By Manuel Wendle of Mekong Retreat
A recent study published by PwC drew a lot of attention in Vietnam. According to the business consultancy’s model, the South-East Asian country will become the 22nd biggest economy in the world by 2050 with the second biggest average growth rate during the next 30 years.
While this development is based on a model and thus on various assumptions the study rarely questions which conditions would need to be fulfilled to make this projection become reality. Whilst the PwC report was the cause for enthusiastic articles in newspapers and excitement on various social media, it could, however, be a signal that more careful consideration is required – we are still talking about the output of a model of a country that still has a far way to go, despite macroeconomic stability and increasing economic freedoms.
Trying to see the South-East Asian country’s development in a more objective way, I would like to shift the focus from the potential bright future to the challenges that further internationalization and integration into the world economy will bring to the country and its people. As I examine below, three of the five most important reasons why intercultural competence is becoming more important for Vietnamese workers are related to predicted future economic growth.
- International Expansion of VN businesses
Vietnamese corporates have often developed in a market environment of strongly distorted competition. While some players, especially in the energy sector, could build monopolies due to non-existing competition, other enterprises were strongly protected from international competition with the help of regulations and market entry barriers created by law-makers. However, the historic lack of competition and dependency on the state, have in many cases created unprofitable corporations – a situation the Vietnamese government is gradually solving with new waves of privatization.
Increasingly, corporations in Vietnam are facing, or will at some point face, saturated domestic markets, and will thus need to expand into new markets abroad. One of the most prominent examples is the telecommunication provider Viettel expanding to Myanmar. This example shows the importance for Vietnamese managers and employees to develop intercultural competencie. But even smaller companies will face an increasing number of business opportunities abroad. Be it shrimp farmers exporting to the US, garment manufacturers importing their fabrics from Taiwan, China or South Korea or a manufacturer of machining parts starting a Joint Venture with a European manufacturer in the automotive industry, they will all need to improve their intercultural skills if they want to become successful with their international business partners.
- Soaring Foreign Direct Investment (FDI)
In recent years Vietnam has attracted more than 20 Billion USD in Foreign Direct Investment per year, making the country one of the most attractive places for foreign investors in the region. In 2015 the number of registered projects surpassed 2000 for the first time in the millennium.
With the increasing number of foreign investment projects, the number of intercultural interactions is increasing too. Below are some examples of intercultural encounters which occur during the process of setting up a foreign investment company in Vietnam:
- Negotiations with the industrial park. Many foreign investors decide to start their project in an industrial park. The Vietnamese there will need to negotiate with foreigners from six continents.
- The legal issues are usually solved by lawyers. Thus law firms will need to prepare their staff for the co-operation with their foreign customers.
- Investors often hire their staff for key positions with the help of local headhunters. They will need to understand the needs and goals of their foreign customers, which are often different from the goals and needs of a Vietnamese customer.
- Irrespective of the nationality of the Managing Director of an investment project, there will be various intercultural encounters. If the Managing Director is Vietnamese, she or he will need to negotiate with the foreign owner. If the Managing Director is a foreigner, intercultural encounters will happen with the Vietnamese staff.
- Business scope: depending on the services the FDI company provides or the product it produces, intercultural interactions with suppliers, customers and partners will occur on a daily basis.
- Free Trade and AEC
Vietnam has taken big steps to open its markets in the past years. Even though the United States quit the TPP, the South-East Asian country has a large number of free trade agreements with its biggest trading partners.
Irrespective of the TPP and the USA’s decision to walk away from the agreement, the establishment of the ASEAN Economic Community in 2015 is a milestone for the country and the entire region’s economic integration.
From its economic hub of Ho Chi Minh City, every ASEAN member state can be reached within a 3 hours flight which makes Vietnam the center of an economic region with a population of about 625 million people. Hence, Vietnamese will have an increasing number of intercultural experiences with people from various countries. Adding all free trade partners this number surpasses 50 countries and more than 3 billion people. In-depth intercultural encounters will become important for Vietnamese both in private and in work life.
- Vietnam is likely to become the world’s manufacturing hub
In 2015 Bloomberg published an article with the topic: “Meet Asia’s New Manufacturing Powerhouse: Vietnam”. In the article, the author describes the South-East Asian country’s rise in manufacturing and its competitive advantages compared to China, South-Korea and other manufacturing hubs.
It’s been predicted among experts that Vietnam will step up the ladder to high-end manufacturing products in the coming years – an important development which would increase the added value of manufacturing goods and with it raise the wages and living standards of the people. If the PwC Model is correct, Vietnam will find a way to produce more high quality manufacturing goods in the coming decades. Comparing the country’s numbers of engineering graduates with its peers can suggest a growing competitive advantage of Vietnam in the manufacturing business. The country is among the top 10 countries with the most engineering graduates.
Increasing complexity of the products and services a country produces will require increasing problem solving skills – across cultures. Vietnam’s positioning as a manufacturing hub will require its leaders to have the ability to put themselves into the shoes of their customers, suppliers and stakeholders, and find solutions for complex problems across cultures.
- Vietnam’s geostrategic importance will require cross-cultural solutions
After 14 decades topping the list of the biggest economies in the world, the USA will be overtaken by the country with the most impressive growth story in modern history – China. With China leading the way, the entire region has experienced years of increasing prosperity and wealth.
A growing economy and strong investments into its armed forces has made China more self-confident in pursuing and enforcing its interests. The territorial disputes in the East Sea represents the most prominent example of China’s rising power.
Taking an outside perspective, Vietnam seems to take an important role in balancing power in the region. While it is further integrating itself into the region’s economy, it has succeeded in building good relationships with its local and international partners, especially the USA, Russia, Japan the EU and South Korea. Even the economic ties between Vietnam and China have been further tightened, and there seems to be a common intention to solve territorial disputes peacefully.
Being located in the center of the ASEAN states, its proximity to major economic hubs such as Singapore, Hong Kong, Bangkok, Jakarta and the megacities of mainland China, as well as its long coast line which is exposed to one of the major trade and shipping routes in the world there should be a high interest globally for a stable Vietnam. The South-East Asian country seems to have built an awareness for its growing importance in the world.
Solving international problems – no matter whether they are in politics, business or in every person’s private life – requires the skill to understand the perspectives of other people from different cultures. The necessity to build and increase intercultural skills and cultural intelligence, is possibly higher in Vietnam than anywhere else.
This post was first published at mekongretreat.com
Doing business in Vietnam webinars by Manuel Wendle and Grant Hall
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Doing business in Vietnam webinars by Manuel Wendle and Grant Hall
Vietnam Rising Dragon by Bill Hayton
photo credit: HKmPUA Good morning Vietnam via photopin (license)