#16 Vietnam: Stability at Scale

Matthew: A lot to unpack there. There's a there's a lot of that this question. So let's put aside the labor issues because you're right, that it's completely changed on where that sits. From a safe harbor perspective, Vietnam is has positioned itself over many years and ever since the Doi Moi in the late 80s as everyone's friends and no one's enemy. That was part of the positioning. It's paying off because Vietnam is this safety, it is everyone's friend because it's got free trade agreements, it's got bilateral agreements with all the world's enemies and friends because they're all Vietnam's friends. And it's a deliberate strategy. and if you look back at the late eighties, the early nineties when Vietnam started opening up, the reason your first investors, Japan, Korea, Taiwan, they were coming in because Vietnam and China were not working very well together. They're border issues and therefore my enemy then is my friend.

And Vietnam went beyond that said, okay, great, that's the foundation, but China is going to be our friend. And working with a whole range of nations. So, the evolution of Vietnam strategic positioning in the world to be that point of comfort.

So and I put this many years ago, I saw an example where Vietnam was on the Secure United Nations Security Council and are basically just abstained from all boats. They didn't want to take sides.

Not because there weren't important issues, because it wasn't in its strategic best interest in the early days to be seen taking sides. That's part of that whole bamboo diplomacy that Vietnam works through and says that we can actually play all the different angles and benefit and be the one the sort of last man standing when it comes to international hegemony when it comes to playing different countries.

So, there is no country back was it a few years ago we had the president of China, of Russia and of the USA all visiting within a 12 month period. No other country's had that. And that just puts Vietnam position of where it does sand. So back to this comfort, when you've got trade wars against China and you've got political issues and you've got distrust when it comes to technology and coming from China, you've got Middle East issues, you've got issues coming from European instability and cost issues, and you're starting to come down where is that comfort zone?

So Southeast Asia's starting becoming quite an appropriate location when you start looking at all which is politically and economically stable and offers connectivity. So you start filtering through. Vietnam is one of the few to European free trade agreement. It has taken position in the world that it is everyone's friend, as I said, but also that it can actually deliver. And this is where back to your point, low cost versus a more mature market has shown that over the last 20, 30 years, that it can deliver against that.

Vietnam is this safety, it is everyone's friend because it's got free trade agreements with all the world's enemies [..] but also it can actually deliver. Matthew Lourey

Anatolijus: Right, right. So, we've gotten Vietnam based on your comments here, from let's say, maybe partisan to a neutral, right? Bamboo diplomacy, that's great. But does that make Vietnam a safe harbor, right? Because I would say not all parties in the world are happy with this bamboo diplomacy. Of course everybody wants Vietnam to take a side. How a company is seeing this? Is this a place to set up your operations?

Matthew: So, if you look at safety, another point of view, political s political stability is a really a key thing, economic stability. So, Vietnam's one-party rule, which is a misnomer in many ways, but the stability from that provides the comfort. You don't have dramatic changes of policies that shift, and therefore you've got to commercially react to those. So, within the party, you have got different factions, and it operates as if it's different parties within a party in many ways. But the stability that provides politically and then economically: they have five year plans. You can plan further ahead. And they do update and we'll talk about later about a lot of the changes that are happening, but they don't regressively go back. It's as a general rule, if something was provided to you as an investor, that's fixed. New investors may have something else, but an existing investor protects the investor.

There's one more part that makes Vietnam quite interesting where it comes to stability international position is that in Vietnam around twenty, twenty-five percent of the economy is foreign invested as a raw number. Seventy-eight percent of the exports are from the foreign invested sector. It is heavily reliant on foreign investment. And that has resulted in the domestic economy benefiting in the whole gross and seven percent, six and a half percent average GDP growth in the last ten or twenty years, which is significant. And that's all back on the back of that foreign investment. And it needs to continue to keep this massive growth plans that they have. To do that, they've got to keep protecting and looking after the investors. So, this stability, political, economical, and for the benefit of Vietnam, it's all linked.

So, it's unique. And if you just go back to the other countries in Southeast Asia, if that's our safer area at the moment, no one else can meet all those criteria. They've all got either political issues or economics ups and downs, and it's going through. And there's other economic factors we can talk about, but if you just look at those, it's quite compelling as that safety location that we talk about.

Anatolijus: I think as you say, a lot of the economy is …   I mean, first of all, it's an export based economy and a lot of it is FDI. So the safe harbor is here already. It's been here for a while. I think is just maybe convincing others that Vietnam is a great place to do business.

Matthew: And protecting that as the economy changes. So, this low cost to a more high tech, changing the makeup of the economy requires the government to keep focus and not let their guard down because that the future stability depend it depends on change. It doesn't depend upon, we did something right 20 years ago, we can just sit with arms crossed, it won't work like that. So, there's a conscious focus to protect, and to grow. So, the government has a ten percent growth target this year, whether they'll make it or not. But to do that, you've got to be aggressive. And what's happened is Vietnam is the foreign investors provides that growth foundation.

Anatolijus Fouracre and Matthew Lourey at the SPS Vietnam Headquarters in Ho Chi Minh City.

Anatolijus: We'll get back to that 10% target. That's a very interesting topic. In the meantime, again, speaking about the safe harbor, over the 20 years, I'm sure you've seen a few shocks that the local economy has gone through, right? What I find amazing is how resilient Vietnam has been through these shocks. So, what's so special about the business culture and about the business setup of Vietnam that allows Vietnam to continue having these lights on, twenty four seven mentality and just keep going forward?

Matthew: You came for a very low base in Vietnam. So, if you go back to the start of the opening up, GDP per capita was you know, minuscule. So that low base and to people see change and change inspires more change. So that middle income trap that everyone fearing is when no one cares about growth anymore as far as economically and politically, it just becomes the norm. Vietnam hasn't got because where they've come from and where they're going encourages them to keep going.

So, some of the shocks and interesting Vietnam does have the ability to do things differently to a lot of other cultures. In 2008, there was the global crisis then, but before that, Vietnam had its own crisis. Late 2007 and 2008, with the property market and the fuel price. And because of these macroeconomic issues, there was some punting on by the offshore foreign exchange on the offshore non-deliverables that pushed the exchange rate to an extreme level. So, the Vietnamese government said, okay.

I think it was about 16,000 official rate and 27,000 the unofficial rate. They sent the state bank out to monitor the gold in money exchange shops and forced them to sell back all the dollars they bought at the official rate. And so, the black market just collapsed because of alternate measures. And those sorts of things which wouldn't happen elsewhere to the same extent, they're very creative. So, we're seeing different ways that would not work in other economies to manage that doesn't impact society, but it protects, and so you also put in place that Vietnam has a very low debt to GDP versus most countries. It's in the 30s, not in the fifties or the hundreds that all the most countries are. So, it has some flexibility. It's very slow deploying it’s commitments and expenditure, but it has capacity to do it. Shocks that exist can be buffered in Vietnam.

And so right now with the fuel price increases, it's decreased not only decreased the tax on fuel, but it’s also actually picking money out of the reserve. And it's comfortable doing that. Where other countries like Philippines is in a different position because it's debt to GP and its and its government flexibility is different to Vietnam. So that's just as a pure example, there is so a lot more flexibility and options that the government has here.

Anatolijus: Yeah. And it sounds like government is exercising these options at their disposal to keep economy going, right? I think probably a little bit less discussion in than in other countries to actually make these decisions. And because the fast decisions are made, the country is able to progress. COVID probably is a good example.

Matthew: So is that so it's very opaque in many ways. You don't see what's going on in government. Decisions are made. And they're not always perfect. That's not, you know, pretend that this is the perfect country for everything. It's not. There's a lot of things which are challenging, but the purpose behind is generally to move forward, protect, and to make decisions and do things in a way that isn't constrained by the media and oversight in the same way. Pros and cons.

So in COVID, for example, we saw the way that they closed borders and they protected. And for the vast majority of the COVID period, Vietnam was free and open if you were inside Vietnam. Great. Now there were issues later on of quite ruthless lockdowns later on that were very painful. But there was a lot of openness that other countries didn't have. And again, pros and cons. And the ability to make those decisions and the ability to inflict a very severe lockdown in in some places, just reflects the fact that the government will act fast and will do things, not necessarily because they're popular, because it's for the right purpose generally. Again, there are some things I could criticize, there are some things I'm so happy with, but I'm talking in an overall.

Anatolijus: Right. And on average it has worked out for Vietnam.

Matthew: Yep. As I said, very few countries, I think China was the only one, because it was on a path before Vietnam ten years in front that had any sort of growth rate over a sustained growth rate like Vietnam has. Now, you start with a low base and do the right thing. That should be the case. Right. If you do the right thing, and that's been the conscious effort of the Vietnamese government. Now, different approaches have done different ways because of as your leadership changes, the current leadership is doing things very fast and aggressively.

There’s been different paths depending on which way they lean and it's been an interesting journey with all of them having that move the country forward. Now's the time. If we don't do it now, we will miss out.

Anatolijus: Growth. So you mentioned that a few times. I love to dream big, right? And this is kind of the beauty of life. You can dream big. And it looks like the National Assembly also is dreaming very big. They're setting 10% GDP growth target for this year. Now, I have to say we've seen Vietnam growing at very impressive rates, but 10%. I mean, this is beyond dreaming big. You think this is even possible?

Matthew: If you asked me in January or February, I would have said possible, t was very aggressive but possible. Mmm .. but I have concerns now with the Iran and the Middle East issues at the moment. So, I don't think we're going to achieve that. But one thing we do know is the Vietnamese authorities won't let go of that target. They're still going to produce policies and push things to reach that target as close as they can.

They're not one to back down and say, I would reduce to eight. They're gonna stick at ten. Even though eight might be more realistic or seven, they will still stick at that ten. Because if they let the foot off, the people around them and the government bureaucrats to implement will also take the foot off. They won't do it. So, you'll still see ten for the rest of this year, regardless of what the actual performance is. Now the reason I was confident sort of…. they're very aggressive, but still comfortable with ten is that Vietnam's has reformed many, many things. They've reformed the tax system. The last reforms coming into this year were the small family businesses, which in the past were just deemed tax and they were outside the system. They've been brought in.

The tax take last year, by the way, as these reforms, they met their national budget by 15 October last year of all the tax collections. The rest of the year was free tax. Why? Because the black market is being closed. You've also got expenditure issues. Vietnam's been a hot terrible at actually spending the money they budget on infrastructure. So speeding up that budget to disbursement. So you've got a vigor tax take, you're not spending the budget, and you've got identified needs under recent times for infrastructure spending and tax benefits to attract high tech and manufacturing and high value manufacturing and focusing on certain sectors that add to the economy. There's a lot of flexibility there.

And a lot of it’s sort of very much ecologically driven by just spending and using the resources at the moment. So there's a if you went from six to nine just on that collection and spending, changing that, it's quite feasible. Now again, with the Middle East issues, maybe we're not going to get there, but it's still going to be aggressive growth.

Anatolijus: Yeah, I'd settle for seven percent, right?

Matthew: Ask a developed Western country now whether they take seven percent. They'll take two at the moment, I think, many of them.

Anatolijus: That's right. Now you alluded to government created tax incentives for the large companies to come to Vietnam. Obviously, Vietnam needs FDI, it needs capital inflows, right? And Vietnam has done very well in that regard. But also OECD implemented these global minimum tax rules. So local tax incentives, let's say the power of these is getting eroded. What else is government doing to kind of incentivize this FDI in Vietnam?

Matthew: So the global minimal tax, fifteen percent, has had an impact, but only a few. Realistically, there is a few very large companies that are affected. The vast majority of investors are not caught up in that. So it's a very small number, but a very significant value proposition. So, what they have done is done the right thing, followed the global rules, put a lot of other incentives and d R and D incentives, they've got land use rights, discounts, etcetera.

That don't avoid the requirement to try to make them so they're no worse off. If we go back, so Vietnam has a base 20% tax rate for corporate income tax, which is reasonably good generally it by itself. So, what they're doing is a whole range and these incentives keep coming out. They're being varied at the moment, they're hard to keep up. So we now have a new base, 15% for startups and small taxpayers. We have a 17% for medium sized taxpayers and 20% for large. So, we've now changed that base.

You've then got incentives for high-tech industries, which could have a three-year or five-year exemption and then a 50% reduction for the next many years, depending on in which where they set up, what industry they are, but it's focusing on high-tech, and there's a range of things that meet that. There's RD incentives, there's training incentives, and there's a lot of people have tax incentives from earlier periods where it might simply just be employment numbers in certain regions. And they still exist. In certain industrial parks if you want to set up because we're in a disadvantaged region, you can get tax deferrals and tax incentives as well. So there's a lot of these that get thrown around. The focus at the moment is to lower the tax burden because the tax base has grown. So, with 15 and 17 and 20, not just a flat 20. And then the incentive to get the right businesses. So, people will come to Vietnam based on those alone because of the arbitrage for manufacturing. Vietnam wants the future. They want that high-tech, which is interesting now, Vietnam exports more, almost ten percent more percentage-wise of its exports are high tech versus China.

That's a major shift back twenty years ago when it was garments, furniture, footwear, and a lot of agricultural products. So, the high tech, so phones, computers, so almost all of Apple's ecosystem, other than the iPhones, all your MacBooks, all your iPads, etcetera… they're coming out of here. And that's been a gradual shift over the number of years. And it's that sort of high tech. The next wave, semiconductors, to go further down that supply chain. So, there's significant tax incentives for that particular sector and a lot of incentives regarding tax deferrals, incentives, land use rights, etcetera, to focus on what the government sees as necessary for the country's future, not just the now.

Anatolijus: Right. I like about you talking about these big companies coming and setting up and a lot of the export is, you know, Samsung, Apple, all of that. I also think the profile of the investor is starting to change because Qualcomm, Nvidia… in in the past they were setting up very much assembly kind of low value shops, right?

How do you see this evolving? You know, is Vietnam gonna move from just pure assembly, low value, even though big names, to something a little bit more high tech, RD, development, export, high value services?

Matthew: I saw some media commentary or discussion the recent days that Vietnam is still just doing the last 10% of the assembly, all the pieces are coming and Vietnam's not. Yes, that is a fact. And that's part of that journey as Vietnam has changed. So, we're now seeing like Intel facility in Vietnam is still the largest Intel facility in the world, I understand. It also has the lowest defect rate. It's just works. And that is Intel's sort of one of their core facilities for computer chips around the world.

And that was something when they came in, they had to re-educate and had a lot of time investing. They were an early player and it's paying off. And I think that's a great example for why it makes sense to come in, but it will take time. Vietnam is not going to be overnight become the world's semiconductor powerhouse. But there are incentives for putting up manufacturing facilities. There's incentives for design. There's a lot of engineers in Vietnam who have been abroad, who have come back, and their passion is the Vietnam Semiconductor sector to full manufacture.

So custom bespoke facilities, mainstream to take that value add. So, as we've got multinationals coming in doing just that last layer of assembly, as they find, well, why am I shipping these around if I can source them locally? Developing the local supply chain, which is always the issue when you've got a low value manufacturing economy many years ago, is supply chain, foreign investments, great, but if you don't have supply chain domestic.

So they are being pressured to develop part of the investment. Assessment now is great, we'll give you a tax break. What are you going to do for the economy? How are you going to invest? How are you going to make sure that this filters down? And that's what Vietnam benefit on of over so many years is that domestic almost trickle down is what grows the domestic economies because of the FDI, but not solely the FDI doing it. It's that trickle down.

That's the next journey. And that is the focus now to make sure the high-tech value add and the infrastructure supply chain behind it gets localized. You will never decouple from the China being size and scale when it comes to certain elements. Vietnam's not trying to do that, it's trying to create its own elements that it needs to the longevity of Vietnam as a high-tech manufacturing location, because that's the future.

And that then comes back to your NVIDIA and Qualcomm, et cetera. Their investment not only in the chips is the data center, it is the services, it is Vietnam being a hub for safety, political safety, all of those things, with the challenges that exist as well, building on that. So, it's a greater ecosystem that comes, if you get part of that right, more come.

Anatolijus: So again, it is good to see companies setting up. And of course, this is your business, right? You're helping companies to come here and put the right foot forward, and over the 20 years, you probably have seen evolution how this works. I'm sure 20 years ago, setting up a foreign company probably was slightly different than it is today. So, first question is: what shifts, what positive shifts have you seen? Maybe there are some negative ones too, but what positive shifts have you seen in you being able to help the company set up the business and just the general environment, is it easier today?

Matthew: Considerably easier. And there's new laws in one March this year that aren't active just yet, but change that make it easier again, significantly easier. So, we've seen this shift from the old business license regime into the investment registration certificate and the timing. So, people back many years ago would say, take me one or two years to get my license. It was very specific. It was project-based. They're still project-based, but it was very much a Project assessment, how much, when, what is it, what are you gonna do? And the project assessment took a long time and everyone had their say in it.

Then they started centralizing and streamlining and then the process, the clarifying. You still have provinces would interpret their own way. So, Vietnam laws are implemented nationally. Sorry, they're legislated nationally, implemented on a provincial basis. So, interpretations do change.

You had this situation where different provinces would do different things and then you the ebbs and flows and how that worked. We've got to a regime that pre-1 March, you can do for a company in a non-restricted sector, and we'll touch on that in a moment, five or six weeks you can be up and running. So, in a services sector, IT, five or six weeks you can have a company. It doesn't mean everything's done, but your company and the bank accounts are relatively straightforward.

Now, if you're doing an industrial complex or something that does require land use rights approvals, etc., that may take longer. But our approach has been set the company up and then add that and go to that stage. Don't get stuck in the first stage.

Interestingly, that the new law actually is written. Set the company up and then get your investment approvals. So, this new law changed. It's still five or six weeks, but the first two weeks you can have a company and bank account and start employing people. You can't run your project, but you can actually have the entity set up.

Major shift in mindset. And that's just that goes back to the Vietnamese authorities modernizing. We did an assignment I think was about a year ago to which was us giving advice to the National Assembly as a foreign government aid funded project to give advice based on best practices. And our code was Australia comparing Australian investment laws for foreign investors versus Vietnam and giving advice and pros and cons and suggested changes.

And practical issues that we see day to day to National Assembly. And it's interesting that a lot of these things are finding their way into legislation to make things easier.

So, your initial could have been a few years, if you could get foreign invested because sectors were not more sectors were restricted, to now relatively straightforward for most sectors and not complicated to set up with quirks. I mean, asterisk beware of the detail. But as a whole it has changed dramatically and is changing. And the law is also, and this is where we see this new investment law really interesting, is it's changed for the foreign coming in, but has also got a window for Vietnamese to go out. So the maturity on that the country's matured enough to take the foot off the brake a little bit for the outbound as well, so that those tech companies can then take what they do to the world and create a better ecosystem. So, it it's all modernizing and you can look at gradual shifts over time or you can sit back and look twenty years and go, It's a major shift.

Anatolijus: Right. Now, six to eight weeks, I think it's amazing. There are countries in the modern world where six to eight weeks may not be possible, right? Putting the regulated industries aside. Now, you've seen and you assisted hundreds of companies to do this, right? What are the type of mistakes companies typically make that end up costing them a fortune in the end if they don't do it properly, if they don't use your services, for example?

Matthew: So I actually put a post on my LinkedIn yesterday, there are four main things we see. But before those four, there's a concept. Vietnam is not a logic driven when it comes to setting up a company or anything procedurally, it's not logic driven, its process driven. If there's seven steps and you go step three, “can I do this instead?” You fail. You have to follow the process. Vietnam, the bureaucracy, the socialist inspired system is no one's going to step out of the rules or the comfort zone.

So, if it says it requires A B C, you must give A B C. As soon as you push back and you make some logical assumptions, logically we could do this instead, it's not going to work. So, you don't fight logic, you don't get frustrated, you just follow the process. And that sets the scene, by the way. So as soon as we see potential parties looking to invest, almost try to fight the system, applying logic at every step, they're gonna have a horrible time. As I said at the very start, it doesn't suit everyone. And they're the ones.

So that's the foundation. If you can get in and kind of comprehend, okay, if there's a checklist and there's five steps, great, let's do those five steps. Good. You're on board. You're part way there. So, the four things that cause the most issues, first thing is how you bring your money in. It has to come in in a very specific way from the investor. So you can't use a hold code that doesn't have a bank account. You must become through from the bank account from the investor into a specific bank account.

If you do that and loans, the same thing must come a specific way. If you try to do shortcuts or use a Forex agent or someone else to do something, you'll get caught out. So, the bank accounts and capital flows, the treasury issues arising. I've got a client, twenty-five years after they set up, they made mistakes and the bank got in trouble and the bank on an inspection found that some of the accounts in the early days weren't done properly.

Fixing that is a horrible exercise. So, then you think it doesn't matter. It does matter. So just doing the capital. So, the first thing is bank accounts and capital. Second thing is taxation. Taxation is your biggest functional operational risk. So, taxation is everyone will get inspected and it's often the entry point to other inspections.

They're the parties that come in and look at your information. And if you're doing things outside business lines, if you're doing things in HR matters, they may engage other department ministries and agencies to deal with it. So that's your often your entry point. Tax is not about simply trying to hide things from the authorities. It's about having documentation, supporting your position, following the law and understanding it, not arguing, not logically assessing what it should be.

If there's a document required for travel expenses that needs approval by the general director, have the document. If there's a policy required, have a policy. Just don't fight it.

And a lot of it's not logically. But that's it's not about logic. It's about what the system is. So, if you've so if you understand that you need to be tax compliant and protect yourself document-wise, and a lot of it's still paper, we're moving a lot more digital, but it's still paper. And then on inspection, you have an easier task. You're not going to come up with penalties and tax issues, but also other issues arising from that.

Another issue is the HR unemployment and the assumption that foreign employment laws and employment practices work. And as you know, it's quite different here. It's very employee friendly. It's designed around protecting the employee. And in fact, the labor law is written around everything's a factory. It's not, but the evolution, but that's the foundation.

So, you have a lot of laws that are written for the benefit. And if you make a mistake, if you don't understand, the employer will suffer. And that may be small, annoying things. It could be major things. So just you never just say, we'll do what we did. Just how do we localize and how do we adapt? And what does that mean? Hiring, firing, contracts, approvals and those sort of things. And the last one is, and we touched on a little while ago, business lines. Understanding what you can do in market and what you can't. The fact that you've got a company doesn't give you the right to do everything.

My company is a services company. I can't sell you a pen. I don't have a retail, a stationary, a trading license for equipment. Now, that doesn't mean I can't do that, but I've got to make sure my business lines permit. Now certain business lines have requirements, might have sublicenses. If you want might want to run a restaurant, you need to make sure you've got health and safety and fire licenses, which are locally issued. But if I want to do retail, I need trading licenses and potentially retail outlet licenses or an e-commerce license. These are sublicenses.

If I was doing valuation services, I need to have enough registered valuers to facilitate to do the activities. Now, a lot of other things, IT and consulting may have no requirements. So some people get stuck and get caught out because they assume what they do is easy and therefore everything will be easy. And that's not the situation. And so it's that nuances of what you're permitted to do, and a lot of common law countries go, “well, a company can do everything unless it's restricted”. Vietnam is the opposite. You can only do what you're permitted and that's an explicit permission, not a implicit based on other you know, common law expectations. Again, logic process.

Anatolijus: So, if you want to set up your company correctly, talk to Matthew and he's gonna do a great job, which is the first step to get into this amazing market. We talked about Vietnam as a place of opportunity, as a safe harbor. I wanna talk a little bit about talent. Right. we hear everybody is coming here for talent. Now, in the beginning they came for cheap talent, right? Now they're coming for capability, because I think Vietnam is developing very nicely in terms of technical capabilities, financial, other service capabilities. Not just because Vietnam has a young labor force, right? Okay, this is an advantage, but there is, let's say, other aspects, which is it's a very capable labor force, right? How do you see the education system here supporting Vietnam development of this talent for the companies that are looking for this talent here?

Matthew: It's an interesting journey watching many years ago there was low value pool and a gap of management level of those people, decision makers. And so you're bringing in foreign parties to be that middle management. We're well past that now. There's still gaps, but you're not bringing expats in for middle management. Senior management, foreign companies and global, but also seeing Vietnamese go abroad being senior management and man and there. So, it's it has changed dramatically of that period.

And we're seeing situations right now, just to sort of go back to your point about low value, in particular in the north, a lot of the high-tech manufacturing happens up there, the assembly work. So your Samsung's, et cetera, they've got they've developed that so fast they've got not enough workforce and they're paying significant amounts of sign-on bonuses and they still can't attract and they're busting people in. So you've got self-imposed problems. That's a problem that that's created by itself, and that cluster has generated its own problems. And that's not necessarily a good thing.

So, I think the authorities will actually start changing the approach because it doesn't work in the way where you're indicating is that education and people development is what is growing Vietnam. This is the education sector.

I talked about Intel, baked out of their own education process. And I think now if you look to availability of engineers coming out of university system, Vietnam has one of the greatest pools that come out. Okay, that's only one metric, but it's a great metric to look at.

It comes down to, and this is where why the government wants foreign investment, is they're the ones coming in to help develop that pool to that next level. They can take them to university. And around just where we're filming at the moment here, you've got great universities and a lot of them have international corporations, international agreements, so that the employees are internationally aligned employees. They're coming to work for foreign companies.

They're learning and they become foreign employees in that they are mobile. A lot of Vietnamese then go work in other places. That change, where in the past Vietnam would send cheap labor abroad, it's not a big industry from Vietnam. It's an industry. But educated labor is becoming an industry. So, the evolution of what's going on is fantastic. And I was talking the other day to a company looking to set up here to do an engineering back office for the construction industry, and they their price analysis, it's really interesting.

Before it was, you know, Vietnam was significantly cheaper. Vietnam was only marginally cheaper. What it was availability of talent and that are willing to learn and to put a training program. They can't get enough people, they can find people for the price, but they can't actually get that supply chain of a continuous flow of people that would educate, that would expand their business. So, the business restriction and the growth, is they're being hampered in the home market. Vietnam re opens it up.

So, their strategy is develop Vietnam, bring people in, train, educate them, and then grow the business from Vietnam, that starts becoming the hub to service moldering markets.

So, the opportunities you're now moving. And it's that is a cost arbitrage, but it was not much. Right. And that's changed. Another point was many years ago outsourcing was Philippines and India, particularly when there was language involved.

Vietnam now we're seeing a lot of people from India and Philippines moving to Vietnam because it's less about language and Vietnam has nailed language so much better in the last few years and it is working on it. But the talent pool, price, delivery, productivity, Vietnam does work. So, when you do the numbers, it actually makes sense. So, there's just some examples of how it's moved and it has changed at the time. So, that transition from Philippines to Vietnam being a source where ten years ago it was still the other way around.

A good example would be the NAB, National Australia Bank for Australia. After three years, four years, they've come here, they've centralized some of the Asian hubs and now got two thousand staff supporting their Australian banking operations. And that was a conscious decision. And I'm not sure it's saving a lot of money. It would probably save some money, but provide so much more for them from what they can rocket, they can get out of a market like this when they've got the talent pool in a way and looked after and being developed.

This is a great place because Vietnamese are very good at learning, ramping up fast. They're smart and they're hungry. And this is a brilliant combination to have a talent pool that is not accessible in a lot of other regions.Anatolijus Fouracre

Anatolijus: That's a great example where a company is not buying talent. You know, they're coming and they're developing the talent. They're developing the capability. And I think the companies that actually choose this path, again, not coming for just labor arbitrage. They're coming for capability and they're able to develop this. This is a great place to do it because Vietnamese are very good at learning, ramping up fast. They're smart and they're hungry, right? And this is a brilliant combination to have a talent pool that is not accessible in a lot of other regions.

Matthew: But it allows them to go to greater markets as well. So, the regional approach that Vietnam gives you, the global outlook Vietnam gives you is greater than you may have in a developed country where you've got a constrained teleport or constrained not just price availability and just the ethic and the development of people.

Be able to take your you know, grow a business twenty percent in your home market or double it globally, it’s interesting when you start looking at that. So, we see a lot of people come in with the intent of just supporting one particular market or business and then pivoting and becoming a much broader operation out of Vietnam. And they're the success stories you like to see because it just feeds into why Vietnam works.

Anatolijus: Exactly, exactly. Now, government also has done a lot about promoting Vietnam for Việt Kiều*. So, these are overseas Vietnamese that have gone, lived there, had education, had experience, some of them actually coming back, right? Would you say that having Việt Kiềuback in Vietnam is changing the mid-management layer? It's really helping it and impacting it. Do we see a difference?

(*)Việt Kiều is a Vietnamese term used to refer to Vietnamese people living overseas, particularly those who were born in Vietnam or are of Vietnamese descent but reside permanently outside Vietnam

Matthew: I have a view and I'll take that in a second and just explain a with you of where that does work is that Vietnam many years ago realized that the knowledge and the money and the capacity from that greater Vietnamese community. So, they made a very important point of saying if you are for Vietnamese heritage, you're still Vietnamese. There's a greater Vietnam and they played that very well. So that the Việt Kiều, the overseas Vietnamese still have that attachment and they're welcomed. They're given a certain class.

They don't always fit in because once they've adopted another culture, they do sometimes struggle to adopt back that culture. So, they themselves don't always work. But this financial attachment, emotional attachment does have a benefit. Where it does pay off is my experience is the Vietnamese who go abroad to study and work for experience and come home. They haven't moved abroad. They’re not migrants. They've gone for study or for work or both and return. They haven't adopted another culture. They’re no longer sort of dual passport holders, they're simply Vietnamese who have got international experience.

They are the ones who present the most value in my experience because they understand Vietnam, but they bring that international experience back. And at all times when they're abroad, they're thinking, how does this relate to where I am? Now some stay, you've got some senior people in the US tech industry, Vietnamese, who will stay there and will not come back because that's the path. But there's a lot that do come back.

And I think that's the value. Not to say Việt Kiều don't come here and provide value, but I think the bigger pull is those, because the number of Vietnamese who study abroad every year is significant. Vietnam, if I put three tenants of Vietnamese historical sort of the culture: It is health, it is home, and it's education. And families put greater weight in spending on those three areas than many places.

Education, they'll spend ridiculous amounts of education if the opportunity arises to go abroad, for that reason to then they can come back and be more valued. So that education and working abroad is really is the key.

Anatolijus: Now you do a lot of lecturing to MBA students at different universities, and I'm wondering communication and leadership, these are the soft skills, right? How have you seen the evolution of these in the Vietnamese student population over the last, I don't know, ten years?

Matthew: It’s not necessarily the student population per se. I think in the Vietnamese society, so one of the things that foreign investment has brought is international approaches. And it's not one country is the right way. Having ideas from all different countries and cultures, bring it together and encouraging training and leadership. At the university level, most universities have a dual program with foreign universities, different countries, business universities.

You can't do a business degree here being connected to another foreign degree. It's still a Vietnamese degree. There are some foreign degrees you can do, but it's this openness that international will bring something.

In schools, English now is a requirement in certain elements and certain ways at school and university subjects. So that movement towards an Vietnam being part of an international system and therefore the learnings from that. So, the foreign invested sector, when you have people starting their career journey training -I know here-  training's a core part of what you do because that's what they want. They want to keep learning.

So foreign invested companies generally pay higher salary. But one of the main reason people want to work for them is the growth that comes from that, the education and training, the ability to become management material later on is because that's what it provides. And when I've done projects with the Vietnamese government, when we've been engaged, they sometimes will say, “well, you are higher price, but we can actually expect a certain outcome from it”, to Vietnamese team because of the culture and the training that they have.

And therefore we actually were prepared to do that because the benefit that comes back from that. So, it is a very much a it's a long term play that is paying off, but it's not finished. There is still a long way to go.. But education system, language requirements coming through that to keep that it's still very patriotic and it's very nationalistic.

They don't let that stop, this need for internationalized exposure in training, in language, in in experience, and in education generally. So, I'm very much I'm a big fan of what's happening. The on the other side of that is a lot of education institutions that aren't here, who have almost missed out and trying to get in.

And they struggle to come in because a lot of the early players have invested a lot of money to be part of that because they see the financial return for their institution or just simply the meeting their objectives to help educate the world and help be a better place.

So, the there are some that have missed out. Yeah. There are opportunities. But they weren't first. They weren't second. They’re behind.

Anatolijus: Now you're a beneficiary of educational system here. You hire people into your own organization, right? What is the quality of the applicant today versus five years ago?

Matthew: Five years ago, ten years ago, you're looking a much better quality applicant now. And so, one of the things I've always struggled with in a society that comes up with rote learning, sort of this the socialist system of don't question authority, run-through process, and there's good and bad with that. There's very compliant, but at the same time, critical thinking is not always there. So, there are certain universities that were better than others. So we picked certain universities that actually gave us a better raw candidate. We'd look for those who had done work outside and internships, et cetera, international and if they had good feedback because that shows again critical thinking.

And when I interview - I had an interview yesterday with a senior person - but they say to me, “You're not interviewing me. You're talking. You're engaging with me. Others don't do it.”  They do as a checklist. And I think that's one of the things that I've learnt is you need to know their personality.

You can train technical skills, if there's a foundation, but if there's not critical thinking, if there's not an understanding of concepts, if someone's not yet been of being exposed, I've got to understand.

As an entry level, see where they are, we can train that. If it's a senior, I'm expecting a certain standard for a certain role. And so that engagement is often the best way to do the interviews, not just a question and answer checklist. With that, we tend to find those in various levels of where they are. But yeah, raw candidates, it's generally from universities. It's particular universities that are better for certain areas.

If I'm doing accounting or taxation, if I'm doing legal, if I'm doing corporate finance, I'm doing transaction-based work, there are certain universities that feed better. International experience is often good, not always. Sometimes, for example, accounting. It's not good because they don't teach Vietnamese quirky accounting standards.

So there is a place, but it comes down to the aptitude coming out of some universities are better. And this has, back to your point, it has changed dramatically.

I have less concern of having to filter through CVs with that fear. Now it is much more confidence in CVs coming through. And that you are generally going to get for those who are going to university now, they will come out with English. There are subjects that are always done in English now. They have to have competence coming through before they even make an application. So, it's just we just know that that's going to come through.

Anatolijus: Now you have offices in Danang and Ho Chi Minh City.

Matthew: Ho Chi Minh City and Hanoi, and Singapore and Malaysia, but Vietnam, the bulk of our staff, Ho Chi Minh City and in Hanoi.

Anatolijus: Alright, so if somebody is looking to pick an office in Hanoi or in Ho Chi Minh City …or Danang…?

Matthew: I've had offices in Danang and so I know it very well.

Anatolijus: Any advice in terms of what's better? What's the fit?

Matthew: Yeah, someone which was better, yes. They suit different purposes and needs. So, the majority of foreign investors particularly from Western markets, tend to come to Ho Chi Minh City. Why? Commercial, because it’s much more commercial. Hanoi is much more political, much more regulatory. Ho Chi Minh City is much more commercial, and that means if you set up one, you can generally operate across the country anyway. So, if you set up from a compliance perspective for a lot more foreign companies, the compliance tends to be easier, more manageable, more predictable.

So, from the setup and the ongoing Ho Chi Minh City. If you've got regulatory needs, or if there's particular resources. So, there's certain IT development companies that have a niche. For them, Hanoi is much, much better talent pool.

So, Ho Chi Minh City has more talent, but there are certain talent pools that attract. So, from a regulatory government perspective or a specific talent pool, Hanoi can work.

And then Danang. It has many years ago focused on tourism, and technology. And so, you've got a pool there. It's a smaller place, but they're eager. It's a lower cost, but you have a large pool, a generalist pool.

So, either you've got a generalist pool where you can take out of Danang and know that there's going to be workforce at a lower cost, or whether you have a particular knee and, you know, there's other organizations in Danang because it is tech heavy: you can pull out, so it's interesting.

Now, I believe that for your productivity also, Ho Chi Minh City is slightly higher than Hanoi, slightly higher than Danang, but when you start doing my price, my availability, access, and my growth opportunities…. real estate cheaper in Danang.

Ho Chi Minh City is the most expensive. So, when you start doing the numbers, it's an interesting story. And when I was a bit sort off the cuff at the start when I said, yes: they can't actually all work because it's not just a zero sum game of … okay, Ho Chi Minh City is the answer.

My general advice is if you're growing to a large scale, you will probably be across the country anyway because of those all those reasons will work in some way for your business.

Anatolijus: So, it sounds like you and I are quite excited about Vietnam. I mean, we lived here for a while, so we're biased. There is a CEO out there looking at this and saying, you know, I've looked at Vietnam. Yeah, I hear the story. I like it. I'm still on the fence. I am not sure. Is this the right time for me to make the move? I'm looking for this alternative location, maybe for a primary international location, you know, it has all the ticks all the check boxes, but I'm still on a fence. What do you say to them?

Matthew: It doesn't work for everyone. I said it's not the panacea of all problems. So, if we're doing a manufacturing we've quite commonly done manufacturing analysis where someone wants to move part of the operation from China, you know, for the reasons of China plus one and they're looking at multiple markets in Southeast Asia.

Vietnam, it's interesting, it's not perfect on every scale and you're trying to work out of what the balance is. It generally wins, but it doesn't always win.

And the same thing for a services business, the same thing for a regional growing and using Vietnam as your first regional growth. It's challenging. So, it's not always perfect.

However, it does provide something that most other countries can't. So, if you look at both we mentioned stability, we mentioned growth, and you mentioned about the optimism, all of those things together with talent pool and costs, everything, it becomes compelling in most cases.

But not every case. So, I tell CEOs when they're coming through and sitting down, should we do it? Have a look at it. I'm not saying “do it”. And quite often I say don't.

But it more often than not, it's it does work and the numbers work. My experience is after getting all of that, the decision whether to proceed or not is the gut feel. If someone comes, they spend time and they go, I actually like this. I feel good.

And I don't feel a concern for my safety. I don't feel concerned. Everyone around has a good vibe. And it's that feel that makes the decision.

And not matter what you put in front of them, what the feasibility shows, which market where it is, … they like it. It feels good.

So, if anyone coming, a CEO looking in Vietnam, spend some time here, then a long time, but spend some time and that often actually will support or make a decision or not make a decision in some cases. But that's often the defining factor.

Anatolijus: So, we tell you come and experience yourself and see how Vietnam operates and how we can help you set it up. And Matthew, thank you so much. That was a great conversation, and I think we learned a lot about why this country is an amazing country to set up your operations.

Matthew: Thank you very much for having me here today, and I look forward to having a discussion again about other topics in due course. But thank you so much. Sounds great.