Vietnam follows Korea's footsteps

Tariq Hussain

South Korea's industrialization success has been the envy of developing countries. For a while, a few South East Asian countries, notably Thailand and Malaysia, came close to catching up with Korea. Yet none have gone all the way. In recent years, Vietnam has emerged as another contender.

There are a few reasons why Vietnam could indeed emulate Korea. First, Vietnam is on a fast-growth track. Koreans visiting Vietnam frequently comment that the country is booming and bustling, and "feels like Korea in the 1970s." GDP growth has averaged 7.8 percent per year in real terms between 2002 and 2006. Manufacturing is absorbing an ever larger share of the workforce, having created 1 million new jobs per year between 2001 and 2005. In addition, Vietnam has made rapid progress in penetrating overseas markets. The United States has emerged as its biggest export market, followed by two other developed economies (Japan and Australia).

Second, Vietnam and Korea share a number of institutional and cultural traits. Just as was the case in Korea's early years of development, Vietnamese government bureaucracy is guided by capable technocrats who have a clear understanding of the country's priorities. Just like Korea under President Park Chung-hee, Vietnam today remains a totalitarian country. This ensures stability and a relentless focus on economic progress - if necessary at the expense of political and individual freedom. Culturally, the Confucian work ethic shared by Koreans and Vietnamese provides fertile ground for rapid catch-up. At more than 95 percent, literacy in Vietnam is high even by East Asian standards. Both nations' innate drive to catch up has been shaped by their tumultuous histories: Korea and Vietnam have been pushed around by bigger powers in Asia and the West, culminating in division in the 20th century. This has created a determination to ensure independence and do better as a nation.

A third factor edging the two countries closer together is the rapid influx of Koreans into Vietnam. A visit to the Daewoo Hotel in Hanoi suggests that spirit of Daewoo's founder Kim Woo-chung is more alive than ever. Koreans are out in full force, looking for any kind of opportunity. In 2006, Korea became the largest foreign investor in Vietnam. Koreans are driving up local property and stock prices in search for lucrative deals. One third of golf memberships in Vietnam are held by Koreans. Korean property developers are rushing to build resorts and destinations for their compatriots.

To be sure, daunting challenges remain for Vietnam. Managing the unequal growth of different regions (especially outside Ho Chi Minh City and Hanoi) will be one. The reduction of red tape will be another. Despite its talent at the top, Vietnam's complex bureaucracy and regulations remain a major deterrent for investment and growth. A third one will be the continuous enhancement of the human capital base - from a broad level of basic education, towards a continuous stream of highly trained engineers and qualified professionals. This is where countries such as Thailand stagnated on the path to copying Korea. Finally, managing the transition towards a more open political system could create all sorts of instabilities. Once bellies and wallets are filled, minds could start shifting towards non-material desires. This is what Koreans realized in the 1980s and 1990s, leading to a rough, but remarkable journey to democracy. If these hurdles can be mastered, Vietnam's long-term prospects should be bright. Assuming real per capita growth of 7 percent per year, it would take Vietnam 17 years to reach the $10,000 level (which Korea achieved in 1994).

These are big "ifs," but they are not insurmountable. Vietnam may even have an edge over Korea in the long run. With the advent of the Doi Moi (economic reform) policy in 1986, Vietnam has opened up its country to foreign companies - a stark contrast to Korea's development model. Today, the foreign-invested sector accounts for close to 60 percent of total Vietnamese exports. Vietnam's FDI stock as a percentage of GDP is on par with developed economies - much different from Korea, which is still trailing badly on this measure. Given Vietnam's access to the World Trade Organization and the enactment of the ASEAN Free Trade Agreement, the country may become the focal point for global companies' operations in the region. Indeed, some Korean companies are at the forefront of this trend. POSCO, Kumho Tire, Doosan Heavy Industries and LS Cable have all announced they plan to make Vietnam their main production location for South East Asia. Japanese companies increasingly regard Vietnam as the "+1" as part of their "China + 1" strategy to reduce dependence on the Middle Kingdom. Becoming a regional center has, of course, become an ambition for Korea as part of its "hub" strategy - so far an unfulfilled dream.

To achieve this goal, Koreans would have to overcome their fear and skepticism of foreigners - maybe by learning a lesson from the Vietnamese. A U.S. executive who reached an agreement for one of the first American flights to Vietnam after the War recalls: "I negotiated with a government official who must have been in his early 20s in 1968. He did not seem to think, let alone talk about what happened three decades earlier. His thoughts were focused on the future, and how we could work together to get our planes to Vietnam." One Western diplomat who has lived and worked in both countries notes: "Koreans easily get stuck in their history, which, no matter how unjust it may have been, prevents them from looking ahead. The Vietnamese are more forgiving and forward-looking in that sense.

"This should help (Vietnam) embrace the world and move ahead."

Tariq Hussain is North East Asia Representative of Maxmakers, a Swiss real estate advisory firm, and author of "Diamond Dilemma - Shaping Korea for the 21st Century." - Ed.