American involvement in Vietnam, part II: prospects for U.S. business in a new era

Business Horizons, March-April, 1995 by Clifford J. Shultz, II, William J. Ardrey, IV, Anthony Pecotich

With the stroke of President Clinton's pen last February, the Vietnamese trade embargo ended and U.S. business horizons expanded considerably. Many American firms, having already evaluated the risks and rewards of the Vietnamese market, have moved swiftly to penetrate it; others are only now evaluating the country and are moving more cautiously.

Over the course of the last two decades of the embargo, U.S. corporations were forced to watch and wait as businesses and governments from Australia, Japan, Singapore, Taiwan, Hong Kong, Indonesia, Malaysia, and the former Soviet Union--to name just a few of the major players-- invested billions of U.S. dollars in one of the few world economies presently experiencing real GNP growth greater than 5 percent. Now U.S. firms have the unrestricted opportunity to compete in one of the world's most promising markets. But given the present mix of players and current business conditions, what are the prospects for U.S. business in Vietnam?

The purpose of this article is to address that question while providing more general insights into the considerations for market entry in authoritarian East Asian economies. The information we share here is based on data we have collected on site and via secondary sources during the last three years. Our methods included a combination of ethnographic techniques, personal interviews, and analyses of secondary data provided by the United Nations, ASEAN, institutions within the Vietnamese, American, and Australian governments, and various universities in the United States, Vietnam, and Australia. Vietnam's unique history, its pervasive grip on the American psyche, and its extraordinary--if somewhat perilous-- business opportunities make it a compelling study. Thus, this article is an assessment of the investment environment in Vietnam at the start of a new era in U.S. and Vietnamese relations.

WAITING FOR THE U.S. INVESTMENT FLOOD

There has long been the perception in Vietnam that once the trade embargo was lifted, money would magically pour into this country of more than 70 million people and wash away the many problems that have inhibited development. Part of this optimism is well justified; the market potential of Vietnam/s enormous and American firms are understandably eager to penetrate it. But even though the embargo may have deprived many U.S. companies of some potential profits, American trade sanctions and pressure within the international community combined to hurt Vietnam far more.

For years, the United States constricted the total flow of aid and investment into Vietnam, making it difficult for the country to rebuild after decades of war. More specifically, since 1965 the U.S. government has invoked the 1917 Trading with the Enemy Act to prohibit doing business with what was then North Vietnam. After the U.S. withdrawal in 1975, prohibitions against trading or investing in Vietnam continued and were extended to include restrictions on economic and financial assistance from the IMF, the ADB, the World Bank, and other multilateral agencies. This U.S. pressure kept most other countries from supplying needed investment as well. And until Vietnam's withdrawal from Cambodia in 1989, most industrialized nations supported the American-led embargo. Add to these conditions the Vietnamese government's disastrous economic policies and expensive military activities of the 1970s and early 1980s, and one can understand just how close Vietnam came to the brink of economic collapse and social upheaval.

The only real aid flowing into Vietnam in the 1980s--mostly in the form of technical assistance and capital goods, and provided in rubles--came from the Council for Mutual Economic Assistance, controlled by the former USSR. But even that aid fell off in 1991 and, with the disintegration of the USSR, stopped altogether in 1992. Other countries have begun economic assistance in recent years--more than $200 million in 1991 and $600 million in 1992--but aid at this level is not nearly adequate for the task of rebuilding a developing country that has been cut off from capital and technology for decades. Direct foreign investment has flowed at significant levels only since 1991. The Vietnamese hope that the accelerating rate of investment aid from multilateral agencies, and the return of U.S. companies--with cash in hand--will be the catalyst that enables the country to claw its way to the oft-cited objective of "Asian Tiger" status. Indeed, Vietnam has paid a high price for independence, and in many respects the world passed it by. Now, however, with the advent of peace and political stability, most Vietnamese wish to make up for lost time and are urgent to prosper and become part of the world community.

So Vietnam is faced with the formidable task of building an economy that can support a population expected to exceed 81 million by the year 2000. By approving a renewal of IMF lending to Vietnam in July 1993 and lifting the embargo on February 3, 1994, the U.S. government has given heart to businesspeople who have long been optimistic about the prospects for Vietnam's economy. Private American businesses have given an additional vote of confidence to the Vietnamese; IBM, GE, Caterpillar, BankAmerica, Philip Morris, Citibank, IBM, and a host of other U.S. companies were setting up offices even before the embargo was lifted, and many more continue to follow.