February 18, 2013

Why Vietnamese Rarely Innovate

Why Vietnamese Rarely Innovate

Mango Seller photo courtesy of Dat’s Diary http://datdiary.wordpress.com

A friend of mine, Dat, writes a blog where he posts his observations of life in Vietnam.  Recently I read his post “Price Collusion in Vietnam.”  It’s a great little story that gives insight into why so few Vietnamese companies or entrepreneurs innovate.

They just don’t think that way.

Like the mango seller in Dat’s post, the strategy of most Vietnamese businesses boils down to “copy what everyone else is doing and cooperate on price.”

That’s why you always see like businesses clustered around each other in Vietnam.  Near my house there is “electric street” where there are many small shops that sell electrical supplies.  There’s also “safe street,” “key-making street,” and “sporting goods street.”  Each one is lined with shops selling virtually identical merchandise with identical prices.  Sometimes you can negotiate the price, but the lowest negotiated price is the same for each shop.

This puzzled me for a while when I first moved to Vietnam.  “Why should they cluster together like that?  Aren’t they afraid the other stores will steal their customers?”

Then I realized that their strategy was not to compete at all.  It was to cluster together and become known as the street where you go to buy X.  Then they collude to deny consumers any cheaper — or better — options and ensure a modest profit.

This strategy works as far as it goes.  But it doesn’t encourage innovation.  In fact, it discourages innovation.  No one can be different because that throws off the price and product harmony.

A variation on this strategy I’ve seen is “copy, then charge a lower price.”  It often results in price warfare and lower-value products.  It’s  rare to see a business differentiate by solving customer problems better.  I think one of the reasons is that the role of sales to educate customers is poorly understood in Vietnam.

When you grow up in an environment like this it’s hard to think to compete any other way.  Which is why Vietnamese rarely innovate.  They’ve never seen it.  They don’t know how.

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