Opportunities arise in Vietnam due to US-China trade war

This story was originally published on Lianhe Zaobao on 3 November 2019.

Changes in the global supply chain have occurred since the US-China trade war began in 2018. Vietnam, which shares land borders with China, has benefitted with significant increase in orders received by manufacturers in the past year.

After opening its doors to the world, many industries in Vietnam have been expanding rapidly and the country is now one of the fastest growing markets in ASEAN.

Lianhe Zaobao’s correspondent visited the country to understand how the trade war has impacted the local market and Singapore companies operating in it. With the rise of the local middle class, what business potential lies in consumer related industries?


ASEAN Vietnam
The US-China trade war has spurred the growth of the manufacturing industry in Vietnam. Garment orders received by Norfolk Global have increased, but not without a rise in labor costs. (Photo: Lianhe Zaobao)

 

Since the start of the US-China trade war, orders received by Norfolk Global, a garment manufacturer in Vietnam, have increased by about 20% to 30%.

Mr Royce Kwok, Chairman and President of Norfolk Global, said in an interview with Lianhe Zaobao that many customers have transferred orders from China to them, and they have received new enquiries almost daily.

In order to cope with new orders, Norfolk Global has hired more staff locally, and is looking for new factories in preparation for expansion of production capacity.

Before venturing into Vietnam, Mr Kwok ran a textile business with his father and brother in Singapore and Malaysia. He came to Vietnam to establish a joint venture with a local partner in 1992 and was one of the first Singaporean businessmen who invested in Vietnam.

When interviewed at the Dong Van industrial park facility, an hour's drive from Hanoi, he recalled: "At that time, a friend asked me if I was interested. I discovered that Vietnam is abundant in both labor and land, so I decided to take the plunge."

"It has been 28 years since then."

In 1986, Vietnam announced the launch of “Doi Moi”, moving from a planned economy to a market economy, leading to a rapid economical growth. Over the past 30 years, many large multinational companies such as Samsung and Intel, have settled in Vietnam.

■ 7 industrial parks established under Singapore and Vietnam joint venture

Singapore is the third largest overseas investor in Vietnam. By the end of 2018, Singapore had invested nearly 63 billion dollars in its neighbour.

Large companies in both countries established the Vietnam-Singapore Industrial Park (VSIP) in 1996 to meet local demand for towns and industrial parks. VSIP has developed seven industrial park projects to date.

VSIP is a joint venture between Sembcorp Development, a subsidiary of Sembcorp Industries, and Becamex IDC, a state-owned company in Vietnam.

Mr Kelvin Teo, CEO of Sembcorp Development, told Lianhe Zaobao that VSIP attracted a total of 777 enterprises as of May 2018, with a total investment of 12 billion US dollars (about S$16.5 billion). In July 2019, the number of companies increased to 840, with a total investment of 14 billion US dollars.

However, as Chinese companies invest in different ways, it is difficult to conclude that the additional investment is from China.

Mr Teo said: "If we put aside the trade war, Vietnam is still a dynamic emerging market. Over the years, it has attracted investment in manufacturing. VSIP has expanded rapidly since 2006."

Vietnam has reaped benefits from the US-China trade war, but it has also brought many challenges, such as increasing competition and staff costs.

Mr Ernie Koh, executive director of marketing at local furniture manufacturer Koda, revealed that the company's overall orders increased by 10% in volume, so the Malaysian factory factories were used to cope with the increase in orders.

Koda first entered the Malaysia market in 1985 and later began trading in Vietnam from 1993. When Vietnam’s business environment improved, the company set up a factory in 2000 to manufacture more home furnishing products.

Mr Koh pointed out that the current changes in the global supply chain have caused many China manufacturers to target other markets besides the US. 

“We also do business in these markets and hence, we are worried about the impact, so we have to work harder in sales.”

Mr Kwok from Norfolk Global noted that many international manufacturers have relocated to Vietnam, which has led to rising labor costs.

“An employee’s average monthly salary in 1992 was 45 US dollars and has now increased to at least 300 US dollars.”

He observed that the Vietnamese are now more particular about their benefits when job hunting. For instance, they take into consideration the make of the sewing machine they will be using at work, whether the environment is air-conditioned, etc. In response to this, Mr Kwok is transforming the company, introducing more advanced machinery, reducing reliance on manpower, and manufacturing clothing of better quality.

ASEAN Vietnam map

 

■ Opportunities generated by the growing middle class

Besides the booming manufacturing industry, the rise of the middle class has created business opportunities for other industries too.

Mr Leon Cai, Enterprise Singapore’s regional director-Ho Chi Minh City, told Lianhe Zaobao that many overseas investments have been directed to sectors like infrastructure, urban solutions, and lifestyle spending.

“The huge Vietnamese population and the middle class are growing rapidly, generating business opportunities to retail, F&B and other industries.”

In recent years, a number of Singapore food and beverage brands have ventured into Vietnam, including Select Group, Mr Bean and Xiao Ban.

Mr Vincent Tan, managing director of Select Group, said that the group had been paying attention to the Vietnam market for many years. About three years ago, it discussed cooperation opportunities with local wholesale and catering company MESA Group. It officially entered the Vietnam market in January 2018. The brands which Select Group have introduced to Vietnam include Peach Garden and Hong Kong Sheng Kee Dessert.

He said: "We have developed well over the past year. Many shopping malls want us to open new stores. We will accelerate the pace of development here."

Starting from scratch in Vietnam

It is not necessary to break into an overseas market by starting from Singapore. Some Singaporeans have gone directly to Vietnam to launch their businesses instead.

Former financial planner Mr Goh Chinnskii and Mr Peh Wei Jie, who manages a family business, chose this entrepreneurial path.

ASEAN Vietnam Rou
Goh Chinnskii (left) and Peh Wei Jie think that the bak kwa market in Singapore is saturated, hence the duo decided to establish their brand Rou in Vietnam, as more business opportunities are present there due to the rise of consumerism. (Photo: Lianhe Zaobao)

 

The 31-year-old pair initially considered venturing into China or Malaysia, but eventually felt that these markets were unsuitable until they discovered the “brave new frontier” in Vietnam in the midst of their assessment.  

They found that Vietnamese like to consume pork and local labor costs are relatively lower.  After two years of preparation, they officially launched their bak kwa (barbecued sliced pork) brand Rou, in Ho Chi Minh City in early 2018.

Another Singaporean businessman, 72 year old Mr Low Kok Chiang, opened Fifth Element, a minimart cum restaurant at the Oakwood Residence Saigon in Ho Chi Minh City in 2018. However, his entrepreneurial journey in Vietnam dates back to the 1990s.

“I was in food trading during the early days. After Vietnam’s reform and opening, I was sent to work here.”

He decided to start a business six years later to help foreign companies expand their business in Vietnam. He planned to retire in 2015, but changed his mind to pursue his passion in agriculture, and established an organic farm in Da Lat.

After that, he set up a minimart in the shopping mall, and he has now gone a step further to open a restaurant with a “farm to table” concept.

Although Mr Low has lived in Vietnam for a long time, it is still a challenge to venture into another industry. He reflected that the F&B industry generally needs more manpower and he does not have adequate management experience in this industry. “We began by offering Singaporean fare, but it was difficult for employees to adapt to the cooking styles.”

Initially, Mr Goh and Mr Peh also faced challenges when they were trying to sell Singaporean bak kwa in Vietnam. At first, they sold their products online and collaborated with F&B outlets to sell their products. At the end of 2018, they decided to set up a storefront. They were surprised when the retail business did not perform as expected. Mr Goh said: "We realised that this is related to local consumption habits. Vietnamese don't often shop along streets where many motorcycles ride through."

In contrast, the strategy of placing products in shopping centers worked better as sales figures were twice as much as retail ones. Mr Peh said that the duo learnt from this experience and are thinking of closing the store after their lease is up, so that they can allocate their funds in other areas of the business.

Differences between northern and southern Vietnam

The land area of Vietnam is 460 times that of Singapore’s and it’s northern and southern regions differ greatly. People living in Hanoi and Ho Chi Minh City can surely tell the differences.

Interestingly, the Singapore trade association is also split north and south. The Singapore Business Association Vietnam (SBAV) in Hanoi was established in 1998, while Singapore Business Group (SBG) in Ho Chi Minh City was founded in 1992.

Mr Norman Lim, president of SBG, said: "After Vietnam underwent economic reform and opened its doors, the business environment and policies have changed. The establishment of trade associations can help businessmen obtain information and exchange opinions better."

Mr See Yong Sheng, president of SBAV, pointed out that although the two trade associations operate independently, they are in fact a “big family”. The two associations regularly organise seminars, charity and networking events.

The main difference between the two is their membership numbers. SBG has about 360 members, and SBAV has 100 members. This is a sign that companies usually start out in Ho Chi Minh City before heading north. This may reflect the general impression that Ho Chi Minh City is an economic development zone, while Hanoi is the centre for planning and enforcing policies.

The southern region is more influenced by capitalism whereas the north retained much of its communism characteristics. This difference is the main reason why northerners and southerners vary in the way they live and work. 

Production company Red Ants Saigon’s executive producer Ms Cecilia Ang has observed that Southerners are more expressive and open-minded. “The northerners communicate more diplomatically and will express their ideas tactfully. Most of the time, we have to read between the lines.”

Mr Low, founder of Fifth Element, feels that southerners generally spend more extravagantly.  

"They (southerners) tend to spend whatever they have, while the northerners are more frugal."

Besides differences in interpersonal treatment and spending habits, dietary preferences also have a north-south distinction.

Mr Chu Hoang Giang, Marketing Director for EGroup, a Mr. Bean's franchisee, revealed that southerners have a sweet tooth.

“Southerners prefer personalised services. On the contrary, northerners pay more attention to food quality.”

Survivor’s guide for business owners in Vietnam 

① Running a business in Vietnam can be encapsulated in three ‘B’s: Bạn, Bàn, Bán. This means making friends first, talking about business next, and finally sealing the deal. In short, building relationships, trust, and patience are the keys to success.

② After the initial meeting, apart from using emails, Singaporean entrepreneurs should also make use of messaging app Zalo, text messages and calls to stay in touch. The other party usually responds more quickly in these ways.

③ Singapore companies may not be able to compete in terms of pricing, so it is necessary to understand the value proposition of their products and services. For example, Vietnamese consumers like new experiences, and Singaporean enterprises can offer new concepts.  Vietnamese companies and consumers have a very good impression of the Singapore brand.

④ Although English is commonly used in Vietnam, Singaporean entrepreneurs should hire employees who can speak Vietnamese. By doing so, they can better avoid misunderstandings and accurately interpret each other's body language.

⑤ Vietnam's private companies have a wide range of businesses and a strong network of contacts, so they are ideal partners for Singapore companies. They are also very open to new business ideas.

——Mr Leon Cai, Regional Director (based in Ho Chi Minh City), Southeast Asia, Enterprise Singapore

 

Discovering Malaysia in the next issue of “Businesses in ASEAN”

 “Businesses in ASEAN” is a series of reports launched by Lianhe Zaobao, bringing up to date regional market information to Singapore companies. This bi-weekly report focuses on key growth areas and business must-knows in different markets.

In the next story, “Businesses in ASEAN” will visit Malaysia to explore the opportunities in the Malaysian consumer and digital industries.

Other stories in the series:

  1. Explore business opportunities in ASEAN
  2. Indonesia: A market where obstacles and opportunities co-exist
  3. Rise of Malaysia’s middle class presents opportunities at our doorstep