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In what way does the political environment in Vietnam pose both the opportunity and a threat for American MNCs seeking to do business there?
Since 1980s, the communist leaders of Vietnam have started implementing market reforms directed to increased economy liberalization and developing more competitive export-oriented industries. These reforms facilitated foreign investments and improved the business climate. They allowed transforming Vietnam into the country with fastest-growing economy (USDS). Moreover, starting the global integration of Vietnam along with rapid economic transformation led to improvements in income and the quality of life and made Vietnam the lower-middle-income country.
Accordingly, the political environment, which is characterized by the aspiration of the Vietnamese government to attract U.S. investments on a larger scale, poses great opportunities for American MNCs. Vietnam authorities demonstrated an innovative approach to developing mechanisms of expanding investments and increasing their efficiency. Therefore, the current situation is favorable for the U.S. companies to hold strong positions by investing in Vietnams economy. As reasoned above, the United States became the largest investor in Vietnam.
However, the political system that is generally solid and stable suffers from the high level of corruption and lacks the ability to take effective actions (Ketels et al. 14). Such a political environment implicates maintaining a close control on economy, political expression and freedom of discussion, non-transparency of regulation and law-making process, the lack of consistency, uniformity and productivity in Government policies and decisions on commercial projects. It can limit the realization of the competitive advantages of American companies. Generally, a communist government is not going to protect the interests of multinational business; their primary concern is only about their own country. MNCs are assigned as a part of anchor firms to develop clusters around them (Ketels et al. 90). It can affect the development of their business and worsen their positions in the future due to appearance of unforeseen conflicting views. However, while the political system maintains government ownership in the largest and most important sectors such as telecommunications, energy, banking and aviation, the clustering process will nevertheless provide good opportunities for the U.S. companies.
Besides, the U.S. companies operating in Vietnam face a significant challenge the lack of protection of intellectual property. Primarily, it refers to high piracy rates of software that are evaluated to be 82 percent (USCS 3).
Given all these factors, the U.S. MNCs are interested in ensuring sustainable economic development and putting into practice the rule of law and good governance in Vietnam. Further deepening regulatory reforms, promoting wide public participation in law-making and decision-making processes, making Vietnam's judicial system independent and effective are the actions urgently required.
Why are U.S. multinationals so interested in going to Vietnam? How much potential does the country offer? How might Vietnam compare to China as a place to do business?
New Vietnamese markets are of great interest for U.S. multinationals because they get a chance to seize significant market opportunities based on a dynamic and quickly evolving commercial environment in Vietnam (USCS 4). Building favorable conditions for foreign business is supported by a strong economic growth that has been maintaining for the last two decades. The key driver of Vietnams success is a dramatic change in labor productivity (Ketels et al. 14).
Another important driver of creating a favorable business climate is demographic trends in Vietnam: 90 percent of large and young Vietnamese population that accounts for 89 million is below or within working age (Ketels et al. 33). The wider access to education and health care along with the improvements in income have improved the quality of life in Vietnam.
Over the next few years, the most promissory opportunities for U.S. companies are based on needs to continue to develop infrastructure in order to sustain rapid economic development (USCS 4). A major potential for commercial activity of U.S. MNCs is associated with expanding export-oriented industrial sectors. It includes the implementation of large infrastructure projects, sales of equipment, highway construction, Information and Communication technology (ICT), power generation, oil and gas exploration, management and technology in environmental projects, consulting and management services in aviation and education (USCS 4).
Despite the fact that the country is one of the fastest growing economy, Vietnam remains behind many other countries, particularly, China, on GDP growth and productivity (Ketels et al. 14, 15, 29). Therefore, while the structural change from agriculture to a manufacturing model has been effective in Vietnam, its potential is ultimately limited. Given this, Vietnam compared with China is less attractive to do business there.
Will there be any opportunities in Vietnam for high-tech American firms? Why or why not?
Vietnam is highly attractive for U.S. high tech firms such as Intel, Microsoft, Oracle and others that have been expanding their business to Vietnam for many years. A favorable commercial environment based on strong economic growth provides much potential for all kinds of products and services including those pertaining to a high tech sector.
Foreign investors in Vietnam that include American high tech corporations have good chances to establish cheap manufacturing plants to increase export to other countries in the area because IT labor cost in Vietnam is 40 percent less expensive than in India and China (Pham; Di Maggio). Moreover, MNCs take low-cost technology outsourcing opportunities in Vietnam. Digital content and software development in the country is the rapidly growing industry with the annual growth rate of 20-25 percent (Pham). Additionally, Vietnam has its own Silicon Valley in Ho Chi Minh City (HCMC).
Importantly, U.S. high tech manufacturers and software developers have gotten more confidence and trust in implementing good business practices due to some improvements in a legal system in Vietnam.
However, in this area they face a challenge related to a weak level of Vietnamese ICT engineers in verbal English communication compared with other countries in the region, specifically, India. Therefore, it can form a gap with the demands of international business (Pham).