young country influences this development as well.
There is a desire among the Vietnamese government to see a further improvement in the everyday lives
of its citizens. The latest five year plan put into place by the National Assembly covers the years 20162020 and aims to increase GDP growth as well as per capita income and the percentage of urbanization,
amongst other metrics.
17
“CIA – The Worldfact Book: Vietnam,” CIA.gov (https://www.cia.gov/library/publications/the-world-factbook/geos/vm.html)
18
“Vietnam Overview,” The World Bank (http://www.worldbank.org/en/country/vietnam/overview)
19
“Vietnam’s middle class set to double by 2020: BCG,” Amchamvietnam.com, (http://www.amchamvietnam.com/vietnams-middle-class-setto-double-by-2020-bcg/)
20
“Vietnam and Myanmar: Southeast Asia’s New Growth Frontiers,” BCG Perspectives, Aparna Bharadwaj, Douglas Jackson, Vaishali Rastogi,
and Tuomas Rinne, December 17, 2013 (https://www.bcgperspectives.com/content/articles/consumer_insight_growth_vietnam_myanmar_
southeast_asia_new_growth_frontier/#chapter1)
21
“CIA – The Worldfact Book: Vietnam,” CIA.gov (https://www.cia.gov/library/publications/the-world-factbook/geos/vm.html)
22
“A growing middle class is bringing economic and social change,” Nikkei Asian Review, Atushi Tomiyama, April 30, 2015 (http://asia.nikkei.
com/magazine/20150430-Vietnam-s-new-chapter/On-the-Cover/A-growing-middle-class-is-bringing-economic-and-social-change?page=1)
23
“Mobile Phone Continues to Be Vietnam’s No. 1 Device for Internet Use,” Fintechnews.sg, October 21, 2015 (http://fintechnews.sg/855/studies/mobile-phone-vietnams-no-1-device-internet-use/)
VIETNAM: A NEW ASIAN TIGER7
The Social Economic Development Plan Goals – 2016-202024
•
Average annual GDP growth between 6.5% and 7.0%
•
GDP per capita between $3,200 and $3,500 in 2020
•
Industry and Services to account for 85% of GDP in 2020
•
Total Social Investment Capital between 32% and 34% of GDP in 2020
•
State budget deficit of 4% of GDP in 2020
•
Reduction in energy consumption as a % of GDP of between 1% and 1.5% per year
•
Urbanization rate of between 38% and 40% by 2020
The opportunities that a young, English speaking and educated workforce can offer are tremendous.
Keeping this in mind, education and nurturing talent have been among the government’s objectives.
The government of Vietnam is hoping to improve the skill set and education levels of its citizens and
the 2011-2020 Socio-Economic Development Strategy or SEDS was put into place to address existing
deficits. The aims of the SEDS are:25
• Recognize learners’ prior skills accumulated through study and experience, thus encouraging
enhancement of skill levels, improving workforce quality and boosting the international
competitiveness of Vietnamese industry;
• Inform workers, employers and vocational institutions about worker skill deficits, prompting them
to alleviate such deficiencies;
• Serve as a basis for in-job placement and remuneration appropriate to employees’ skill levels
Corporate Real Estate –
Challenges and Opportunities
Vietnam presents a unique opportunity to many multinational corporations (MNCs) and also to regional
and national companies. With the demographic changes that the country is undergoing and the
attractiveness of a cheaper investment location, Corporate Real Estate (CRE) will see an upswing in
demand for its talents and services. As of now, however, CRE and facilities management are not widely
understood professions in the local market and are typically viewed as property management services,
which are transactional or building engineering services focused. The strategic aspect of CRE is not
yet appreciated and many issues are still dealt with on a small and local scale. “Overall, CRE is still in
an emerging phase in Vietnam. There are not many homegrown real estate organizations in the CRE
market yet and the most active firms are global firms such as CBRE, JLL, Colliers, Savills and Cushman
& Wakefield,” says Jackson.
The fact that CRE is quite low on the evolutionary stage in Vietnam means that not many of the aspects
of CRE that are seen as common in the rest of the world are applied here. For example, green buildings
are still not very common in Vietnam, though this might change with a greater influx of MNCs into the
country. Since many MNCs have internal, international mandates that expect certain sustainability
standards to be adhered to across the globe in their portfolio, there might be an increase in demand for
green buildings and initiatives in the coming years.
24
“Latest five-year socio-economic development plan launched in Vietnam,” Markit.com, Andrew Harker, April 29th, 2016 (http://www.markit.
com/Commentary/Get/29042016-Economics-Latest-five-year-socio-economic-development-plan-launched-in-Vietnam)
25
“Viet Nam,” UNESCO Institute for Lifelong Learning (http://uil.unesco.org/fileadmin/keydocuments/LifelongLearning/en/GlobalInventoryonNQFs_VietNam_130509_final-final.pdf)
VIETNAM: A NEW ASIAN TIGER8
One concept that seems to have taken off and is expected to see gains is the notion of co-working.
There are numerous co-working spaces in Vietnam, with Ho Chi Minh City seeing a flurry of activity and
increased usage in this sector.
There is also a lack of home grown talent that can be utilized by CRE. Companies looking for CRE
talent either have to train their employees in-house or bring in expat experts to manage their real
estate portfolios. According to Chris, “Establishment of professional industry bodies such as CoreNet
Global or IFMA would provide opportunity for a young and aspiring people to gain access to more
international education, information and best practices. Championing the expansion of a curriculum
at local Universities to include real estate and industry-related courses would also help to increase the
knowledge base.” Chris concludes that networking events are popular and can be a way for younger
generations to learn, but can tend to be siloed and organization specific.
The government of Vietnam understands the need to improve the skill set of its younger generations,
and as noted earlier, they’ve put into place initiatives with these goals in mind. The result being that
there are an increasing number of well-educated graduates in Vietnam. “Some of these are educated
inside Vietnam and some are Vietnamese who were educated outside the country but are coming back
to access the new opportunities that the country offers,” says Townsend.
With Vietnam being an emerging economy and still fairly new to the international business scene, CRE
does face some challenges that are unique to the country. For example, guidelines and rules for real
estate professionals are not very clear. There is also a severe lack of transparency about the real estate
market. According to Jackson, “As a solution and in order to better track market movements, the big
global firms real estate firms who conduct business in Vietnam have now taken to keeping their own
database, instead.”
Given the convoluted and restrictive land use and purchasing laws in Vietnam, many MNCs choose to
lease space rather than own. However, recent changes to land laws have made it easier for Vietnamese
nationals as well as foreigners to own real estate both in the residential as well as commercial sector.
The hope is that these changes to the law will have a positive influence on the real estate market.
Overall, the outlook for Vietnam is positive. A young population, a growing middle class, and a government
keen on pushing the economy higher are all factors influencing positive growth. As the economy develops
and matures, the need for CRE to provide increasingly strategic guidance will grow as well.
Thank you to the following leaders for their insights:
Chris Barnett, OUT-2 Design
Marc Townsend, CBRE
David Jackson, Colliers International
VIETNAM: A NEW ASIAN TIGER9