The World: Exploring the evolution of Asia's rising 'leopard'

Vietnam's economy has huge growth potential if it can overcome some fundamental national problems, Alex Clegg writes.

Opening a conference in Singapore last month entitled "Vietnam: Asia's Rising Tiger", one commercial leader suggested the choice of beast wasn't quite right.

Sure, the country had shown significant growth and development, Dr Doan Duy Khuong, the vice-president of Vietnam's Chamber of Commerce & Industry, acknowledged. But a tiger? A better analogy might be the more diminutive, but still powerful, leopard, he said.

The statistics provide a powerful endorsement of his view. Since 1986, when the Vietnamese government launched its policy of "renovation", annual growth has averaged 7 per cent.

Between 2000 and 2006, Vietnam's growth rate was second only to China, averaging 7.4 per cent. Net foreign direct investment in 2006 was $2.3 billion, a 20 per cent increase over 2005. In January this year, Vietnam became the 150th member of the World Trade Organisation. As a result, the country's legal framework must evolve rapidly as local markets prepare for foreign competition.

The number of people accessing the internet in Vietnam is now the highest in South-East Asia at an estimated 15.7 million. There is a surging optimism and confidence reflected in the fact that only four other countries (India, Norway, Denmark and New Zealand) rank higher, according to ACNielsen's Global Consumer Confidence and Opinions survey.

By any standards, these are extraordinary achievements, even more so given Vietnam's tumultuous 20th century history. Within a period of 40 years, Vietnam endured war with Japan, France, the US, Cambodia and China. Worst of all, it was at war with itself. Vietnam's young demographic (52 per cent of the population is under 25) is a direct result of the huge losses that resulted from such a lengthy and intense period of fighting. An evolving sense of national unity, confidence and pride run deep in the collective consciousness and economic development - as well as peace - is playing a significant role in healing bitter wounds.

Given such radical economic change, the ad market ($438 million monitored spend in 2006) is evolving as a consumer class emerges. FMCG brands still spend the most, followed by telecommunications and, increasingly, financial services. Some local brands do compete, but the biggest FMCG spenders are the international brands. By contrast, telecoms and financial services are mostly Vietnamese.

Even the way the government communicates is changing. Public service communication, and party messages, which had always adopted the Sino-Soviet propaganda style of art direction, have recently experimented with a different tack.

In a campaign to promote helmet-wearing when riding motorbikes, the National Traffic Safety Committee co-operated with the Asia Injury Prevention Foundation and Ogilvy & Mather Vietnam to run a national campaign in print, outdoor and on TV. Even five years ago, such co-operation with private, foreign partners on sensitive topics, such as how Vietnamese citizens should behave in public, would have been extremely unlikely.

Vietnamese brands are also emerging. Pho 24 is a quick-service restaurant serving Vietnamese soup, which has expanded to Singapore, Korea, the Philippines and Indonesia. FPT is Vietnam's largest technology conglomerate, which distributes mobile phones, runs Vietnam's online news service VNExpress, develops technology for banks and has founded its own university. Tan Hiep Phat is Vietnam's leading drinks company and has produced successful brands.

Vietnam's tourism industry also has huge growth potential. With more than 2,000 miles of coastline, it only had 3.6 million tourists in 2006, compared with Thailand's ten-plus million.

But some caution is needed. GDP per capita in Vietnam in 2006 is close to India's at an estimated $715 - relatively low even by regional standards. Thailand's GDP per capita is approximately $3,000.

More significantly, Japan, Taiwan and South Korea - Asia's archetypal tigers - grew their economies because they were able to manufacture products that people would buy more of, the more money they had. That is not the case with coffee, rice and cashew nuts.

And the two most fundamental barriers to growth in Vietnam - lack of human and infrastructure resources - persist. The higher education system has not changed much in 20 years. Skill shortages are frequently listed as the biggest challenge facing business.

Power problems are an almost daily occurrence. There are transport bottlenecks, as well as a lack of facilities. For example, Vietnam still does not have a deep-water port that can handle large container ships, adding some 28 per cent to the cost of shipments to the US. It means cheap labour costs pale in comparison with the higher cost of electricity, transportation, telecoms, security, administrative costs and, of course, corruption.

Vietnam: tiger or leopard? The reality is it's not a question of species or ferocity, but more of maturity. Vietnam can be a tiger, but it's not a fully fledged adult just yet.

- Alex Clegg is the planning director of Ogilvy & Mather Vietnam.