The 2010 Vietnam Competitiveness Report
1
Copyright 2010 @ Professor Michael E. Porter
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
Professor Michael E. Porter
Harvard Business School
Vietnam Competitiveness Report Launch
Hanoi, Vietnam
November 30, 2010
The Vietnam Competitiveness Report
Objectives
• Provide policy makers and external observers with a data-rich
assessment of Vietnam’s competitiveness, using a comprehensive
internationally-accepted methodology
• Develop an integrated set of policy recommendations, supported by a
transparent logic and data
• Engage decision makers from different constituencies in a dialogue on
the future of Vietnam’s competitiveness
Partners
2
Copyright 2010 @ Professor Michael E. Porter
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
Objectives
• Provide policy makers and external observers with a data-rich
assessment of Vietnam’s competitiveness, using a comprehensive
internationally-accepted methodology
• Develop an integrated set of policy recommendations, supported by a
transparent logic and data
• Engage decision makers from different constituencies in a dialogue on
the future of Vietnam’s competitiveness
Partners

+6.15%
CAGR:
+5.00%
CAGR:
+5.00%
CAGR:
+2.47%
CAGR:
+2.47%
5
Copyright 2010 @ Professor Michael E. Porter
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
$0
$500
$1,000
$1,500
$2,000
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Vietnam’s Position in 2010
• Significant growth over the last two decades
• Widespread reduction in poverty
• Resilience in the face of the global economic crisis
BUT
• Still low level of prosperity and productivity
• Growing concerns about the economic sustainability of Vietnam’s
current development model
6
Copyright 2010 @ Professor Michael E. Porter
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
• Significant growth over the last two decades
• Widespread reduction in poverty
• Resilience in the face of the global economic crisis
BUT
• Still low level of prosperity and productivity
• Growing concerns about the economic sustainability of Vietnam’s
current development model
United States
Hong Kong
Australia
Singapore
Taiwan
Japan
South Korea
New Zealand
$30,000
$35,000
$40,000
$45,000

$30,000
$35,000
$40,000
$45,000
South Korea
PPP-adjusted GDP per
Employee, 1990-$USD
8
Copyright 2010 @ Professor Michael E. Porter
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
Source: Groningen Growth and Development Centre and The Conference Board (2010)
$0
$5,000
$10,000
$15,000
$20,000
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Vietnam
China
Thailand
Indonesia
Vietnam’s Current Development Model
• Structural change, fuelled by Vietnam’s integration into the global
economy, has been the key driver of Vietnam’s growth
• Foreign investors have combined capital with Vietnamese labor and imported
inputs to serve global markets, increasingly also domestic demand
9
Copyright 2010 @ Professor Michael E. Porter
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
Structural Change and Vietnamese Growth

India
Indonesia
Malaysia
Myanmar
Philippines
-10%
0%
10%
20%
0% 20% 40% 60% 80% 100%
Change in Exports as % of GDP (1989
-
2009)
Total Exports as % of GDP, 2009
China
India
Indonesia
Malaysia
Philippines
Singapore
Thailand
-6%
-4%
-2%
0%
2%
0% 5% 10%
Change in net flows of inward FDI
as % of GDP (1989
-

5%
10%
15%
20%
25%
30%
0
50
100
150
200
250
300
350
400
450
2000 2001 2002 2003 2004 2005 2006 2007
# Firms
Workers
Fixed Capital
• Structural change, fuelled by Vietnam’s integration into the global
economy, has been the key driver of Vietnam’s growth
• Foreign investors have combined capital with Vietnamese labor and imported
inputs to serve global markets, increasingly also domestic demand
• Value added and productivity in Vietnam remains low , especially in
manufacturing
• FDI and exports create jobs, but have not raised prosperity levels beyond the
low wages in manufacturing
• There is little evidence of positive spill-overs from FDI to the rest of the
Vietnamese economy in terms of improving productivity and technology

$47.36
$48.72
$82.29
$117.15
$156.19
$166.95
$336.04
$540.45
$829.71
$1,146.47
$1,809.91
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Japan
Sinapore
South Korea
Taiwan
Malaysia
Philippines/Metro Manila
Thailand/Bangkok
China/Shenzhen

600
800
1000
1200
1400
1600
1800
2000
Japan
Sinapore
South Korea
Taiwan
Malaysia
Philippines/Metro Manila
Thailand/Bangkok
China/Shenzhen
Indonesia/Jakarta
Vietnam
Cambodia
Vietnam’s Exports By Type of Industry
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Fishing and Fishing Products
Coal and Briquettes
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Vietnam’s world export market share, 2009
Change In Vietnam’s average
world export share: 0.275%
16
Copyright 2010 @ Professor Michael E. Porter
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
Exports of US $2 Billion =
Oil and
Gas
Agricultural Products
Furniture
Communications Equipment
Entertainment and
Reproduction Equipment
Jewelry, Precious Metals and
Collectibles
Textiles
Plastics
Building Fixtures
and Equipment
Motor Driven Products
Leather and Related Products

Transportation
& Logistics
Share of World Exports by Cluster
Vietnam, 2008
Power
Generation
Aerospace
Vehicles &
Defense
Lightning &
Electrical
Equipment
Information
Tech.
Business
Services
Distribution
Services
Forest
Products
Heavy
Construction
Services
Construction
Materials
Prefabricated
Enclosures
Jewelry &
Precious
Metals

Publishing
& Printing
Communi-
cations
Equipment
Business
Services
Forest
Products
Apparel
Leather &
Related
Products
Footwear
Tobacco
Medical
Devices
Education &
Knowledge
Creation
Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.
Marine
Equipment
Aerospace
Engines
Heavy
Machinery
Sporting
& Recreation
Goods

Opportunities Threats
18
Copyright 2010 @ Professor Michael E. Porter
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
• Disruptions that could limit
demand
– Rising protectionism
– Overheating in China; sluggish
growth elsewhere
– Climate change
• Competition that could reduce
Vietnams attractiveness
– From other low-wage locations
– From within the increasingly
open ASEAN region
• New opportunities as a means to
serve new demand
– Emergence of Asia
– Increasing market of
consumers with similar needs
as in Vietnam
• New opportunities as a supply
base
– Cost pressure on global
companies
– China + 1 strategy of MNCs
Vietnam’s Current Development Model
Emerging Weaknesses
• Low sophistication in the export sector coupled with strong domestic demand
drive growing trade deficit

2
% change in CPI
-20,000
-10,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Prel.
2008
Source: Data from General Statistics Office, Vietnam.
Vietnam’s Current Development Model
Emerging Weaknesses
• Low sophistication in the export sector coupled with strong domestic demand
drive growing trade deficit
• Real appreciation of the Dong further contributes to the deficit
21
Copyright 2010 @ Professor Michael E. Porter
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
Vietnam’s Currency Valuation
80
90
100
110
120

• Expansionary fiscal and monetary policies worsen inflation, rather than
control it
23
Copyright 2010 @ Professor Michael E. Porter
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
• Low sophistication in the export sector coupled with strong domestic demand
drive growing trade deficit
• Real appreciation of the Dong further contributes to the deficit
• Significant capital inflows fuel domestic demand growth and inflation
• Expansionary fiscal and monetary policies worsen inflation, rather than
control it
Rate of Inflation
Selected Countries, 2000 - 2009
-50
0
50
2
% change in CPI
-5%
0%
5%
10%
15%
20%
25%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Vietnam
Indonesia
Malaysia
China

• Expansionary fiscal and monetary policies worsen inflation, rather than
control it
• Falling ratio of GDP growth to investment increases the need for capital
inflows to maintain the growth rate
• Demand growth is outstripping the existing microeconomic capacity in terms of
skills and infrastructure
25
Copyright 2010 @ Professor Michael E. Porter
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
• Low sophistication in the export sector coupled with strong domestic demand
drive growing trade deficit
• Real appreciation of the Dong further contributes to the deficit
• Significant capital inflows fuel domestic demand growth and inflation
• Expansionary fiscal and monetary policies worsen inflation, rather than
control it
• Falling ratio of GDP growth to investment increases the need for capital
inflows to maintain the growth rate
• Demand growth is outstripping the existing microeconomic capacity in terms of
skills and infrastructure