VIETNAM STRIKES BACK AFTER COVID-19 AS BEST PERFORMER OF ASIAN ECONOMIES

The Covid-19 pandemic has contaminated all global economic, social, political, academic and health systems with the result of generating systematic risks.

Now it’s time to manage the change generated by these risks and react by creating that sense of urgency and that vision for change, and consequently incorporating the change within the corporate culture. In fact, what better opportunity than a crisis to test the leadership skills of entrepreneurs and managers who have only 2 possible behaviors in the face of the challenge:

1) blame the Covid-19 and wait, or

2) roll up their sleeves to innovate and design a new way to develop new business.

We need to focus on the new business and first of all understand the new consumer behavior and the changes markets undergo, the relative consequences on business model, competitive advantage and value proposition, and how these changes can facilitate new market opportunities.

In short, the strategy must focus on the ability to react and adapt to new changes in order to survive in the new global business scenario.

The business will resume under the conditions of a new renewed normality but only for those companies that will be ready and prepared to face the new normality, and that will be able to leverage the new competitive advantage to face markets becoming more competitive and selective. Internationalization thus resumes its role as driver for new business development and first of all it is necessary to consider which markets to do business with after Covid-19 because they offer the most attractive conditions and which market-entry strategy proves more effective.

Vietnam strikes back as best Asian performer:

Vietnam is on target to reach +5% GDP growth at the end of 2020 (+ 7% in 2019). This is a significantly exceptional event for each post-Covid-19 market (practically twice the expected +2.7% growth forecast by of the IMF), and it’s in line with the plans for growth and development of the fastest growing economy in the ASEAN marketplace of Southeast Asia, confirming Vietnam as the new "factory of the world".

What are the reasons for this success?

The Vietnamese government's prompt counter-attack on Covid-19 (only 372 cases of which 352 recovered and no deaths, updated on 14th July) immediately closed the country in a drastic lockdown (and weeks before other countries implemented it) by suspending all international air connections, closing the land border with China, creating quarantine fields and, above all, maintaining excellent communication between government and population.

Vietnam has thus gained the trust of many countries and especially that of foreign investors who now look to Vietnam as the new target market for supply chains and production relocations instead of China. South Korean Samsung, today the main foreign investor in Vietnam, has invested $17 billion by moving the production lines of smartphones from China to Vietnam, and transforming the country into the 2nd largest exporter of smartphones in the world after China, with a global share of 13%. Furthermore, Samsung is currently investing $220 millions for building in Hanoi the new R&D center for AI and 5G aimed at hosting a workforce of 3,000 people and scheduled to be ready for 2022.

Effective 1st July, Vietnam, practically Covid-free along with New Zealand, reopened to international visitors and tourism by reintroducing the e-visa applicable to travelers from 80 countries (including the USA), and 26,000 flights are already scheduled for the month of July 2020 with 5 million visitors expected to arrive, respectively + 16% and + 24% compared to the same period of 2019.

Talking about Supply Chain.

During the Covid-19 emergency of the first half of 2020, a common area of concern for many companies (especially for those dealing with Chinese suppliers and partners) was that of Supply Chain and Production Relocation given the long blockage caused by Covid-19 that created quite a few disruptions in multiple sectors.

A cliché emerged: the cost of labor in China is no longer so competitive compared to other markets in Asia and therefore it is easier to close and reopen elsewhere or move production/supply to another country.

In reality, the lower cost is real but limited to the non-specialized production sector (eg. textile), a sector for which China has no longer today a particular interest given the ambitions and investments aimed at high-tech industries, technology, digitalization and new infrastructures in support of the Made in China 2025 plan.

Furthermore, leaving the China market only on the basis of a political choice (eg. the decoupling) rather than based on an genuine economic calculation, can be extremely expensive to the point that the China+1 formula can be a much more strategic solution by maintaining current production capacity in China and dedicating a subsequent investment to a new market (eg. in the ASEAN markets of Vietnam, Malaysia or Cambodia, or in the emerging markets of Bangladesh and Sri Lanka) where optimizing production and labor costs and protecting a new supply chain in the event of a possible future disruption (Chinese companies have already been moving in this direction for a long time, and the same applies to many western global companies).

In conclusion.

Covid-19 will be remembered as a stress test on the interconnectivity of global economies.

The all-western trend of backtracking from global to national following a new protectionist wave not only is highly costly from an economic perspective (in terms of higher business costs for the enterprises, and higher retail prices for consumers) but difficult to execute due to the required creation of new production chains, something anachronistic with the current markets interconnectivity. Internationalization remains the leading business growth driver for SMEs because the economies that drive global growth are and remain in Asian markets (of course along with the US).

However, SMEs and Mid-Market companies must focus their foreign market-entry strategy by diversifying the risk for the enterprise, and by riding the change for adjusting corporate culture to the new markets’ needs if they want to benefit from market potential and new business opportunities.