Venturing into Vietnam

Asia's second-fastest growing economy offers rich pickings in sectors like real estate, logistics, retail and health care, Ng Sook Zhen reports


VIETNAM, once an economic backwater closed to outsiders, is now an exciting new frontier for many Singapore firms.

The best business openings lie in building infrastructure - such as housing and ports - real estate, logistics, health care and retail, among others, says the Government's trade promotion arm, IE Singapore.

Vietnam's robust economic growth averages 7 per cent a year, placing it second only to China in Asia, and the country recently gained entry to the World Trade Organisation (WTO).

That makes Vietnam particularly enticing to foreign investors, and an increasing number of them want a slice of this growing economic pie.

Real estate firm Mapletree Investments' executive vice-president of logistics investments, Mr Chua Tiow Chye, says growing wealth and foreign investment will have major economic spin-offs.

He says this will flow through to demand 'for better housing, better quality shopping malls, better offices and so on, which bodes well for the real estate market'.

IE Singapore's director for China strategic relations and regional director for South-east Asia, Mr Yew Sung Pei, says: 'A whopping 80 per cent of Vietnam's population will need to buy a house. Already, the city has allocated almost 13,000ha of land to investors from 2000 to July 2005 and more is expected.'

Growing domestic affluence has led to an increasing demand for quality homes by locals, and this is where Singapore firms can come into the picture.

With 40 years of experience in constructing high-rise buildings, Singapore firms are held in high esteem in Vietnam.

Mr Paul Chain, the chairman of project management firm Asia Project Consultants, says: 'The construction industry is not so well-developed. That's why in Vietnam, it is a trend now to get foreign consultants to do part of the work, or even the whole work.'

While the real estate and construction industries are set to remain buoyant in the medium term, other sectors have too much potential to be ignored. Logistics, for instance, was a fast-emerging sector last year.

With all these possibilities emerging, bilateral trade between Singapore and Vietnam rose 8.6 per cent to reach $11.28 billion last year.

And with its recent accession to the WTO, Vietnam's overseas trade is expected to increase even more, which will create an urgent need to upgrade its ports and other logistics infrastructure.

Mr Yew says the development of Vietnam's logistics infrastructure will lead to opportunities in global freight forwarding, container depot, supply chain management, seaport and airport projects.

'Singapore firms are well-poised to participate in this sector,' he says.

Synergy Logistics, for instance, sees huge potential in the market. It is currently involved in freight forwarding for the oil and gas industry in Vietnam.

Another key part of Vietnam's booming economy is consumer spending.

Management consultancy AT Kearney's 2005 Global Retail Development Index, an annual ranking of retail investment attractiveness in 30 emerging markets, put Vietnam eighth in terms of global retail expansion.

Singapore's Apex-Pal International, which runs the Sakae Sushi chain of restaurants, believes pent-up consumer demand and a youthful population are key reasons to venture into Vietnam. Apex-Pal is planning its expansion there, and will set up its first Sakae Sushi branch at the end of this year.

'Around this region, Vietnam has the youngest population. With recent developments, we see an increase in lifestyle needs,' says Apex-Pal chief executive Douglas Foo.

Mr Yew says: 'Urban consumerism is increasingly evident in Vietnam, with growing retail sales and increasing demand for new lifestyle concepts and products.'

Another growing sector identified by IE Singapore is health care.

Vietnam's Ministry of Health plans to develop a national hospital network by 2010, with investments estimated to total US$255 million (S$386 million) for the construction of 140 hospitals.

'Singapore health care commands a strong brand name,' says Mr Yew, adding that firms such as Thomson Medical Centre and SingHealth would benefit from riding on this established reputation to fill 'strong market demand for health-care investments'.

Despite the promise offered by these various industries, experienced Vietnam hands point out that business ventures in the country have their own share of challenges for newcomers.

A partnership with a local entity is still required in some sectors, even as market liberalisation gains pace. For example, Vietnam does not allow logistics firms to operate in the country if they are more than 49 per cent foreign owned.

This may spell a conflict of cultures, as 'it is sometimes difficult to get them to assimilate into our company culture', says Mr Joseph Ooi, the managing director of Synergy Logistics.

'The pace is very different, and we've got to practise a lot of patience,' he adds.

Other firms noted the high levels of attrition among local staff which, in turn, can cause disruptions to operations.

A spokesman for restaurant chain Crystal Jade, which operates outlets in Vietnam, says: 'It's hard to retain staff. If they are offered slightly higher pay, they will leave.'