Business Week on Vietnams economy: WTF?

Business Week runs a story with the headline: Is Vietnam Finally Ready for Foreign Investors?" They say

Hanoi is cutting taxes and improving infrastructure in hopes of becoming the low-cost alternative for new factories and outsourcing call centers

Where have they been the last years? Actually the time for outsourcing in the software industry is nearly over in Vietnam, many companies are suffering right now and looking for domestic business. Same for call centers (what is by the way quite funny knowing the language skills in Vietnam.)

For factories VN might be still a good place, but they did not mention all the strikes in the past, as well as the strict labour laws. And you may find cheap workers, but not skilled ones.

President Nguyen Minh Triet's government has cut taxes, such as import duties on personal computer parts, and is promising to improve the country's roads and ports. It's building nuclear power plants and a high-speed train line from the capital to Ho Chi Minh City.

First, the National Assembly just rejected the plans for the train. Second, what is announced is not necessarily realized. And actually VN just raised taxes for unnecessary goods, whatever that means. And the Worldbank and others recently mentioned that VN needs innovation, otherwise it will not succeed because there will always be a country with cheaper labour force.

The leadership also vows to eliminate some of the notorious red tape that has frustrated investors.

Arent they vowing this since decades?

Vietnams economy and the future - face reality

On the weekend I read the probably best article about the economic reality in Vietnam since a long time. It was published by Thanh Nien News in a special report. If you, dear reader, are interested in Vietnams development, then read carefully what the experts say about the middle income trap. Some quotes:

Jonathan Pincus, dean of the Fulbright Economics Teaching Program, said Vietnam’s approach to lower middle-income status is still based on growth that draws from “moving people out of very low-productivity activities.

Growth for middle-income countries must be based on “mastering new technologies, producing more sophisticated goods, breaking into new markets and improving workers’ skills,” Pincus said.

The country’s development has been “passive,” dependent on the “liberalization effect” after doi moi and large inflows of investment, capital and aid, and unable to create “internal value” to ensure sustainable growth.

Vietnam is still some years away from the middle-income trap, he said, “but since it takes a long time to build the institutions of a modern economy, it is never too early to start.”

Why do I like this article so much? Because it show the reality: Vietnam may developed a middle class, but this class represents a small percentage and is mainly based on cash. People got rich and wealthy by selling assets like land and gold, some by getting licences from foreign companies. The Vietnamese value comes only from rice, coffee and fish. There is no industrial good Vietnam is able to export. Beside food there is not much left that is produced in Vietnam. so the country needs innovation and improvment. That's the challenge for 2010.

Vietnam, standards, rules and quality

When I came back form Thailand, I was thinking, what is it that makes Thailand so far ahead of Vietnam? One thing I discovered is a better understanding of standards. Although the majority of Thais are working the asian way, you will see way more standards then in Vietnam.

Why standards are important?
If you have standards and everyone follows them, you make life just easier. You can connect people, services, businesses. But it requires a kind of mutual agreement on the standards. Let's say traffic lights: Stop on a red light is a standard. If everyone follows the standard, you can regulate traffic, avoid traffic jam and make it safe to cross the street (if you have green light). In Vietnam it's different: Still many people just ignore that.
Look at English: It's a standard for international business communication. It's makes business just easier if there is no language barrier. But in Vietnam English skills are still an issue.

What is the relation to rules?
There are two ways to implement standards, and you have to go both ways, not just one. The first way is that people need to understand the meaning of standards, the benefits. Like power plugs: If your electronic device would need 550 Volt, nobody would buy it because you can't really recharge it - the standard is 220 Volt. So everyone works with 200 Volt. Easy to understand and to follow.
The second way are rules: You need to establish the standard by laws, regulations, business practice. And you have to enforce it. So the government just decide to have 220 Volt, and everyone has to follow that. A letter size is a standard (although there are many different one).

So what about standards in Vietnam?
although there are a lot of rules and standards in Vietnam, I see a lack of enforcing them from all sides. Government is struggeling to implement the laws and rules in lower levels, mainly because of a lack of money and staff, and businesses don't really care. Following standards means do the same like your competitor - and this is something some people want to avoid.
Everyones does what he wants do do his way. People decide from traffic light to traffic light if the follow the traffic law. In their job, they even decide of the follow the working flow process or not. That leads us to quality.

Standards are the base for quality
You can only assure quality if you follow standards. Mostly your own standards. Every product you produce has to be the same and the same quality. You don't make good shoes on Monday and bad shoes on Tuesday. And this is exactly the biggest problem in Vietnam: The lack of understanding why quality is so important. Nobody like to pay for surprises, you like to know what you get in advance. A five star hotel is usually a international standard, with certain prices, facilities, service, quality of accommodation. Not so in Vietnam: Prices follow the rule. the rest not (if it's local owned and managed). Even my hairdresser around the corner, who speaks well English, spend a lot of time with foreigners (and was even abroad), don't get it. Sometimes you get a arm massage while having shampoo, sometimes not. The restaurants serve tra da sometimes, but not always. The citimart has muesli sometimes, sometimes not. The mens wear shop has Size 32 sometimes, sometimes not. There are hundreds or more examples.

Conclusion: What to do?
I think it's important to educate about the meaning of rules, standards and quality. And to implement enforcement. (There is a reason why shoemaking companies hire Philippines for the quality control management). If Vietnam doesn't start to work on that now, it will loose money and time. The government is asking for more exports. That will only works if the products are following international standards.