I spent much of May in Vietnam on business. While I was there, anti-Chinese riots broke out and I saw first hand in both Hanoi and in Ho Chi Minh how the government responded to them. More importantly, during my time there, I spoke with U.S. and Vietnamese government personnel and private practice lawyers and all of those things caused me to write an article, entitled, China Plus One: How Vietnam’s Riots Help American Businesses. I wrote that article from Vietnam, in May, and I am referring to that article now because virtually everything I said in that article has since been borne out.
I started that article talking about how Vietnam had risen to the top for most American companies looking to diversify or expand beyond China:
I am writing this from Hanoi, Vietnam, where I have been for the last week, working on legal matters for American companies doing business in Vietnam. Viewing firsthand how Vietnam has responded to this week’s anti-Chinese riots has prompted me to write on the impact those riots and the sentiments that led to them might have for American businesses in Vietnam.
Many American companies doing business in China have what is commonly referred to as a “China plus one strategy.” Such companies will have the bulk of their Asian operations in China, but will also be active in at least one other Asian country to hold down costs or reduce over-dependence on China. The increasing cost of labor (and other inputs) in China has accelerated the number of companies considering this strategy.
If you do a Google search for “China plus one,” Vietnam is listed one, two and three as the “plus one” that specifically mentions another country. It is also the country my law firm’s clients most often mention when considering where to go outside China.
I then discussed why I (and so many others) see Vietnam as the ideal plus one country?
It is a safe (for Americans anyway) and beautiful country. It has great food (sorry, but that matters to me). It is a relatively inexpensive place to live well and its wages are low. Its people generally like Americans, and English is by far the leading foreign language in its schools. Vietnam (not China) is a member of ASEAN and Vietnam (not China) will be a member of the Trans-Pacific Partnership. All of these things are plusses for business.
Its main minuses are that its electrical and transportation are relatively undeveloped and it is certainly no less corrupt than China.
I then confronted the rioting and its potential repercussions, but argued that would actually lead to increased investment by American companies:
But what about the rioting and the fact that the Vietnamese government has felt compelled to post 3-6 police or army personnel on virtually every street corner in both Ho Chi Minh City (where I was earlier today) and Hanoi to quell protests? Though thousands of Chinese have fled Vietnam — fearing for their lives — none of the riots nor any of the violence has been directed at any American or American company. Though there was initially some speculation among the expat business community here that the riots may have been a manifestation of worker discontent, the rioters have, when interviewed, made it a point to stress that their actions were for “patriotic” reasons, and did not stem from labor grievances.
The Vietnamese with whom I have met on this trip and heard on the news are uniformly emphasizing that Vietnam wants American investment, and that the riots should not be viewed otherwise. Both through official and unofficial channels, the government has made clear that it values the Americans here and it badly wants their businesses to stay. The Vietnamese lawyers and businesspeople are all telling me the same thing.
The American businesspeople here are saying the riots are irrelevant to their Vietnam plans. They view the riots as having been against China and against Taiwanese factory owners whom the Vietnamese view as in league with China. Some are even saying that Vietnam’s “China problem” will better position American companies seeking to do business in Vietnam. They see the possibility of increased sales of American goods and services and Vietnamese more likely to choose employment with American companies. To a person, all are convinced that the Vietnamese government takes the rioting seriously and will make every effort to prevent any recurrence.
They also talked of how the extent of the rioting, destruction and even deaths have exceeded that written about by Western media. Some mused about what this might mean for treatment of foreigners generally (to include Americans) but none saw it as presaging any threat. Some expressed concerns about what the closure of so many Chinese factories might mean for the supply chain needs of various American companies and some insisted that at least some American companies would experience problems.
I even predicted that Vietnam’s problems with China would actually jump-start its opening up more to American companies:
Many businesspeople here view Vietnam’s dispute with China as what Vietnam needs to jump-start its efforts to increase trade with the United States and facilitate U.S. companies doing business here. One person even mentioned how he thought that Chinese companies leaving would reduce corruption.
Though virtually all expats here side with Vietnam in its dispute with China, none made any effort to justify the violence, though quite a few seemed to enjoy analogizing it to China violence against Japanese businesses when disputes between those two countries heat up.
Last month, Barron’s did a cover story on Vietnam, calling it “The New China” and extolling its rapidly surging export base and the clothing and shoe trade press seems to have taken to writing about Vietnam pretty much every week. In our business, it has reached the point where many of our China clients in certain industries (shoes, clothing, fashion, cosmetics, kitchen utensils, ceramics, food, and small appliances and electronics) are considering Vietnam in addition to China or instead of China.
Vietnam’s growth and relevance have led me and some of our other China lawyers to add this question to many of our conversations with clients and potential clients: What’s your Vietnam strategy?