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Crain's New York Business
Reformed Vietnam a big draw
Published: April 22, 2007 - 6:59 am
Samantha Marshall , Crains New York Business

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Hanoi — As the guest of honor at a boozy dinner in the Vietnamese seaside town of Qui Nhon, New York furniture maker Richard Becker was given the prize morsel: a still-beating heart of a king cobra, plunked into a glass of rice wine. Not one to insult his host — the owner of a wood factory with whom he was hoping to place an order — he suppressed a gag and gulped down the delicacy.

Porcupine, bear and turtle were on the menu at similar gatherings. But if indigestion is a cost of doing business in Vietnam, Mr. Becker says it's well worth it.

"I'm in at the perfect time," says Mr. Becker, president of midtown Manhattan's Living Richly. "If we tie up all the factories now, we have a shot at making money for the next five to 10 years."

Mr. Becker is not the only one who thinks this is Vietnam's moment. Businesses are flocking to the country, drawn by its cheap, skilled labor force and a developing economy that's grown more than 7% a year since 2000. While it still has a Communist government, Vietnam started opening its economy in the late 1980s. A bilateral trade agreement with the United States took effect in 2001.

In January, Vietnam's entry into the World Trade Organization brought a slew of market reforms that make it easier for foreign entrants. A booming new securities market is another draw. For investors seeking an alternative to China's overheating economy and less politically stable markets such as Thailand and Indonesia, this once-isolated Southeast Asian nation has become a magnet.

"Our accession to the WTO was a big step: It shows we are committed to reform, transparency and openness," says Le Dang Doanh, senior economic adviser to Prime Minister Nguyen Tan Dung.

Information technology, seafood exporting and furniture, garment and shoe manufacturing are just some of the industries that are booming in Vietnam and attracting the attention of investors. Hotel and commercial real estate development, banking, finance, insurance and professional services are also bringing foreign investment dollars.

The U.S. government forecasts that American investment will grow to $8 billion this year, up from $4 billion in 2006. It's hard to say exactly how much of that activity is coming from New York, but interest here is great. Major players include Starwood Hotels & Resorts, Citigroup and American International Group. Garment manufacturer New York & Company is on the ground, along with entrepreneur Alfonso DeMatteis, scion of a construction group headquartered on Long Island, and Manhattan management consulting firm Dickerson Knight Group.

Many challenges

"We wanted to be in place here as things are really starting to develop," says Nathaniel Dickerson, founding partner of Dickerson Knight, which has seen its Vietnam business grow 50% in the past year.

Of course, doing business in this part of the world is fraught with challenges. As in many emerging economies, new investor-friendly laws aren't always enforced, and corruption among government officials is common. Problems range from the small bribes that foreign investors must pay to district bureaucrats to keep a business running smoothly, to the hefty unofficial fees often given to higher-level officials to enable overseas businesspeople to obtain investment licenses. The government has been trying to crack down on graft, but it's a way of life.

Infrastructure is also lacking. Brownouts are commonplace, due to a power grid that can't keep up with the mushrooming number of office towers and factories. Many members of the workforce, though young, well-educated and highly skilled, lack the experience for senior positions, limiting the growth of professional firms. Law firm Baker & McKenzie, for example, which has doubled its administrative and professional staff to 60 from 30 in a little over two years, has had to turn away business because it can't find enough people to do the work.

"We do need to upgrade our human resource training and education," says Mr. Doanh, the government economist.

Despite the challenges, some companies and entrepreneurs are making a profit here after years of trying. Last month, Peter Ryder, who's been based in Hanoi since he left Manhattan in 1992, listed his Vietnam investment fund, Indochina Capital, on the London Stock Exchange for $500 million. Mr. Ryder, along with a team of former Wall Street executives, manages close to $1 billion through direct and indirect investments in real estate and equities, among other things.

Bigger staff

These long-term New York investors are expanding their Vietnam operations. Mr. DeMatteis, whose family owns the Leon D. DeMatteis Construction Corp. on Long Island, has expanded his Vietnamese staff to 140 employees from 32 over the past two years. His firm, Delta Construction Management Co., is overseeing 28 projects throughout Vietnam, including hospitals, schools, factories, beach resorts and office towers.

Growth has been so strong that office space is renting at a premium as businesses scramble for space. Chesterton Petty Vietnam, Vietnam's leading property consultant, says office space in Hanoi and Ho Chi Minh City is at nearly 100% occupancy, and many smaller businesses are being forced to rent apartments instead of commercial space.

With so many investors rushing into Vietnam, there's also a shortage of hotel rooms for business travelers, especially in Hanoi. Starwood's Sheraton, open only two years, was at 95% occupancy last month. The hotel group, which also has a Sheraton in Ho Chi Minh City, is eyeing additional properties around the Vietnamese capital to meet the exploding demand.

Real estate is scarce, but factory capacity is plentiful, and New York-based manufacturers and exporters have been quick to take advantage. Vietnam's factories are sopping up work that China's factories can't handle. Garment maker New York & Company started moving some of its production to Vietnam in 2004. Some experts say the quality of the workmanship is at least as good as it is in China. It's also less expensive.


On a recent weekday morning, investors at the Hanoi branch of Vietnam's securities exchange were packed shoulder to shoulder, straining to get a peek at the large computer monitors posting stock prices. The market was down after a few hours of trading, and the mood in the room was tense. Several small-time traders — from taxi drivers to shopkeepers — ducked across the street to Cafe Index to break for a smoke and an iced coffee between trades.

The market drop was just a blip that day. Downturns have been rare events ever since Saigon Securities Inc., the private company that owns and operates the exchanges, opened a trading floor in Ho Chi Minh City in 2000, and rarer still at the one-year-old Hanoi branch. Vietnam's capital market has been flying high on the country's recent entry into the World Trade Organization, the government's plans to privatize state-owned enterprises and a stream of foreign money pouring into Vietnamese equities, although a correction may be in the cards.

More than $24.4 billion has flowed into the country's stock market since it opened in 2000, according to the World Bank. The total market cap of companies listed on the exchange now represents 22% of Vietnam's gross domestic product, up from 5% a year ago, according to government officials. The VNIndex, as the market is known, rose 144% in 2006 and jumped another 50% through February.

New York-based investment banks and hedge funds are setting up shop, attracted by recently enacted rules allowing foreign firms to own as much as 49% of public companies and have influence as shareholders. That cap is likely to be lifted in the near future as Vietnam carries out its WTO pledges.

Last month, Morgan Stanley inked a joint venture with Vietnam's State Capital Investment Corp. to provide investment banking services. Manhattan-based Vietnam Partners, an investment boutique, last year formed a joint venture with the Bank for Investment and Development of Vietnam. BIDV-Vietnam Partners Investment Management Co. has raised $100 million for a domestic fund, and it is raising more cash for a foreign fund.

The New York Stock Exchange is pitching in to help Vietnam prepare for global capital markets. Last month, NYSE Chairman John Thain sent a letter to the Vietnamese prime minister offering to share the exchange's expertise. Meanwhile, a spokesman for the NYSE says it is already in "active discussions" with a couple of Vietnamese companies about listing here.

Of course, it could be a few years before Vietnam is ready for Wall Street. While the government has tried to restrict speculative investing and limit practices like short-selling, average Vietnamese investors, having never experienced a crash, have caught the gambling bug. The over-the-counter market — unregulated and rife with fraud — is three times bigger than the official exchange. The State Securities Commission, fearing that a downturn could wipe out the savings of thousands of investors, is warning about the dangers of speculation.

"Vietnamese investors see all these foreign investors coming in, and they're also trying to get a piece of the pie, so it's making things overheated," says Le Dang Doanh, senior economic adviser to the prime minister. "We need to cool things down."


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