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ith the U.S.-China trade war dragging on and President Trump set to place 15% duties on $300bn of Chinese imports by the end of the year, many U.S. companies are shifting their manufacturing and trade to Vietnam, driving up that country’s trade surplus with the United States.

To better understand the situation, we spoke with Siva Yam, President of the United States of America-China Chamber of commerce, a bi-national not-for profit organization founded by the late Prescott Bush Jr., brother of late U.S. President George H. W. Bush, to assist American companies to stay competitive in the global market

Siva Yam, CPA, CFA, is a certified public accountant. Yam also holds the chartered financial analyst designation. He is an investment banker with over 20 years of experience in mergers, acquisitions, public offerings and private placements of securities, venture financing and privatization. He has served as advisor to a number of venture funds and corporations including the Federal Reserve Bank of Chicago. He is also managing director of Siva Yam & Associates, LLC, a private consulting and investment banking boutique, which specializes in cross border business and trade, and He received his MBA from Duke University on a Fuqua Fellowship and his bachelor of business administration, magna cum laude, from the University of Wisconsin. He also graduated from the Hong Kong Polytechnic University with honors and is fluent in both English and Chinese.

How has the ongoing trade war between the United States and China affected the U.S.-China Chamber of Commerce?

Yam: Our focus has always been and will continue to be on U.S.-China business. As the global economy evolves, however, there is a continued shift in manufacturing to the emerging economies, particularly those of Southeast Asia. Vietnam has been a destination of choice. The U.S.-China Chamber of Commerce (USCCC) has taken a number of initiatives to aid the American business community to better understand this new paradigm. About seven years ago, we realized that Vietnam had emerged as a promising economy. As a result, we established a sister organization, the U.S.-Vietnam Chamber of Commerce (USVNCC), and opened a full-service office in Vietnam. We also noticed that a number of U.S multinational companies, primarily in the consumer products and energy sectors, had started to enter into Vietnam. Manufacturers from Singapore, Japan, Korea, and Taiwan also started setting up plants in Vietnam. Many of these companies, however, particularly those from Taiwan, mix real-estate development with manufacturing.  

How does the U.S.-Vietnam Chamber of Commerce assist U.S. companies in Vietnam?

Yam: As the U.S.-China trade dispute continues, the movement of manufacturing and assembly to Vietnam has accelerated. Many of our members and the general public have asked us for assistance in import substitution in the short term and for help relocating production in the long term. Accordingly, we have allocated resources to that effect. And we’ve enjoyed much success, as we’ve been operating in Vietnam for almost seven years now.

Have U.S. companies been prepared for this shift?

Yam: U.S. companies have hesitated to explore Vietnam and other emerging economies, but the situation now has forced them to do so. Some American companies, however, have been left behind by their competitors from other nations that began exploring Vietnam earlier.

Is Vietnam cheaper or in other ways more attractive than China?

Yam: While Vietnam has the advantage of a young labor force and low wages, the total manufacturing cost is not much lower than it is in China, and, in many cases, it is even higher. These costs are due to a lack of infrastructure, an inadequate supply chain, and low productivity. Vietnam’s inexperience in international trade has also led to unrealistic pricing, which has hindered the shift in production from China.

How are China and Vietnam similar in terms of the economic reforms each has undertaken over the past several decades?

Yam: Although both China and Vietnam are very similar in many respects, the roots of their economic reforms are dramatically different. The core of Chinese manufacturing is located in its very large state-owned enterprises (SOEs) that were engaged in manufacturing prior to 1978 and continue to play an important role in the Chinese economy. The growth in manufacturing was augmented by the patriotism of its enormous, successful community of overseas Chinese, primarily from Hong Kong, who jumpstarted China’s economic reforms. The recent Chinese government policy seems to reinforce this idea by increasing the influence of SOEs in the Chinese economy and by proposing a private-public partnership between SOEs and leading private companies. At this time, in Vietnam, most of the factories that are able to produce goods to meet western standards tend to be foreign-owned.

Are foreign direct investments as important to Vietnam as they have been to China?

Yam: While foreign direct investments are critical in the development of both economies, the Chinese government, through its regulations and SOEs, has ensured that its economy continues to be fully controlled by its people. This might not be the case in Vietnam.

How does a U.S. company go about exploring a shift to Vietnam? Does it just go onto the internet and begin there with some research?

Yam: Obtaining reliable information on Vietnam is difficult. Reliable information on China, by contrast, is available through a number of commercial websites plus associations established by the Chinese governments such as the China Council for the Promotion of International trade (CCPIT) and local chambers.

How does the business culture in Vietnam differ from the business culture in China?

Yam: The business culture of Vietnam is very different from that of China. The Chinese are known to work almost 24/7, and they have their mobile phones with them all the time. The Vietnamese tend not to be available after regular work hours, and it is very difficult to reach them on weekends and holidays.

Are Chinese companies also moving to Vietnam?

Yam: The U.S.-China trade dispute has created a rush of Chinese companies going to Vietnam to manage the import tariffs imposed by the United States on Chinese imports. However, we have also seen Chinese companies moving back to China from Vietnam.  

Will Vietnam become the next China?

Yam: Despite all these concerns, we continue to believe that China, an established manufacturing powerhouse, and Vietnam, a fast-growing economy, will together provide American companies and consumers the best options for the future. Vietnam has the youngest population in the world. It follows China’s success model and modified its approach so as to reach its goals with the shortest route and minimal resources of its own.

So, we can expect a rapid acceleration of imports from Vietnam?

Yam: Migrating imports from China and relocation to Vietnam are not simple processes. U.S. companies will have to make significant investments to understand the culture and business infrastructure in Vietnam, and also “teach” their Vietnamese counterparts how to do business with them. This is a strategic, long-term shift that’s beginning to take place.  

The shift is already underway, then?

Yam: Yes, but the international trade environment could change in the blink of an eye. For that reason, any hasty decision on the part of U.S. companies could prove to be fruitless and essentially whipsawing.

You said that both the U.S.-China Chamber and the U.S.-Vietnam Chamber are allocating more resources to help U.S. companies. What exactly are you doing in this respect?

Yam: We are in the process of hiring more staff and developing a knowledge-base of manufacturers in Vietnam. We are also better integrating the ways in which the two organizations work together. We believe that our combined efforts will help us to deliver more meaningful results to American companies involved in international trade.

About
Paul Nash
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Toronto-based Correspondent Paul Nash is a frequent China commentator and serves as a Senior Contributing Editor at Diplomatic Courier.
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.