The Vietnamese Market and the United States: A Matrix and Historical Analysis

Vo, Han X., Journal of International Business Research

ABSTRACT

This paper examines the Vietnamese market from the U.S. standpoint. Although American presence in Viet Nam dated back to the 60s, such presence had a primary focus on politics rather than economics because of the U.S. containment policy in Asia. U.S.-VN historical relationships were interrupted in 1975 with the withdrawal of American forces and did not resume again until 1995. Although some commercial relationships existed before that date, serious U.S. trade and investment activities in Viet Nam effectively started after 1995. This paper analyzes the nature and scope of business relations between the two nations, emphasizing the special historical circumstance and the fact that the United States has been dealing with an economy in transition led by a Communist state. In addition to the historic determinant, to better understand and to look into the prospects of U.S.-VN business relations, this paper develops a model--an investment potential assessment framework based on the "push" and "pull" analysis drawn from the economic theory of foreign direct investment.

INTRODUCTION

The story of Vietnamese integration into the global market began in 1986, when that nation, under tremendous pressure from low and declining productivity, decided to give up the grand experiment in orthodox socialism with central planning and to move her economy in the direction of the market. The motive and the force that has sustained that historical transformation, also known as D i M i, or Renovation, is the realization of the need to open up the stagnant economy to the outside world. As the result of that integration effort, the movement of exchange of with the rest of the world and the participation of foreign capital and know-how in Viet Nam has accelerated to new heights ever since. Yet, while Viet Nam has developed rather extensive economic ties with Europe and Asia, the participation of North America in the economic reconstruction and expansion of that country has remain relatively modest, at least until quite recently.

This paper examines the nature and prospects for the United States'commercial relations with its former enemy and explore the reasons for America's slow return to the Vietnamese market. The scope of bilateral economic relations, including short-term of service and commodity exchange and long term commitment to a particular markets, i.e., foreign direct investment--FDI, depends importantly on physical factors such as the size of the market and non-physical dimensions such as social capital and the regulatory environment.

For analytical purpose, this paper develops a simple matrix framework for assessing the potential for foreign direct investment. According to this assessment scheme, the "push" and "pull" forces of FDI can be displayed on one dimension, say, on the vertical axis, and the "tangible" and "intangible" factors, on another dimension, namely, the horizontal axis. This matrix will be named Investment Potential Assessment or IPA framework. This paper will argue that the explanation for the acceleration of FDI activities in Viet Nam in the early and mid-90s and the deceleration in the subsequent period can be better understood using the said IPA framework.

But although this matrix is appropriate to analyze U.S.-VN bilateral relationship, to gain a deeper understanding, we need to look more carefully at the special historical circumstance underlying that relationship. This circumstantial specificity would account for the fact that, despite the close encounter between the United States and Viet Nam in contemporary history, there were considerable delays in peaceful economic dialog between the two nations. One of the theses advanced in the paper is that these delays have their root cause in both politics and economics. By examining the latter, it is possible to gain further insights into a specific bilateral exchange process such as that analyzed here, and to offer clues to future developments of that process. Additionally, the experience of U.S.-VN commercial relations can conceivably offer some lessons on bilateral commercial relationships on a global scale.

THE RECORD

Viet Nam's Global Trade Structure

From 1997 to 2003, Viet Nam's exports consists mainly of (in roughly decreasing order of importance) crude oil, garment, footwear, marine products (including frozen items), rice, coffee, and electronics (IMF, 2003). While electronic goods and components accounted for between 3 and 5 percent of total exports, crude oil has the lion's share of Viet Nam's exports during that period. In other words, Viet Nam's exports have been dominated by natural resource commodities, labor intensive products, and agricultural and marine products. The composition of merchandise that Viet Nam have been selling to the world has undergone some subtle but significant changes. For example, the share of marine product exports increased from 8.6 percent in 1997 to 12.1 percent in 2002. The substantial increase in the importance of marine product exports to the United States in recent years accounts for the noted compositional shift. Another small but interesting development in the pattern of Viet Nam's global exports was the large increase in the value (from $63 million in 1997 to $331 …

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Publication information: Article title: The Vietnamese Market and the United States: A Matrix and Historical Analysis. Contributors: Vo, Han X. - Author. Journal title: Journal of International Business Research. Volume: 4. Issue: 1 Publication date: January 2005. Page number: 39+. © 2008 The DreamCatchers Group, LLC. COPYRIGHT 2005 Gale Group.

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