Note: The case study below on "Vietnam's Emerging Market Potential" will be presented in the final exam with questions to be answered. Please read through carefully to familiarize yourself with the content.

Vietnam's Emerging Market Potential

(Source: Wild and Wild, 2019)

Around 30 years ago, Vietnam's government first introduced doi moi. This "renewal" policy initiated free-market reforms while preserving a communist political system. In 1990, Vietnam's government announced that non-Vietnamese manufacturers were welcome to set up shop in the Southeast Asian country. South Korea's Daewoo (www.dm.co.kr) quickly established itself as the number-one investor in Vietnam. Other well-known companies, including Toshiba (www.toshiba.co.jp), Peugeot (www.peugeot.com), and British Petroleum (www.bp.com) also took Hanoi up on its invitation.

The absence of trade and diplomatic relations between the United States and Vietnam, however, meant that US companies had to sit on the sidelines. Nearly four years later, the US government lifted the trade embargo with Vietnam, paving the way for a host of US companies to pursue opportunities there. Vietnam's location in the heart of Asia and the presence of a literate, low-wage workforce are powerful magnets for international companies.

Early on, Vietnam's Communist Party struggled to adapt to the principles of a market economy, and the layers of bureaucracy built up over decades of communist rule slowed the pace of change. Despite the efforts of the State Committee for Corporations and Investment, the government sometimes still conducts itself in a way that leaves international investors scratching their heads. In one incident, Hanoi embarked on a "social evils crackdown" t hat included pulling down or painting over any sign or billboards printed in a language other than Vietnamese. And laws concerning taxes and foreign exchange are in constant flux.

Yet an emerging entrepreneurial class in Vietnam has developed a taste for expensive products such as Nikon (www.nikon.co.jp) cameras and Ray-Ban (www.ray-ban.com) sunglasses - both of which are available in stores. But if official economic statistics tell us that many Vietnamese are poor, where does the money come from to afford such luxury items? The answer is found in the large unofficial economy. It is typical for a person to live only 5 to 10 days a month on their official salary, with the majority of their purchasing power coming from moonlighting activities and business conducted in the informal economy.

In late 2001, Vietnam and the United States signed a trade deal that gave Vietnam normal trade status with the United States. This meant that Vietnam could ship goods to the US market at the lowest possible tariff rates. Meanwhile, US companies are gaining continually greater access to Vietnam. As a result, Vietnam, export activity (worth around $170 billion in 2016) is booming due largely to its cheap, efficient workforce and growing foreign investment. Vietnam's exports to the United States are doubling each year. The diversified nature of the country's exports including commodities, agricultural products, and manufactured goods means it is somewhat immune to large swings in the price of any one export. Vietnam is now the world's largest exporter of pepper, it may soon overtake Thailand in rice exports, and it even exports tea to India.

Vietnam has become one of Asia's best-performing economies. Over the past decade, Vietnam grew nearly 8 percent a year. Manufacturing makes up more than a third of the nation's $200 billion economy and is a regional hub for companies like Samsung. In fact, Samsung is Vietnam's biggest exporter, accounting for around 20 percent of all exports. But this means Vietnam's fortunes are tied to those of leading multinationals. When Samsung ended production of its troubled Galaxy Note 7 smartphone electronics exports fell by more than 10 percent. Vietnam's infrastructure is underdeveloped. Only 25 percent of roads are paved and electricity sources can be unreliable. The population of around 82 million has an annual per capita income (at purchasing power parity) of only about $2,900. Still, the nation's trade-driven economy has lifted many Vietnamese out of poverty. Whereas the World Bank labeled as much as 70 percent of the population poor in the l1980s, that number was less than 18 percent in 2017.

q1.which of the trade theories examined in class helps to explain the type of goods exported by vietnam?

q2. should vietnam be worried about opening its country to trade and FDI? why