Vietnam the next China

1. Lawyer in Vietnam Oliver Massmann
VIETNAM THE NEXT CHINA ?
A 2010 study by the World Bank predicts that Vietnam will be the fastest growing export market
in the next coming years because of the manufacturing boom. In relation, Japanese economist,
Kaname Akamastu recently developed the ‘Flying Geese Paradigm’ which investigates the wave
and trends of developing Asian economies (Wan and Xing, 2006, p.419). He forecasted that
Vietnam has the potential to become the next China – harbouring a relatively cheap labour force
and specialised commodities. Thus said, Vietnam is one of the top exporters of rice and coffee
in the world. The country also specialises in exporting crude oil, seafood, tea, pepper, and
rubber (Australian Government Department of Foreign Affairs and Trade, 2010). Business
Advantage Vietnam explains that “the diversity in the economy, partly enabled by rich natural
resources, and backed by the development of a dynamic domestic market is a major reason why
investors are attracted to Vietnam” (2010, p.4).
In addition, Akamastu also deduced his theory on the basis that in light of the recent financial
crisis, Vietnam was among the few countries that were able to withstand the global economic
downfall of 2008-2009, and actually achieved a GDP growth rate of ‘just over 5 per cent’
(Business Advantage Vietnam, 2010, p.6). The statistics depicted in Figure 1.2 suggests that
Vietnam’s trading economy is well on its way to becoming a top competitor.
2.2.3 Vietnam Trade Imbalance
Though Vietnam’s export market is extremely attractive, the country’s trade imbalance is
steadily increasing. Currently, Vietnam is importing over one-fourth of what it is exporting with
a trade deficit of approximately US$14.5 Billion (Akbar, 2010). As per Graph 1.1, Vietnam has
merged into an import-oriented economy. Inevitably, the gap between the imports and exports
reduces the Vietnamese currency’s competitiveness. As a result of the inflation and wide-trade
deficit, the Dong (local currency) was devalued twice in the last two years; in November 2009
and February 2010 in attempt to revive the economy.
2.2.4 China plus One
Peter Leach (Journal of Commerce Magazine, 2009, p.22) explains that within the last two
decades, China has emerged as the low-cost production capital of the world. A large majority of
Western multinational corporations have offshored their businesses to the Asian Tiger because of
inexpensive labour and land use. However, with the increased foreign activity volume in China,
costs are beginning to rise and international firms are considering newer and cheaper markets.
Bradsher (2008) reports that “wages in China are rising close to 25 per cent a year in many
industries, in dollar terms, and China is no longer such a bargain”. As a result of increasing
production costs, analyses reveal that exports from China have declined and a vast amount of

2. multinational corporations are looking to Vietnam as another outsourcing outlet. Thus, Vietnam
is now emerging as the key location for firms to relocate their facilities or add additional
manufacturing centres. For example, Mackey (2009) explains that “Nike, the US clothing and
footwear giant last year exported more from Vietnam than it did from China and expects the
volume to continue to grow”. Instead of completely withdrawing from China “many
manufacturers with Chinese-based plants have located a second in Vietnam, under a ‘China plus
one’ policy” (Business Advantage Vietnam, 2010, p.28). “This policy means that a company
should invest not only in China but also one other place” (Chang, 2005). Hence, in order to
broaden their sourcing, mitigate risk, and not rely on a single market, corporations are opening
new manufacturing plants in Vietnam in addition to the current operations in China.
2.3 Overview of Vietnam Infrastructure
The following section details the core of Vietnam’s present-day infrastructure challenges.
Although Vietnam has displayed economic development capabilities, the country’s infrastructure
has lagged behind. According to a study by USAID, the Vietnam Competitiveness Initiative
(2010) predicts that the emerging market will require roughly US$200 billion for its dire
infrastructure needs i.e. roads, bridges, and ports. “Vietnam’s rapid growth has outpaced its
infrastructure, creating major bottlenecks in ports and a major constraint to continued export-led
growth and investment” (USAID, 2010). Additionally, Mackey (2009) states that “Vietnam’s
infrastructure deficiencies are best explained by the fact that ‘there is no consistency and
compatibility between ports and roads, power and logistics... [and] also little connection between
the ports and the surrounding land use”. In other words, the country’s supply chain is deemed as
“roads without bridges, bridges without roads” (Ibid.).
According to Frost & Sullivan (2007, p.3) “a large part of the country’s logistics network has not
been implemented in an integrated manner, resulting in a total logistic cost (between 15-20 per
cent of GDP) that is nearly double that of more developed nations”. Based on a trend analysis by
the Vietnam Business Forum, the United States stands at 9.5 per cent, Japan 11 per cent, and
China 21 per cent (Chi, 2010). When a nation as small as Vietnam spends more than countries
that have over ten times the infrastructure investments, one can identify that there is an evident
and critical problem. In undertaking this study, it is essential to identify the key infrastructure
challenges that companies must adapt to which in turn, restrict Vietnam from thriving
economically at this point in time.
2.3.1 Why is Infrastructure so important?
In this day and age, countries are becoming more and more reliant on each other on an import
and export platform. Inadequate transportation modes and communications infrastructure have
the power to alienate these nations by keeping them from global integration. Connectivity via

3. transportation modes is critical for economic development and international relations between
countries. “Transport links not only provide physical access to resources, but also enable
producers to take advantage of opportunities in domestic and foreign markets, leading to
economies of scale” (Frielink et al., 2009, p.2). Besides ‘opening up the doors’ to globalisation,
“at the grassroots level, local transport links- whether provided by road, rail, or water transport
are essential if local communities are to sell their produce in neighbouring markets and purchase
a range of manufactured goods with their proceeds” (Ibid.).
With the aim to sustain Vietnam’s economy, it is important to identify the key challenges that
keep the country from achieving a competitive multi-modal trading environment.
“Presently, there are still many shortcomings and deferrals in developing basic infrastructure,
especially inter-provincial roads, bridges, including approaching roads, strategically located ports
and inland infrastructure works, including inner-city traffics. ‘As long as Vietnam has not
improved the infrastructure, it will lag behind,’ says Jocelyn Tran, President of the American
Chamber of Commerce in Vietnam” (Chi, 2010).
2.3.2 Affected Industries
Poor infrastructure for Vietnam can inevitably affect all participants conducting business through
the country because of shipment delays. “Big names like Toyota, Honda, Mercedes-Benz, Intel,
PepsiCo, Coca-Cola, P&G, Metro Cash & Carry, and Unilever, are all present in Vietnam”
(Hung, 2010). On the supplier side, there are numerous (3PL) third-party and (4PL) fourth-party
logistics providers located in Vietnam, especially steamship lines i.e. CMA-CGM, APL, Maersk,
etc. These multinational corporations are responsible for a large contribution to the nation’s
budget, especially by creating jobs. If they in turn decide to take their business elsewhere
because Vietnam is no longer cost-advantageous, the economy will suffer tremendously.
2.3.3 Why solely focus on port?
The air and rail transportation network accounts for a low share of the overall transportation
market in Vietnam (Frost & Sullivan, 2007, p.5). Analysts at the Embassy of Vietnam in Chile
Trade Office (2010) predict that more than 85 per cent of Vietnam’s import and export
commodities are shipped by sea. Thus said, maritime transportation is the most important
method for conducting international trade in Vietnam, as will be discussed in the study. “Since
the bulk of Southeast Asia’s international trade is carried by sea, access to high quality
international shipping services is of paramount importance” (Frielink et al., 2009, p.3). Because
of Vietnam’s geographical landscape, its access to water channels via ports is essential to exploit
its competitive advantages.
Vietnam’s ports are a dire gateway for its import and export market. As published in the Global
Competitiveness Report of 2010 to 2011 (Figure 1.7 in Appendix I) Vietnam’s overall port

4. quality ranks extremely low on the charts. In comparison to its neighbouring countries,
Vietnam’s underdeveloped maritime connectivity (ports) has become a true obstacle for those
who wish to expand their business into the region. Mackey (2009) explains that “Vietnamese
trade is out-pacing its out-dated and over-worked ports infrastructure”. As a result, port capacity
has failed to keep up with economic growth and Vietnam’s ability to become an export-oriented
trading hub.
2.4 Background to Vietnamese ports infrastructure
This section examines the utmost hindrances in regards to Vietnam’s economic development and
future stance in the global arena i.e. its deficiencies in seaport infrastructure. “The port system is
one of the most important areas for foreign investors in Vietnam. With 3,200 kilometres of
coastline, Vietnam has 266 ports, about 144 of which are seaports. However, most ports are
relatively small with obsolete facilities and poor support services” (Vietnam Business News,
2010a). Analyses reveal that investing in port infrastructure is a top priority for Vietnam because
it directly relates to the emerging market’s economic development and allows for more business
to be conducted via Vietnam. Vietnam’s investment climate directly correlates with Mizutani et
al’s (2005, p.893) model for port investment benefits in Japan. “Port investment reduces the
transportation costs of suppliers in international container transportation market by expanding
the capacity of seaports and port facilities” (Ibid.). Furthermore, it is argued that when
transportation costs through Vietnam account for less of the final freight rate, customers will be
more likely to conduct business in the region.
At present time, Vietnam’s largest ports are Saigon Port in the South, Hai Phong Port in the
North, and Da Nang Port (Centrally located). In comparison to its closest competitors, Thailand
and Malaysia, Vietnam’s main container ports seem miniscule in terms of storage capacity and
depth. As per Graph 1.1 illustrated below, even though the berth lengths are fairly comparable in
size, Vietnamese ports lack adequate storage capacity and cannot harbour larger vessels.
2.4.1 Dredged Channels
“As a nation with two very large inland river systems, Vietnam has long relied on river ports for
much of her trade” (Johnson, 2007). However, the water depth cannot accommodate large
vessels which results in carriers taking their business elsewhere. Historically speaking, water
depth dredging is kept to a minimum in Vietnam, therefore, larger and deeper ships cannot
access the ports because the harbours are considered too shallow. Since Vietnamese ports lack
the capacity to accommodate larger vessels, i.e. Post-Panamax ships have to transit through
Singapore and Hong Kong. Thus, more focus on dredging and upgrading ports in Vietnam will
be extremely cost and time-efficient for companies in the region. “The real potential for
Vietnam to benefit from any regional economic activity lies on the water, and in the ports, which

5. are currently too small and too shallow to effectively realise their economic potential” (Jensen,
2009, p.1).
According to the Vietnam Logistics Review, only 1.15 per cent of ports in Vietnam can
accommodate vessels with over 50,000 DWT (dead weight tonnage) when about 46.53 per cent
of ports cannot even berth ships with 10,000 DWT. Nowadays, most shipping companies are
building vessels referred to as Post-Panamax because they can carry more containers and save
exporters heaps in fuel costs. Mongeluzzo (2010, p.22) from the Journal of Commerce explains
that these ships are considered top notch because they have the capacity to hold an astounding
8,000 (TEUs) twenty-foot equivalent container units. In turn, this can save companies millions
of dollars annually because of less frequent trips and more inventories delivered to storage
warehouses or actual sales facilities. Thus, the lag time when containers would normally sit at
the shipyard waiting for the next vessel to dock – assuming sufficient storage facilities exist, is
diminished.
2.4.2 Equipment
Much of Vietnam’s current technology and IT processes are extremely out-dated and require an
extensive amount of manual labour. “The handling equipment is relatively backward with low
capacity so that the ports cannot meet the demand of the regional marine market” (Mackey,
2009).
“Though the stevedoring of containers has been highly mechanised with modern specialised
equipment to ensure handling productivity, the loading and discharging of general and bulk
cargos by means of multipurpose devices greatly restrain handling productivity compared to
specialist equipment. Vietnam is lacking in efficient equipment; gantry cranes or pumping
systems for oil feeders, conveyor belts for coal ports, etc. Shortages of equipment and supplies
in the port combined with backward technologies inappropriate to freight varieties have so far
hindered port capacities” states the Embassy of Vietnam Trade Office in Chile (2010).
In addition, there is a widespread shortage of container berths in the ports which are responsible
for long delays. “Low productivity can be attributed to the absence of specialised handling
equipment such as ship-to-shore gantry cranes at some ports, poor yard planning and traffic
flow. Handling productivity at the quay side is very important since it directly relates to the
vessel’s turnaround times at the ports, which can be translated into the economic benefits of the
ship operators” (Wang, 2006).
2.4.3 The Hinterland
When discussing the port system of Vietnam, it is important to refer to the actual inland links to
the facilities. Wang (2006) defines port hinterland as “the area behind the port in which total
logistics cost for shipments coming and going that serves as a basis of comparison between

6. ports”. The hinterland includes roads, railways, air, or inland waterway systems for short sea
shipping. Thus said, adequate logistics and transport networks facilitate the transportation of
goods from point A to point B.
An increasing number of ports in Vietnam are essentially waiting for roads to be improved to
connect to the terminals. “Of Vietnam’s 222,179 km of roads, only 19 per cent are paved’ (Frost
& Sullivan, 2007, p.2). As per Figure 1.6 in Appendix I, the Global Competitiveness Report
ranks the quality of Vietnamese roads as extremely undeveloped. “In Vietnam, the total logistics
cost of the shipment is affected by the following factors: road conditions and any hindrances
such as toll stations and traffic congestion status that will affect the shipment transit time and
cost” (Wang, 2006). Since the links to ports, i.e. roads are underdeveloped in many provinces;
the most cost-efficient way of sending shipments is through barges via the inland waterways.
Leach (2010) explains that “roads are so poor that a lot of the cargo is transported by barge from
factories around Ho Chi Minh City 50 miles down the river to terminals”. Granted this method is
a lot smoother than utilising roads, it is extremely more time-consuming. Analyses argue that
although short sea shipping for Vietnam may be cheaper on the surface, it can actually be more
expensive because for many organisations, time is money and customers expect to receive their
shipments on time. Without an efficient road system, goods are more likely to arrive at their
destination later than planned.
Apart from road maintenance, the biggest constraint in regards to road infrastructure for Vietnam
is the traffic congestion. Most roads in Vietnam are a maximum of two lanes on each side
which cannot accommodate large amounts of traffic, especially during rush hour times. Due to
the proximity of the nation’s second largest city besides the capital, Hanoi, the roads leading to
the terminals at Ho Chi Minh City are unceasingly heavily congested. As a result, there is poor
road connectivity in getting containers to the ports and onto the vessels ready for shipment and
the vice versa inland import of goods.
Presently, the heavily occupied seaports are located within a short distance to Ho Chi Minh’s city
centre; Saigon Port and Saigon New Port. Runckel (2006) explains that although Saigon Port is
over 130 years old, it has had the highest productivity per annum of the country for years.
Located in what is now the outskirts of the busiest city in the country, the port inescapably runs
into many shortcomings. Approximately 70 per cent of Vietnam’s container throughput crosses
through (Saigon) Ho Chi Minh City (Frost & Sullivan, 2007, p.2). HCMC is Vietnam’s largest
city by land mass, as well as the most industrious area for export and import turnover. In Ho Chi
Minh City, large container trucks are not allowed through the city during daylight hours from
8am to 9pm. This means that truck drivers wait all day on the outskirts of the city until proper
time to cross. Although this is the case, smaller trucks are allowed to cross but inevitably cost
more because they cannot transport a large amount of goods in a single trip. Therefore, if there
is a deadline to be reached, a logistics provider will require more trucks at a higher fee.
2.4.4 Capacity

7. As previously discussed, the container throughput via the Ho Chi Minh City area is already
highly concentrated. “The American Chamber of Commerce in Vietnam projects volume to
swell from Ho Chi Minh City’s ports to more than 10 million by 2012, while capacity will trail
about 10 per cent behind” (Johnson, 2007). Since the terminals, shipyards, and warehouses have
already reached overcapacity and are unable to accommodate demand, it is inevitable that the
gap will continue to grow if no alternatives are developed and implemented.
Because Vietnamese ports are extremely limited in size, the transportation of goods to major
global markets, i.e. USA or Europe have had to be transhipped to larger ports in Asia; Hong
Kong and Singapore. Informed Trade International (2007) defines transhipment of goods as the
“the act of shipping goods to an intermediate destination prior to reaching their ultimate end-
use”. At present time, “most goods exported out of Vietnam to major global markets are
transhipped elsewhere in Southeast Asia onto larger vessels, adding costs to goods that Vietnam
is able to produce more cheaply than China” (Jensen, 2009, p.2). Consequently, this increases
the overall product costs and according to Runckel (2006) “can help to decrease Vietnam’s
definite advantage vis-à-vis China and Thailand in the lower labour costs that Vietnam takes
pride on”.
Currently, numerous multinational shipping liners purposely avoid Vietnamese ports because
they provide long turnaround times in loading and unloading containers off and onto a vessel,
delaying deliveries. When considering the delay in having to tranship goods via a transhipment
hub, foreign companies are beginning to reassess whether it is actually more cost-effective to
manufacture out of Vietnam. Even though, the actual labour costs are lower as discussed in
Section 2.2.4, foreign investors are now reconsidering the ending cost of having to actually
transport a product from Vietnam. Effectively, “bigger ports would allow Vietnam to enter the
transhipment market with competitive prices that could entice shippers away from more
expensive transhipment points such as those in Singapore and Hong Kong” (Jensen, 2009, p.2).
However at this time, Vietnam lacks the capacity to foster transhipment hubs for more efficient
shipping networks.
Another important issue regarding Vietnamese port capacity is the current inability to store
various cold-chain products. Agricultural and marine goods are essential to the country’s trading
platform because the exports contribute to roughly 30 per cent of the country’s GDP (Frost &
Sullivan, 2007, p.3). Perishable goods pending export require specialised storage systems to
prevent from rotting. Without the technology, a large amount of cultivated products and seafood
are disposed of and wasted each year. According to Massmann (Appendix II, 2010), the
emerging nation is the number 3 exporter of rice in the world. On a yearly scale, the export
market loses an average of 40 per cent of the harvested rice due to inadequate storage systems.
If the country cannot increase its efficiency in infrastructure storage, it will continue to lose a
colossal amount of its export profits, explains Massmann (Ibid.).
2.4.5 Lack of Skilled Labour

8. As reported by the CIA World Factbook (2010), as of July 2010, Vietnam’s population was
approximately 89,571,130. In the past decade, Vietnam’s demographics have grown by over 10
per cent while 60 per cent of people are under the age of 35 (Business Advantage Vietnam, 2010,
p.9). In accordance with these facts, the Vietnamese labour force is becoming more and more
appealing. This is best illustrated by the fact even Chinese firms are now outsourcing to
Vietnam. Leach (2010) states that “China’s decade-long role as the world’s factory floor is
being challenged by rising labour costs and budding Chinese consumerism, pushing
manufacturers to look for alternative models built on China’s low cost”.
On the surface, investing in the Vietnamese workforce appears to be extremely cost-efficient
because the labour rates are less expensive than several other Asian markets. However, the
actual quality of the workforce is scarce. It is stated that “as the cargo volume grows rapidly in
Vietnam, together with development of new technology and know-how in port operations and
management, terminal staff members need relevant skills and knowledge to do their work”
(Wang, 2006). As a result, the lack of international standards expertise contributes to poor port
management. In addition, inefficient standardised processes inevitably result in low value-added
services for logistic providers.
Furthermore, Vietnam has an extremely high literacy rate of 90 per cent and fundamental
education standards in comparison to other developing countries. However, the nation’s higher
tertiary education standards are not up to par. There is diminutive emphasis on technical
advancements and skill developments; those deemed necessary for port and terminal employees.
“Despite occupying a negligible percentage of Vietnam’s labour force of around 46.6 million,
foreign-invested enterprises (FIE) demand for local workers, principally those who are classified
as skilled, grows between 20-30 per cent per year” (Mai, 2008).
2.4.6 Work Practices
Another significant factor to port efficiency is the actual operation and implemented structure of
the facilities. At present time, a large majority of ports work on a one-shift basis. Ports like Tan
Cang, Ben Nghem and Tan Thuan are only allowed to operate at night, thus seriously decreasing
productivity capabilities. “The manner in which labour is used effectively institutionalises
under-utilisation of port facilities and limits the potential for efficiency movements” (USAID/
Senada, 2008, p.6). These factors contribute to low berth occupancy rates and delays, minimal
container handling rates, and poor vessel turnaround times.
“In Vietnam: it takes up to three days for a small container ship- only 1000 TEUs- to unload and
take on new cargo. By comparison, the world’s most modern ports can ‘turn around’ a 10,000
TEU ship in the same time. Every day a ship is in port in Vietnam costs it US$2000-3000, so
time really is money” states Tran Duc Minh, Chairman of the Vietnam’s Shipper’s Council
(Hanoi Times, 2010).

9. 2.5 Government Role
The section provides an overview of the Vietnamese government and its business expectations.
The political system of Vietnam is intricate by means of the Communist Party of Vietnam one
party ruling. “Because there are 643 districts, and 10,602 communes, each with their own
Assembly (or People's Councils at sub-national level) and executive (People's Committees at
sub-national level) the decision making process can be inefficient and unnecessarily time
consuming. For example, up to 14 official approvals are required before any investment project
can be signed off on, with decisions sought at multiple levels of Government” (World Bank,
2006, p. 52). Thus said, horizontal coordination problems between different ministries are very
common for Vietnamese public administration. Trinh (2007, p.17) utters that “there is a plethora
of laws and regulations from different ministries and government offices which often do not fit
together”. In addition, interpretations can fluctuate from case to case and judicial laws are made
inapplicable. World- renowned law firm, Freshfields Buckhaus Deringer explains that in regards
to Vietnamese legalities, “the problem is that in the absence of detailed regulations, such projects
get bogged down in a myriad of details, on all of which the bureaucracy has to obtain time-
consuming instructions before proceeding” (2007, p.2).
2.5.1 Doing Business in Vietnam
Investing in an emerging economy like Vietnam is exceptionally complex due to lack of
transparency in the political system and its bylaws. Business Advantage Vietnam reports that
“the country has been transforming itself to ensure that both foreign and domestic companies are
treated equally under one set of laws” (2010, p.4). Thus said, the Vietnamese Government is
committed to developing into a more business-friendly investment platform. Madame Nguyen
Thanh Phuong, Chairperson of Viet Capital states “we believe the best investors, foreign or
domestic, can mitigate transparency risk by getting to know the business and management teams
of companies they invest in really well” (Business Advantage Vietnam, 2010, p.10). In addition,
Vietnam’s 2007 accession into the World Trade Organisation showcases the country’s efforts to
further open the economy. Business Advantage Vietnam also explains that that the country
promotes and supports outside investments.
“The Vietnamese Government provides investment guarantees including the commitment that
investor’s assets will not be nationalised or confiscated, that intellectual property rights will be
protected; that capital and assets can be remitted abroad and that investors will be protected in
the event of changes in law or policies” (2010, p.11).
Although Vietnam is working to lighten its protectionism tendencies, there are still many
challenges and barriers to doing business in the Southeast Asian nation. “The 2010 World Bank
‘Doing Business Survey’ lists Vietnam 93P
rd
P out of 183 world economies for ease of doing
business” (Business Advantage Vietnam, 2010, p.7). Moreover, Figure 1.3 exemplifies the most

10. common barriers a foreign investor may encounter in attempt to conduct business in Vietnam.
As per the forthcoming sections, only the most Vietnamese-applicable topics from Figure 1.3 are
discussed in the research study i.e. corruption, lack of adequate infrastructure, inadequately
educated workforce, and inefficient government system, for example.
“The danger is that Vietnam may end up like other South-East Asian countries, stuck firmly in
the middle-income trap it is trying so hard to avoid, and suffering from predatory elites, weak
institutions, crony capitalism and a pseudo-democracy”.
Regulation is perceived as burdensome with the number of procedures making this a daunting
process (World Economic Forum, 2010, p.64). Figure 1.4 highlights a PricewaterhouseCoopers
survey on Capital Projects and Infrastructure. “Preliminary responses were collated from
approximately 50 respondents working in the infrastructure industry for the purposes of this
Interim Report (PricewaterhouseCoopers, 2010, p.1). Vietnam’s lack of consistency and
transparent policies in comparison to other Asian economies is evident; Vietnam places
exceptionally low on the scale with a score of -26.7.
Figure 1.4 - Regulatory and Legal Frameworks of Asian Economies
2.5.2 Corruption
Common occurrences of corruption play a major role in whether foreign parties will conduct
business in a country. At present time, Vietnam places 107 out of 139 countries on the Irregular
Payment and Bribes Survey as reported by the World Economic Forum (2010).
“This indicator represents the average score across the five components of the following
Executive Opinion Survey question: In your country, how common is it for firms to make
undocumented extra payments or bribes connected with (a) imports and exports; (b) public
utilities; (c) annual tax payments; (d) awarding of public contracts and licenses; (e) obtaining
favourable judicial decisions” (World Economic Forum, 2010).
Additionally, on the International Perceptions Corruption Index for Transparency, Vietnam
ranked 116 with a score of 2.7. The 2010 Corruption Perceptions Index measures the perceived
levels of public sector corruption in 178 countries around the world (Transparency International,
2010). According to the scale, a score of 10 indicates that the selected country’s corruption
levels are extremely clean while closer to 0 means that they are highly corrupt.
Although Vietnam claims to be working to improve its corruption problem, the recent outrages
in foreign-funded infrastructure projects do not help the country’s sales pitch. According to
Mackey (2009), “when the so-called PMU-18 scandal broke in 2006, it exposed a deep-seated
culture of corruption in the Project Management Unit of the Ministry of Transport of Vietnam.
Top government officials were caught embezzling US$1.8 million in funds provided by private
institutions, including the World Bank and the European Union for infrastructure development to
bet on football matches”. Another key issue besides money laundering is the actual dispersal of

11. funds by the Vietnamese Government. Richard Burrage, Managing Director of market research
company Cimigo “explains that ‘foreign investment is surging, reaching US$71.7 billion in
2008, however, disbursement inefficiencies and infrastructure limitations meant only US$15.5
billion was actually disbursed” (Business Advantage Vietnam, 2010, p.7). This issue emphasises
Vietnam’s lack of standardised administration and raises inevitable speculations of on-going
government corruption. Hence, private institutions are less enticed to invest in Vietnam if their
projects are not receiving approved funds.
2.6 Funding Port Infrastructure
The final issue to be discussed in the Literature Review will be how to actually finance all of the
essential developments in order for Vietnam to become a top global competitor. “The Vietnam
Business Forum’s infrastructure working group estimated that the lack of suitable port
infrastructure was costing Vietnam approximately US$1.7 billion in logistical costs per year”
(Vietnam Business News, 2010a). With aims of further developing the emerging economy,
significant investments in physical port, road, and rail networks is a top priority to facilitate the
movement of goods. To realise these equitable developments, Vietnam requires substantial
financial support from Government subsidising, foreign direct investments, and institutional,
public, and private sector funding. Hand (2009) reports that “Vinamarine Portcoast Consultant
Deputy Director General Nguyen Manh Ung claims that the country needs US $20bn-$25bn in
port investment by 2020 to meet the Government’s master plan for the country’s seaports”. This
area is critical because emerging markets such as Vietnam are competing with their foreign
counterparts to attract international investors. These are current circumstances because they
know that investments will have a positive effect on their domestic economy which is
fundamental for once third-world and developing countries. Although this is the case,
McDonald (2010) strongly believes that “the Government has every intention to improve the
current infrastructure problems and bring Vietnamese port facilities and supporting infrastructure
up to world class standards”. In concurrence, during late 2009, the Vietnamese Prime Minister
ratified the Port System Development Plan dated to 2020, and extended the seaport plan to 2030.
The strategy promotes investment in the country’s port networks based on priority and lists all of
the pending, current, and planned projects for Vietnamese port infrastructure.
2.6.1 Background to funding
In pastimes, Vietnam heavily relied on Official Development Assistance (ODA) to fund its
infrastructure needs. A large majority of the financial support came from Japan, as well as
private institutions such as the World Bank or the Asian Development Bank. “A report by the
World Bank shows that over the past 10 years, ODA coupled with the state budget and
government bonds (including state-owned banks) have provided the majority of the funding for

12. infrastructure development, with 63 per cent of the total” (Johnson, 2007). Because the country
is emerging out of the ‘developing economy’ stigma as discussed in Section 2.2.1, it will soon
need to rely on other sources of infrastructure funding outside of ODA because it will no longer
qualify for an ample amount. Vietnam will need to reach out to alternative financial institutions
that are capable of funding long-term investment projects. As a result, there is intense pressure
on the Government budget to develop alternative modes of funding. “The Government has said
it plans to limit its own contribution to its ports development to between 12 and 15 per cent of
the total investment budget” (Mackey, 2009). The state funding has been portrayed as a pie
analogy; divided into tiny pieces, which inevitably results in scattered and undersized ports
because everyone is trying to “grab a piece for themselves” (Runckel, 2006). Generally, the
Government allocates state funds based on the following factors as first priorities; the market
potential, labour factors, overall benefits to the Vietnamese economy, and obvious infrastructure
constraints that impede domestic business processes.
2.6.2 Alternative modes of funding
Because Vietnam lacks sufficient financing resources, Foreign Direct Investments (FDI) and the
private sector will need to be considered to help fill the financing gap, as illustrated in Figure
1.5. “The demand of capital for the port system is far beyond state budget. We are thinking
private-public partnerships” according to Trinh Duc Trong of the Ministry of Planning and
Investment’s Infrastructure Management and Urban Development Department” (Port World
News, 2010). To ease the funding gap, Vietnam is working towards developing a (PPP) public-
private partnership framework that would be implemented for a large majority of infrastructure
projects from now on. The push for private sector participation allows for government
collaboration and control, while providing social benefits to all parties involved.
The formal framework for the PPP adapted to Vietnam’s needs and wants will be developed after
a pilot or trial project is implemented. At this point, many countries around the world including
members of ASEAN have successfully implemented the model. Thus, Vietnam hopes to piggy-
back off of their administrative framework, as seen in Figure 1.8 in Appendix I. “Experts say
that a good collaboration between the Government and enterprises would benefit both sides, as
the State-developed public works could take full advantage of capital, skilled labour forces, and
the management of companies, which in turn would produce profits to support the State”
(Vietnam Business News, 2010b).
2.6.3 Attracting Foreign Investment
According to analyses, Vietnam cannot singlehandedly fund its own infrastructure needs. The
underlying matter stands at how to attract outside funding for port development to keep up with
the amassed demand. As reported by the Ministry of Planning and Investment (2010), Vietnam’s

13. influx of foreign investment has tremendously increased over recent years. The Foreign
Investment Agency identifies the country’s comparative advantages as follows: political
stability, open foreign policy of the Government of Vietnam, being tightly and flexibly
connected with the mass market of 500 million people of the ASEAN, China, Japan, and South
Korea, and the rapid development of the economy in the process of innovation at high and stable
pace” (Ministry of Planning and Investment, 2010). In receiving FDI, Vietnam’s success has
been impressive on a competitive platform especially in overtaking countries like the Philippines
and Indonesia. Although the Government claims that foreign ownership can never exceed 49 per
cent, “Vietnam still offers foreign investors a corporate tax rate of zero for the first four years,
and half the usual rate of 10 per cent for the next four years” (Bradsher, 2008).
On the corporate governance side, the World Economic Forum (2010) indicates that the private
sector is not seen as being sufficiently accountable (124P
th
P – out of 139 ), partly because of the
weakness of investor protection in the country (133P
rd
P - third to last)”. As highlighted in the
Vietnam Business Forum, the top five reasons why private sector infrastructure funding is
growing at a very limited pace, in comparison to other emerging Asian markets include
regulatory inadequacy, financial limitations, risk profiles, administrative burdens, and
affordability gaps”(Vietnam Business News, 2010a):
“According to Government statistics, foreign direct investment in the country declined by 78 per
cent in 2009 from 2008, and recent surveys from PricewaterhouseCoopers and The Japan Bank
for International Cooperation (JBIC) say that the biggest impediment for foreign investors
coming into the country is poor infrastructure” (Project Finance, 2010). The burden of
Government regulation is extremely high in Vietnam; 120 out of 139. This coincides with the
high liabilities in obtaining permits and fulfilling all administrative requirements up to par with
Government standards.
2.6.4 Review
In summary, Vietnam’s port infrastructure is undeveloped because the nation lacks adequate
funding. The country has reached a crossroad where its infrastructure has a direct impact on
economic success. Based on Chapter Two, providing incentives attracts outside financiers and
thus can help alleviate the state’s financial pressures. The forthcoming Research Methodology
discusses the research processes utilised in deciphering ways to mend Vietnam’s funding gaps.
Please do not hesitate to contact Oliver Massmann under Uomassmann@duanemorris.comU if you
have any questions on the above. Oliver Massmann is the General Director of Duane Morris
Vietnam LLC.
INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: Uwww.vietnamlaws.xyzU

14. THANK YOU VERY MUCH!