Day 3 in Saigon
Tuesday was a remarkable day that really underscored the country’s willingness to do business with Americans. Absent any qualifications, including even business cards, my associates and I were able to arrange meetings with an array of bankers, government economic development officials, lawyers and private equity partners in an effort to gather preliminary data for a comparatively small textile producer that’s considering moving some of its manufacturing operations from
Our day began just after breakfast, when Charlie and I traveled to the Sheraton to book a driver and interpreter, “Henry,” the combined services of which cost $90 for four hours. We picked up Brian and
We were extremely reluctant to present ourselves as students, as we believed meetings with higher-ups in both the public and private sectors would be much easier to achieve if we presented ourselves as employees of our client, Andrews Sport. But the inherent complication in our chosen position was our lack of any qualifying documentation, including business cards. So, for the rest of the trip we repeatedly flogged the hackneyed excuse that the airline had lost our luggage and professed extreme embarassment at our lack of business cards, which, per Asian business etiquette are exchanged and received with the kind of care afforded the transfer of Faberge eggs: recipients accept cards with both hands and study the information intensely before commencing talks. Perhaps one of the more terrifying moments on this trip was sitting before a communist party official without such qualification and proceeding with a detailed line of inquiry about the country's business regulatory environment.
Given Vietnam's notoriety for poor quality and missed shipping dates, a primary interest of ours was in the robustness of the Vietnamese legal system and the degree to which contracts were upheld and penalty clauses were enforced in Vietnamese courts. Reading between the lines, we became convinced that local courts represented something of a home field advantage for prospective local business partners. International arbitration bodies represented a more viable alternative, as their rulings would be upheld in local courts, but actually getting money from partners in the event of a missed deadline still seemed to be a dubious prospect, the futility of which is akin to suing a bankrupt entity in the
Far more encouraging are the tax incentives afforded to foreign companies operating in
Notwithstanding our concerns about quality (and, in fairness, I think these mostly centered around the quality of the raw materials themselves, rather than around the workmanship), we were told repeatedly of the quality workmanship provided by Vietnamese textile workers and, specifically, the strict attention to detail that is the mark of female workers, who, as a result of government efforts to move them from farms to factories, account for as much as 85% of the factory labor force. While agriculture accounts for 65% of the country’s labor force, it accounts for roughly a third of the country’s Gross Domestic Product. DPI officials made no secret of the country’s fierce efforts to compete with
Of course many pitfalls lie ahead, primarily corruption in the public sector. While
Perhaps taking its cue from
At HSBC, Charlie and I met with a manager in charge of business development and a lending officer who specialized in the textile manufacturing industry. After exchanging pleasantries and the usual round of profuse apologies for our lack of qualifying documents, we were served espressos and treated to a fairly wide-ranging discussion of the Vietnamese business lending environment.
Our intent was gain an understanding of collateral policies and rate and term structures. The Vietnamese equivalent of the prime rate is known as the “Cost of Funds,” and textile manufacturers can generally expect to pay between 1% and 4% over the COF. The longest term loan available is seven years and working capital loans can come in under a year. One of the last vestiges of communist economic policies in
State-owned factories are considered a much riskier venture in the eyes of the bankers, presumably because the institutionalized inefficiencies of a communist enterprise raise fundamental doubts about the entities’ abilities to generate sufficient cash flows and in their attention to debt coverage ratios. Spurred by global capitalist motivation, private factories, by contrast, could be expected to pay greater attention to efficiencies, steady cash flow and international accounting standards – all attributes that made them vastly more appealing to both debt and equity financiers.
Meanwhile, Rand had managed to arrange a meeting with a managing partner with Baker McKenzie, one of the most prominent business law firms in
And now, on to Kuala Lampur, Malaysia