U.S. companies seek a foothold in Vietnam's uncertain market
VUNG TAU - To explain why he is so excited about the new
trade agreement with the United States, Pham Van Tuat clambered aboard
the Xin Thu, his new 27-meter wooden fishing trawler, and gestured into its
spacious holds. Lower American tariffs for Vietnamese seafood products in
the United States, he explained, will mean more demand for tuna and squid.
And that is where this $125,000 trawler comes in.
The Xin Thu, the largest of his nine boats, can travel around 650 kilometers
(400 miles) out to sea and bring back 200 tons of fish, Mr. Tuat said. To
demonstrate how, he bundled his visitors down into the engine room.
There, still bearing its maker's signature yellow paint, was something that
makes many U.S. executives here as excited as Mr. Tuat: a brand-new,
$32,000, 480-horsepower Caterpillar engine.
''We'll be exporting to America soon,'' Mr. Tuat said triumphantly. ''I'm
planning to build another boat like this one. But even bigger.''
To a large extent, Mr. Tuat's plans are the fruits of seven years of toil by
Anthony Salzman, an entrepreneur from New York. Mr. Salzman came to
Hanoi from Japan in 1993, hoping to capitalize on that country's investment
in Vietnam. He wound up opening a dealership for Caterpillar, which was
among the most vocal companies in urging the United States to lift the
embargo that had blocked trade with Vietnam for 19 years.
Mr. Salzman, 49, is just one of many American executives here who say a
trade pact will unleash a tide of exports - and lift his fortunes with it.
After five years of talks, the United States and Vietnam signed the
agreement July 13, and it is expected to be ratified by Congress - but
probably not this year. Since President Bill Clinton ended the embargo in
1994, the American commercial venture in Vietnam has resembled its
earlier military one, with optimism quickly bogged down in a quagmire of
red tape, corruption and Communist recalcitrance.
To skeptics, the new agreement is yet another capitulation: Tariffs on
Vietnamese goods would drop immediately, while Vietnamese tariffs and
quotas on American products would fall only gradually, in some cases
enduring as long as seven years.
But supporters here say the agreement represents a new, irrevocable
commitment by Vietnam to open the country to global markets and to play
by internationally accepted trade rules.
Moreover, as Vietnamese exports rise and foreign investment returns,
executives such as Mr. Salzman say, demand will also rise for American
products, whether toothpaste or trucks and bulldozers.
Mr. Salzman said he foresaw $1 billion in sales for his venture, V-Trac - for
Vietnam Tractor - in the next 10 years if Vietnam carries through on its
commitments. But he and other veterans of business here warn that change
should not be expected overnight.
With or without the trade accord, Vietnam is still a poor Communist
country with an absence of legal, social and physical infrastructure that sent
foreign investment inflows plummeting to about $1.5 billion a year in 1999
from roughly $3.3 billion in 1997
At the same time, Vietnam is no longer a hostile, war-ravaged country.
More than half the population is too young to have ever seen an American
soldier. And Vietnam's other former adversaries have moved back in:
France was the top investor in the country last year. The United States is
still only Vietnam's seventh-largest foreign investor and trading partner.
''It can be a challenging market, but I think the potential is definitely here,''
said Michael Frisby, counselor for commercial affairs at the American
Embassy in Hanoi and a Vietnam war veteran.
Vietnam is already rich in resources. It is the largest producer of black
pepper and robusta coffee, which is used for instant blends. And it is the
second-largest exporter of rice, after Thailand, and a key source of
seafood, cashews and bauxite. Its workers earn high marks from foreign
employers - and not just because of their low pay.
The country also has much potential as a consumer market. More than
one-third of its 78 million people live in poverty, but some of its roughly 18
million urbanites are sitting on what bankers and economists estimate are
billions of dollars in gold and other hidden savings, with perhaps $1 billion
to $2 billion more coming in from relatives overseas every year. Many
Vietnamese hoard their money to avoid income taxes and because they do
not trust banks.
Although American companies lack much market share here, their brands
are easily recognized. When Coca-Cola Co. returned in 1994, it found
people still familiar with its logo.
While many Vietnamese knew Caterpillar's name, Mr. Salzman needed to
spread the word that Cat was back. In 1995, he advertised a contest
offering a $1,000 prize for the oldest working Caterpillar equipment in the
country. The winning entry was a 1939 generator serving on a tugboat. The
overwhelmed winner carried off his prize in two shopping bags filled with
Vietnamese currency.
Selling new equipment, however, was still difficult. The same year, V-Trac
lost a $7 million contract to supply bulldozers and other heavy equipment to
one of Vietnam's cement companies. Mr. Salzman blamed the
Jackson-Vanik Amendment, a Cold War provision aimed at Communist
countries not allowing free emigration. Jackson-Vanik prohibited trade
financing to such countries by the Export-Import Bank or by OPIC, the
agency started by Mr. Salzman's father. The Vietnamese cement contract
went instead to Komatsu of Japan.
In 1998, Mr. Clinton waived the Jackson-Vanik restrictions against
Vietnam, and last year V-Trac won $2.3 million in financing from OPIC,
the first deal the agency had made in Vietnam since the war.
But financing is still difficult to obtain from risk-averse U.S. government
agencies, Mr. Salzman said. The Ex-Im Bank, for one, started operations in
Vietnam in December, but has yet to finance a deal.
In fact, the trade accord may be a bigger boon to companies from other
countries as they invest in Vietnam. Textile companies from Taiwan, for
example, poured millions of dollars into Vietnam on the prospect of
exporting to the United States with reduced tariffs.
Now, a Taiwan trade official said, they are counting the minutes until the
agreement is ratified by Congress.
But what is good for Taiwan textile companies in Vietnam may also be
good for Caterpillar. Just north of Vung Tau, Hualon Corp. of Taiwan has a
factory that makes cloth and polyester yarn.
When the plant opened in 1997, there was no electricity, so Hualon paid
$15 million for three Caterpillar generators. Now it is planning to build a
second plant next door.
Power is now available from the local utility, but Hualon's Caterpillar
generators remain cheaper - and more reliable. Back in Vung Tau at the
Technical Raw Material Trading & Supplying Co., Phan Doan Hung
showed off a new, $400 million shoe factory left dormant for a day by a
power failure; its 2,200 employees had to stay at home.
To ensure that he has the power he needs to meet his contract deadlines,
Mr. Hung is buying a $61,000 Caterpillar generator. Frequent power
failures underscore Vietnam's limitations as a market and investment.
The U.S.-Vietnam trade agreement also leaves unresolved a litany of
structural problems, executives say. Vietnam is only beginning to experiment
with capital markets; it recently opened a stock market, but regulations still
hobble businesses' ability to raise money. Vietnam is trying to overhaul
these rules, but its bureaucracy is still Byzantine, its licensing rules unclear,
and its foreclosure and bankruptcy laws inadequate, and its courts answer
to the Communist Party.
By Wayne Arnold - New York Times - August 28, 2000.
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