Business & Financial, for sure for most observers, Vietnam business rules and laws are in the making. Be it, licenses, new business sectors for Asia, wordings, expectations of various parties that are not usually in Western business laws makes any deal a riddle.
When it comes to forecasting the outcome of business on a short, medium or long-term; there are too many parameters that are N/A Not Applicable in Vietnam.
Just think about it: Vietnam private companies laws started just 15 years ago (in 2003), the real ‘revamped’ version (due to many failed parts) was 2008, just 10 little years, not to mention the labor laws still in the making if you look at foreign employment regulations.
In this section we will not talk about business risks in general as there are so many books about it, but more about the missing pages of a business book should it be written for Vietnam specific environment for success.
The patient observer can see a few traits of character of Vietnamese as follows: nationalist, proud, sensitive, emotional, value family and outside look. This all conditions business deals and employees relationships
Organization and planning
Perhaps it comes from the fact that Vietnam is mainly a primary sector country: 50% of the population are in agriculture, fishing or mining. More people are now joining the ranks of the secondary sector of industrial transformation and fewer are in the service sector. This is probably one of the reasons why, planning and organization is not the main strength of Vietnamese people, industries and economic development.
Long-term is 3-year
You may have heard that Vietnamese have a short-term view of most things. Just looking at the employment market, shop & restaurant landlords or most Vietnamese businessmen most decisions are based on ‘the power of now’. A +15/+30% uptick bid and your deal is gone/cancelled to the best bidder, even though you still have a valid contract on-going.
Traditions and beliefs: family, feng shui, religion… decisions
It is also known that Vietnamese people are fervent believers and influenced by family, ancestors, family, geomancy, zodiac signs, feng shui are still making almost 50% of business decisions. Take the iconic Bitexco Financial tower, as you see it the helipad will never be used by an helicopter. The way it was designed by Carlos Zapata Studio Architects, as to face the city center as the helipad could be used against the wind for landing without risk. Chairman and owner of the Bitexco group, listening to his fortune teller, decided to rotate the building facing the east sea, ‘because the main entrance facing the wind would ‘catch the wealth and fortune’. This is how the helipad became useless as a wind burst could blow any landing chopper into the building.
The history of Vietnam explains the whereabouts of Vietnam economic and business decisions. Starting from 1975, where nothing economical really happened as the remaining and limited post-war elites were sent to Eastern Europe comrades (Russia, East Germany etc…) mostly for technical expertise badly needed to rebuild the country. The planned communist economy, plus the US dollar embargo, made Vietnam a ‘North Korea like’ phantom on the world economic map. The ‘doi moi’ of 1985 was a forced opening, reality check for Vietnam literally starving economy. The U.S. embargo on Vietnam was eventually lifted in February 1994. Only then Vietnam started revival. The private entreprise laws came in 1999 with plenty of inadequacies then revamped in 2005. Obviously Vietnam was not to dive into capitalism all-in: many currents of economic ideas/thinking are making the landscape very puzzling. To cite a few currents: communist conservatism, easter europe roots, cronyism and government family ties, regional ‘rulers’, Asean, EU, Japan, Korean, greater China, the USA, Young Internet generation, start-up frenzy, fund managers orientations, state-owned companies, MNE, VN new champions (Vingroup), Hanoi-HCMC … all have an interest in a country of 96Mio people
To preserve the party, anything inland security, international representation, energy, culture and information, land use are under tight control. Economic thinking does not prevail or apply.
No business decision can be taken without a deep understanding of the base political rules.
Communism and the rulers will prevail, security and order whatever it takes. Political stability explains the ‘power’ and inefficiency of the administration: meritocracy by cooptation and low pay are institutionalized.
Most decision makers and CEO have no business education background nor hands-on experience of management internationally.
Most decisions competitive advantages are a mix of relationship to government officials, family ties, preferred access to land orc capital -from doubtful sources or arranged loans- and monopoly status.
10 years of business
Most business people in Vietnam are ‘teenagers’, they have 10-15 years business experience at most. We may say a retarded teenager, if we take into account the long history of privilege for the happy few connected to officials, monopolistic habits, arranged business license to former state-own companies or past communist economy practices.
The habits are those of a family business, some times a SME and rarely a MNE. For most interactions expect very basic reactions -as if business laws did not exist- based on human relationships and emotional commitment between the 2 parties. Contracts are known to be ‘a piece of paper’ and not a ‘peace of mind’ as opposed to Western countries.
No career path
You would be wise to get to know and understand the background of your business partners and your employees. Their way of thinking and acting are very much a result of this background -as opposed to the title on their business card-. What the person does -or supposed to do- as per the name card, is not based on skills and competencies. When you can answer Why and how the person is at this position, then you can understand what he/she can deliver.
As an example, many decision makers (including politicians and lawmakers) are ladies who studied language and men from the military or the police, as a consequence business vision and decisions can never be what is expected from a CEO/Director holding an MBA or an engineering degree.
The same applies to a young professional, who is from the countryside of a poor family background, you can not foresee what goals and reactions will be when it comes to deciding career path.
For most Vietnamese: career path, success and wealth has nothing to do with the Western vision. In Vietnam, the future is unfolding day-after-day and whatever you want to ‘copy-paste’ most often leads to deception and failure.
Vietnam Business legal environment
As the revamped law on business and regulations only exists since 2008, or are not applicable the legal frame exists but:
#1 it is moving forward and backward to adjust for bad decisions,
#2 becomes strict when politically necessary or huge abuses discovered and
#3 is largely flexible to allow some economic growth
#4 since 2008, the laws for IP, Internet, labour, banking have not gone through teen age
#5 Business leaders have dubious meteoric success will have vertiginous fall down, when the laws re-apply to them
Stop and go laws
In the 21st century, achieving sustainable growth for a young population, between 5-10% year-on-year since over the past 30-years is not so obvious. Mainly 4 reasons for this situation;
#1 The Elite and the Vietnamese labour force are largely uneducated in business et geo-politics. But also, no practical experience has been gained and accumulated since 1958, since the French left the country. Most decisions can not be good, to the latest excellence in research, state-of-the-art data analytics and facts collected internationally.
#2 the tension between communist ideology in power and the economic justification for capitalism are ever present in decisions
#3 Cronyism and personal interest -ie. Corruption- are the 2nd criteria for localized decisions. Simply list the number of Banks board members and CEO jailed after each change of government official in charge and one can understand who benefited from the past recent past economic decisions.
#4 Another important decision is the foreign countries, their oriented financial aids and ‘economic NGO advisors’ whose advice, studies and subsidies clearly point in their direction. Indeed, at any one time, a major decision like taxes, infrastructure project, large investment for sectoral development is subject to free support, study task force and financial ‘over/under’ the table support from: Europe, USA, Japan, China -in disguise-, Korean, Taiwan, Singapore, France, UK etc… Adding to the incompetence of the lawmakers. It’s mind blowing to Vietnam decision makers!
A communist Frame
One need to understand that the economy is really a servant of politics. One can observe that, politics is motivated by the slow but sustainable economic well-being of the population. Of course to achieve this purpose, the path is not clear nor obvious in Vietnam where the elite, the party and the economy have different views and masters in their decision. But overall, any one who has blatantly privileged their interest over the people’s over the long term have been jailed or ban. One the recent victim is the almighty prime minister Nguyen Tan Dung.
Businesses Wild and unlawful conduct within the frame
The law has been ‘in-the-making’ and ‘back-and-forth’ since 1985, with ‘doi moi’ policy. This explains why most businesses have never been able to fully comply by the law (business, labor, taxes…). This also explains the huge number of law firms specializing in: IP, business, M&A, IT, HR, real estate, taxes… you name it.
This is why there is the frame of the law and… everything else, all that exists just happening under your eyes: what we call the reality of business in Vietnam.
#1 the Truly wild, the sons & daughters of… But also the friends of xxx higher up officials. They get land, monopolistic rights, loans and sometimes laws favoring them beyond dreams. Until the next change of government team.
#2 The state-owned company, the monolithic and monopolistic go-to guys not after economical efficiency and profitable markets. They are the employers of the masses.
#3 The ego driven business entrepreneurs, jack-of-all-trades. Ego is their success and failure, the law is ‘not a problem’ when success is in the balance. They dare venture in the ‘vacuum of their knowledge’.
#4 The business savvy, shrewd strategy and tactics + suitable investment (nowadays backed up by investment funds like Mekong Capital) + scalable vision
#5 Foreign SME Small and Medium Enterprise, limited in development has they have no access to land, thus no easy funding and loan. Working capital and seasonal cash shortage put them at the mercy of mafia shark loans or periodical loss of momentum.
#6 Foreign MNE, they are invested for the long-term profitability is a matter of time… of lifetime. Applying cut-and-paste or top-down strategies where the best effective would be localized bottom-up a la ‘fortune at the bottom of the pyramid’ best-seller book. Or the lifetime can become a surprisingly and sudden HQ reversal 180 degrees U-turn when ‘Vietnam has become strategically non-core’
NB. a #Metoo approach, imitating a Vietnamese business model is not an option for foreign owned company as the law applies to the letter -as most don’t have family ties nor understand who and how to bribe-.