...openness to Western standards of doing business are making it an attractive destination for foreign direct investment.

This came to light when Vietnam hosted the annual Asia-Pacific Economic Cooperation (APEC) summit in November. Vietnam staged the event like it was its own coming-out party. Long considered one of the less relevant economies in the South-East Asian block, the late-bloomer country welcomed dignitaries to Hanoi with freshly built or repaved roads, and even some porcelain-tiled streets, all leading to the spanking new US$250 million National Convention Center. (1)

Never mind the costs; the two-year-in-the-making facelift project achieved the desired effect as the analysts and media organisations covering the event churned out cover stories or special features hailing Vietnam as the new hot investment destination. Since then, Vietnam has been increasingly in the global news, a fact not lost in the country. Vietnam Chamber of Commerce and Industry president Dr Vu Tien Loc noted in December that Vietnam had its greatest-ever number of mentions in the world media in 2006, the same year that 10% of the Fortune Top 500 companies arrived in Vietnam. 'Never has Vietnam been the destination of as many great groups, business communities and international investors as this year', he said. (2)

Vietnam's attraction to foreign investors is its incredible economic growth. Since 2000, gross domestic product (GDP) growth averaged 7%. Its 2005 increase of 8.4% positioned it as Asia's second-fastest-growing economy, eclipsed only by China's 10%. Thanks to the booming economy, the reported poverty rate in the past decade has shrunk from 61% to only 19%, a feat not even China can match. (3) And investors have flocked to the bourse, boosting the Ho Chi Minh Stock Index by an extraordinary 109% in 2006, making Vietnam's equity market one of the ten top-performing exchanges in the world. (4) Credit Suisse vice chairman for Asia, Jose Isidro Camacho, summed it up when he told Fortune magazine, 'Vietnam has arrived'. (5)

Where exactly Vietnam has arrived at, and where it's going, is the focus of much of this quarter's World Review. In 2006 the country came to be regarded as capitalism's newest rising star; and as such it symbolises the changes and challenges that will paint the backdrop to the future development of corporate citizenship. We explore why the country's economy has boomed, some of the positive social as well as economic implications of its opening-up to foreign influence, the dangers of unequal forms of privatisation and skyrocketing stock markets, before placing this economic and social change in the context of the country's natural environment, and the future sustainability of its development trajectory.

Understanding the boom

FOREIGN INVESTORS STARTED TAKING a second look at Vietnam since its leaders heeded efforts of former us president Bill Clinton, who visited in 2000 to normalise relations with the former enemy. In 2000, Vietnam signed a bilateral trade agreement with the us and launched the stock market. Thereafter, it introduced new laws simplifying requirements for registering companies and creating a level playing field for both local and foreign players. (6) The timing was perfect. It emerged as the regional destination of choice for Western and Japanese investors aiming to hedge their exposure to China.

As China continues to gobble up about US$72 billion in foreign direct investments (making it the largest 'developing'-country recipient of FDI), (7) foreign investors lured by Asia's low labour costs have realised that, as political winds change in China, they need to spread their business risks. Vietnam has become the first choice for Japanese firms operating in China that want to spread their investment exposure to another country. The Japanese firms doing business in Vietnam include such giants as Toyota Motor Corporation, Sony, Canon and Honda.

Vietnam's labour is cheaper than all of its neighbours, including even China. Shortages in available factory hands in some regions of China have been driving up costs to the point that a factory worker in the mainland can earn up to five times the US$50 per month that Vietnamese workers in foreign-owned factories receive. (8) In addition, land is cheaper, with the most expensive land for factories fetching about half of what they do in China's priciest areas, and shipping from industrial capital Ho Chi Minh City is cheaper than from Thailand or Indonesia. (9)

Nevertheless, there is the potential for economic culture clash. The experience of Dutch bank ABN Amro, which has a branch in Hanoi, was revealing. In November, it entered into a US$4.5 million settlement to end a dispute over a transaction with a local state-owned bank (and, not incidentally, get four staff members out of jail). In its suit, the state-owned Incombank had blamed the four ABN Amro traders for the losses it incurred when they executed speculative foreign currency trades on behalf of an Incombank employee who was later found to be unauthorised to enter into such deals. Causing losses to a state enterprise is a serious criminal offence in Vietnam, (10) and the arrests of the four traders has sent a chill through other foreign banks operating in the country, raising concerns about the risks of dealing with state financial institutions and other state agencies. Compounding the risks is the fact that foreign exchange trading--a routine transaction elsewhere--is not yet governed by internationally consistent standards in Vietnam.

Competitive openness?

AS FAR AS LOW-COST AND LOW-VALUE labour is concerned, studies have shown that Vietnam is better at attracting socially conscious investments than China because...

NOTE: All illustrations and photos have been removed from this article.



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