Outward shift

It’s morning in Ho Chi Minh City and motorcycles swarm the roads as office workers fill the pavements, drinking hot coffee in the sweltering heat. Amid the everyday mayhem, the first sign that something new is afoot appears in fetching cyan blue. In early 2023 a fleet of electric cabs owned by Vinfast arrived in the country’s commercial centre. For the owner of the Vietnamese automaker, starting a taxi company was a shortcut to getting these vehicles on the road in a country that has historically had low levels of car ownership.

Vietnam’s communist government opened the nation to private enterprise in the late 1980s and, after several false dawns, a middle class is at last emerging. Ho Chi Minh City is the southern gateway to this rapidly growing country of about 100 million people: skyscrapers are rising above the shophouses; two-bedroom flats are selling at New York-style prices and Starbucks has established a presence throughout the city. Michelinrecently handed out its first stars to restaurants here and the French, who inspired bánh mì baguettes in the colonial era, continue to influence food retail. Though business has been bumpier than expected in the past year, one of Southeast Asia’s most enterprising cities is poised for a bumper 2024 and beyond.

“Ho Chi Minh City is at an inflection point, somewhere between frontier and big city”

Australian entrepreneur Darren Chew has had a front-row seat to Ho Chi Minh City’s transformation. Chew, who originally landed here as a tourist on his way to Europe, co-founded furniture business District Eight in 2010. “When we started out, there wasn’t a very big local market,” he says, sitting on a couch inside his company’s maiden showroom. The downtown shop opened in 2022 as a pop-up; a second, larger showroom, studio and event space will open soon. “We are leaning into the Vietnam thing a little more,” adds Chew, who oversaw District Eight’s debut at Salone del Mobile in 2023.

The business is named after the location of its original factory (Ho Chi Minh City is divided into 24 mostly numbered districts). That first building was turned into a school by the local government; the company’s second factory became a residential development. Chew must now drive for an hour to a third site in neighbouring Long An province. The journey takes him past a giant Taiwanese-owned factory that produces footwear for Nike and Adidas. Ho Chi Minh City’s largest employer, Pouyen, has laid off thousands of staff this year in response to sluggish international demand. Chew, meanwhile, has been busy adding space to meet a backlog of US orders. Once complete, District Eight’s third factory will enable the company to double its turnover by the end of 2024.

“Vietnam is a well-established manufacturing hub but the products are usually only made here, not designed here,” says Chew, who wants private-label furniture to generate half of his company’s revenue. During monocle’s visit, Chinese furniture distributors who saw District Eight at Salone del Mobile and are interested in opening a Shanghai showroom are in Long An. This direction of travel from Vietnam to China – particularly at a time when the business news is full of stories about low-cost manufacturing moving the other way – suggests that Vietnam can be more than a substitute supply chain or a source of cheap labour. Indeed, the country is expected to become a top-10 economy by the end of the decade. Indochina Capital made its name building Vietnam’s top luxury resorts. These days the property investor, which is backed by Japanese construction giant Kajima, is developing two businesses: a hotel brand targeting 70 million domestic travellers and modern factories for European manufacturers with sustainability mandates. “Vietnam needs to define itself,” says Michael Piro, the firm’s coo and co-founder and ceo of Wink Hotels. “Ho Chi Minh City is at an inflection point, somewhere between frontier and big city.”

Foreign capital and talent has played a pivotal role in building the new Vietnam. Overseas Vietnamese are also returning to their parents’ homeland, bringing international standards, as well as an eye for design and creature comforts, from pizza to professional sports. But the need to import talent from abroad is declining across industries as a well-educated and hungry domestic workforce rises to the top. 

Seoul focus

Washington might be hugging Hanoi tightly right now but it’s Seoul that is spending the most time and money in Vietnam. South Korea is the country’s biggest foreign investor and its financial commitments go well beyond Samsung’s smartphone factories, taking in sectors from insurance and mobility to pharmaceuticals and defence. Hyundai is matching Toyota here, while Shinhan Bank has replaced hsbc as the largest foreign high-street lender.

Seoul views Vietnam as a big market without the political baggage of China or Japan and it also shares certain cultural ties and customs with the country. South Korean tourists outnumber arrivals from anywhere else and can reliably be spotted heaving golf clubs through the airport, tacking 18 holes onto a business trip. According to private equity bosses in Ho Chi Minh City, most major South Korean companies have a Vietnam strategy; managers are under pressure to find investments and they tend to have a higher risk tolerance than their Japanese counterparts. Seoul also has hi-tech jobs that the Hanoi government is keen to attract.

In September, Joe Biden visited Vietnam and threw his support behind the development of a domestic semiconductor industry. Within weeks, South Korean chip manufacturer Hana Micron announced a $1bn (€950m) investment. But the Vietnamese consumer can be difficult to crack. South Korean food-delivery app Baemin seemed to do everything right when it entered the market, hiring the creative agency Rice Studios to localise its platform. But the company is now winding down its delivery business and pivoting to skincare and make-up. If Baemin’s Lazy Bee beauty products prove a hit, they could spare some blushes back in South Korea.

“Many Vietnamese who have studied in other countries are coming home,” says Chris Freund, founder of Mekong Capital, from his office in District One, where the company mostly employs local staff. Freund was an early private equity investor in Vietnam. His firm started out in low-cost manufacturing for export, before it switched to the consumer segment and struck gold with an electronics retailer. Its latest fund is betting on consumer finance and a biotechnology start-up founded by Vietnamese scientists with international degrees. “The market opportunity is great and people here are very open to foreign investment,” he says, looking out at the half-completed towers that make up the city’s skyline.

Southeast Asia’s largest steelworks is a two-hour drive east of downtown Ho Chi Minh City, close to Phu My’s deep-water river port. Inside vast factory buildings, coiled sheets of Hoa Sen’s prime hot-dipped galvanised steel await shipment to Antwerp and Leixões in Portugal. Factory bosses expect to be operating at close to capacity by April 2024, a year after production hit bottom. Vietnam’s economy came roaring out of the coronavirus restrictions in 2022, posting 8 per cent growth, before stumbling this year as a result of the global downturn and a domestic political scandal.

“It’s a bump in the road,” says Tammy Le, deputy chair of Hoa Sen Investments, during a tour. Le’s father founded Hoa Sen in 2001. The publicly listed steel company recently ventured into home improvement, opening more than 100 shops selling toilets and tiles. “There’s so much happening here,” says Le, who was educated in the US and returned home not long after Vietnam’s first McDonald’s opened in 2014. The 28-year-old joined her father earlier this year to lead the company’s diversification into various industries, including healthcare, student accommodation and entertainment. “Vietnam is the new land of opportunity,” she says, echoing the type of boundless optimism that is apparent on the ground but is rarely reflected in the international business headlines.

Export volumes might go up and down from one quarter to the next but few business leaders here appear to be basing their long-term decisions on factors such as the number of smartphone units leaving Samsung’s factory outside the capital, Hanoi. Foreign direct investment into Vietnam has continued to climb throughout the downturn and chambers of commerce are having to hire more staff to handle enquiries from their home markets, bolstered by the geopolitical trade winds blowing manufacturing away from China.

Thai company Central employs about 15,000 people in Vietnam, where it is the leader in hypermarkets. Olivier Langlet joined the company as a country ceo from German multinational retail corporation Metro at the height of the pandemic. “We want to double our number of malls to a minimum of 600,” he says, as he outlines plans to invest $1.45bn (€1.3bn) over the next four years. As he shows monocle around one of Central’s Go! hypermarkets, he speaks excitedly about the market penetration of modern shops – in Vietnam, it is barely into double digits, which is very low compared to, say, Thailand. “We have a very nice road ahead of us to develop the business and our footprint here,” he says.

Central is considered a successful case study but making Vietnam profitable has required flexibility and patience. Langlet’s business outlook for the rest of this decade is very different to how things were when the Thais arrived in 2012 with department stores and franchised fashion brands. Most of the fashion shops have closed and there are now only two department stores. “We might come back to fashion in a couple of years,” he says. 

Many businesses mistimed their market entry – and not just foreigners. Tran Thi Hoai Anh has been a trailblazer for European fashion retail in Vietnam. Starting in 2007, she opened a string of monobrand shops for the likes of Chloé, Loewe and Balenciaga, later replacing them with a multibrand shops and concept store Runway, which continues to grow. “It was too early for lesser-known labels that weren’t at the level of Gucci, Dior, Hermès or Louis Vuitton,” she says. These days, there is plenty of money in Ho Chi Minh City and the lure of Vietnam is likely to increase next year when various free-trade deals come into effect, making it easier for overseas brands to open retail outlets.

“We have a very nice road ahead of us to develop the business and our footprint”

The most striking examples of Ho Chi Minh City’s economic rise can be found in property. Englishman Philip Cluer is the coo of developer Refico. He calls the current market “commercially buoyant” and for good reason. Floorspace at The Nexus, a Refico-developed office tower that is expected to open in District One in 2024, has been snapped up by a range of blue-chip foreign businesses that are clearly willing to pay Hong Kong-style rents for a prime spot in what is still a developing country. The residential sector is similarly frothy. The River is Refico’s recently completed residential tower in Thu Thiem, a greenfield area of District Two on the other side of the Saigon River. Only a few apartments remain on the market, despite a two-bed property costing about $500,000 (€475,000). The address is proving popular with South Korean and Japanese tenants, who receive a furnished apartment, fantastic views and use of an outdoor 50-metre pool for an average of $1,700 (€1,610) a month.

Thu Thiem is being marketed as Vietnam’s answer to Shanghai’s Pudong, the former rice field that was transformed into a vertiginous financial district opposite the Bund waterfront area. There’s certainly some geographic merit to this sales pitch, along with the towering ambition to back it up. A 333-metre-high Ole Scheeren skyscraper that will be Ho Chi Minh City’s tallest building is among the projects on the drawing board. That should excite anyone who has been to Shanghai.

The comparisons to China are apt in more ways than one. At the end of 2022 a Beijing-style anti-corruption drive took down one of the southern city’s most prominent property tycoons. Debt markets froze and private property firms scrambled to shore up their finances, mothballing major developments and offloading assets. Since then, jittery officials have been too nervous to grant new approvals. The extent of the fallout took everyone by surprise, hitting adjacent industries, from mattress sellers to supermarkets. Nor were international firms spared. The Mandarin Oriental Saigon was forced to put on hold plans to open at a prime address owned by the tycoon, who is still languishing in jail.

People speak about the scandal in hushed tones, strictly off the record. One common takeaway is the importance of finding a trustworthy local partner. Ultimately, no company should invest in Vietnam believing that Hanoi is fundamentally very different from Beijing, nor should they see Vietnam as a bastion of democracy, free speech or human rights. The one-party system and five-year plans deliver the same pros and cons: stability and predictability but also opaque decision-making, corruption and lack of accountability. Hanoi’s approach to the coronavirus pandemic was straight out of Shanghai’s playbook: workers lived in their factories for months, supermarkets were shuttered and the army delivered groceries. With the poor health of Vietnam’s most powerful leader a matter of public record, another major political earthquake is expected.

“What Thailand has now, Vietnam will need: the basics of any developed country”

The effect of placing Ho Chi Minh City on ice for a year has been to create an even bigger property-development pipeline. One executive referred to 2023 as the year of paperwork, implying that when the political frost eventually thaws, companies will be ready to get going. 

Some cranes and construction vehicles are already moving on the skyline but the biggest ribbon-cutting will arguably happen underground. A Japanese-funded metro is finally ready to begin operating, six years behind schedule. Though one line won’t change the daily commute for everyone, the new public transport infrastructure is a milestone. Shanghai reached this point in the 1990s and Bangkok followed at the end of that decade.

In this respect, Vietnam’s largest city is trailing behind its peers by at least 20 years. “What Thailand has now, Vietnam will need: the basics of any developed country,” says Hoa Sen’s Tammy Le. According to the World Bank and imf, the country’s economy will grow by about 5 or 6 per cent a year in the near term but those numbers are likely to be revised up as Ho Chi Minh City gets back to business. The next decade will bring more luxury apartments and modern shopping centres, as well as a prestigious design school, arenas and a proper conference centre. The longest highway in southern Vietnam will open and a huge international airport will replace the poky Tan Son Nhat – a frequent source of frustration for arrivals, who have to endure its tiresome queues. All of that construction should mean bigger commercial opportunities, a far better lifestyle and plenty more mayhem.