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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  • Insightful post Chris. Tough truth but it’s real. One of the basic philosophy of Vietnamese commerce is “collective businesses”. Major players might set a basic price and that’s the rule, it helps them all bargain better against consumers. Maybe that’s why foreign intervention in markets is necessary here.

    • Thanks Thanh.

      I think there are cultural issues here as well. Both Asian and Western culture stress being part of the group, but Asian culture stresses it more. People here are reluctant to stand out from the crowd. No one wants to be different. But innovating is being different by definition.

      I believe that Vietnam needs more competition, more economic Darwinism. The most innovative and best companies will win and the non-innovative companies will die out. Customers and society will benefit.

      Vietnamese are natural and fierce competitors. Just by entering the market foreign firms will teach local firms how to compete, innovate and add more value to customers.

      • Phan Quy Anh

        Great point Chris.

  • I think we should have a second thought about why some shops clusters, and some others don’t. Maybe the lack of yellow pages, of infrastructure, the high cost of transportation, the social habits play a role as well. And by the way, is it a vietnamese thing really ? The street I sit right now is a “garment” street, it is an undiscontinued line of textile showrooms right next to each other. Welcome to Paris, France.

    I would love to spend a few days under the skin of these vendors to understand their living, but it’d restraint from making a statement about whether they compete or not until then. I guess it would require to understand where their profits come from (wholesale ? direct sales ? captives partners ? supplier’s kickback ?)

    What I’d agree for sure that is not very asian thinking is seeing competition as equivalent to innovation. I’d dare to say, it is a very american worldview.

    • Hi Duc,

      I agree with you — competition is not necessarily equivalent to innovation. But it seems likely that competition is a very helpful ingredient in spurring innovation and product improvement.

      Microsoft didn’t begin innovating Internet Explorer until Firefox and Chrome came along and started taking market share. Monopolies and oligopolies rarely innovate.

      The mango seller is one example of how vendors do clump together and collude in Vietnam — they call each other every day and fix prices. When sellers clump together, have the same goods at the same prices and rarely change the most likely explanation is collusion. Maybe that is an American view, but hey, I’m American.

      I’d be interested to know if the garment sellers in Paris have the same goods at the same prices. If so, I’d say they are colluding too. Plenty of examples in every country of collusion.

      • I agree competition has been seen a the main driver fueling innovation during the past century, and a very efficient one. Looking at the current storm into the intellectual property area, one can wonder whether it will stay the same in the future, or if we will not develop a more collaborative approach to innovation, but that is another debate. Old monopolies don’t innovate I agree (even the latest IE…), but I find the new monopolies (Amazon, Google, Facebook) quite innovative.

        Interestingly, I see the magic of mobile telecoms that facilitate exchange of information among market players as the invisible hand that sets the market. Collusion aims at limiting competition, while here they don’t seem to prevent any new player to come and sell his mangoes (not thru the price-setting practice at least … ). It looks quite close to a “perfect competition” situation, as described by the famous american economist Knight, which if my schooldays memory doesn’t fail me, naturally leads to a single market price for a same product.

        There are historical reasons why garment sellers in Paris are clustered, why the bars are owned by “Auvergnats” (from center of France), and the Montparnasse area is filled up with crêpes restaurants, that I would not detail here (religion, sourcing, transportation) but none has roots in an attempt of collusion, market manipulation or denying the sustomer a cheaper/better option.

  • An hypothesis about why they could cluster : the local real estate economy is not so liquid for the average citizen. Many people don’t own entitlement to their house, they can’t sell or move. As a consequence, you don’t choose your business first (“I’m gonna sell glassware, it’s my field, my education”), then decide to settle in such street because you think it’s going to be the most profitable place to sell your glassware (like we think and do in developed countries). You own a place, coming out of the war you have no specific expertise, no legacy from your parents, nor for the place. Then you try to figure out how to maximize this asset. You figure out that selling the same product as your neighbor is the most profitable option since the customers are coming by…

    • Fair enough Duc. But this hypothesis doesn’t explain why no one on the street tries to be different — offering different products or services. They seem content to offer exactly the same thing and charge the same prices as everyone else.

      Whatever the cause, the result is the same. You rarely see new businesses in Vietnam try something new.

  • Another theory: market is controlled by the supplier who finds it convenient to deliver everything in one single place (typically : where the first shop was). The cost of transportation from delivery point to your shop is at your own expense. If you settle far away, your cost increase for a same product.

  • Tri Bui

    Interesting note Chris.

    Just FYI, do you know that Vietnamese have a saying “Buôn có bạn, bán có phường” which literally means that in trading and selling, you should cluster around each other? :-)

    I think basically this is a good practice for the typical Chinese type of selling activities (we are so influenced by the Chinese after all), where the goods are relatively undifferentiated and quite essential in daily life. Where each supplier does not have the power to make the price, this clustering is good and also makes it convenient for shoppers too.

    Agree though that this practice then only applies well to undifferentiated products, and thus it would not encourage the kind of innovation that you talk about. That’s moving up the value chain already.

    • If your products are undifferentiated it certainly is hard to charge a higher price. The road to higher profits usually is through differentiation that solves the customer’s problem so well that the customer is happy to pay a higher price.

  • Kimmy

    Thanks Chris for the very interesting article. There are many reasons why Vietnamese rarely innovate. From my working experience, some bosses are conservative and don’t want to change to new things. Another reason can be from the cost for innovation.

  • Spartacus

    Hi Chris,

    I knew you at the HR day in Vietnam but I can not stand by your side when you stated “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.”

    If you have ever read this article (http://news.bbc.co.uk/2/hi/programmes/panorama/2819959.stm) and really knew what the other people think about you guy. So, I ask you if I could state “The American is rarely innovative. If they can not compete in a perfect competition market, then they will do a very simple way: cheat it!”.

    Look! BBC stated that “Their solution was simple – they slapped a hefty import tariff on the foreign fish and even got the US Senate to pass a law stating that only American catfish could be sold as catfish. The fish from Vietnam can now only be sold as ‘Basa’.” while they called “The Vietnamese catfish” in their first words.

    If you can read between the lines in this article, then you will know exactly BBC’s view toward this issue. Is this way support “your innovation”?

    What you want to expect from the mango sellers in Vietnam like what I expect from your catfish sellers in USA and I don’t think it a good way to use a small group of people to represent the whole. It’s a very unknowledgeable way, Chris.

    Sorry for my words.

    • Hi Spartacus (great name),

      I’m familiar with the protectionism that US fish farmers have engaged in. I don’t support it. I’m in favor of free trade.

      Sure, some people in the US would rather compete by getting the government to raise taxes on imports. However, there are dozens or even hundreds of examples of innovation coming out of the USA and spreading throughout the world — Google, Apple, Microsoft, Groupon, Uber, Fedex, Starbucks, etc.

      I’ve lived in Vietnam for nearly seven years. My experience does have a limited range, and I certainly don’t claim to be an authority.

      I just use my eyes. I also managed an online jobs company here for six years. I have seen a few examples of innovation (Vinagame innovated brilliant distribution methods for their online games) but they are few and far between.

      When I ran VietnamWorks I counted over 50 competitors. Most of them more or less copied VietnamWorks and charged a lower price. Not one of them did new things or tried to figure out how to add more value to customers. I love competitors like that!

      Maybe I’m wrong. Do you know of Vietnamese companies that have shown creative and successful innovation? I would love to hear about them.

      • Spartacus

        Hi Chris,

        Yes, I do love Spartacus because he was brave and unique in his time. Like you, I also support innovation.

        When Google, then FaceBook launched, there are many people who tried to copy their ideas and business models. I am pretty sure that there are many Americans join this game as well. Further, let take a look on Google Plus and evaluate, do you think that Google Plus is a high-class copy of FaceBook? (with many other “innovation” of course).

        Copy from the competitor is not a Vietnamese problem, Chris. It’s the business problem and it’s visible worldwide.

        You mentioned about Vietnamwork, so I ask you a question: “Is Vietnamwork is solely new idea, truly innovation or it’s just a copy and customized model for Vietnamese market?”. If my memory serve me good enough, you guys after that launched “caravat” then “alphabet” (not sure about the name) – Are they the real innovation or a copy from Linkedin?

        You make me have a funny idea that I will make a Cambodiawork once day and claim it as my innovation!

        Yes, it is the fact that Vietnamese is less successful than American. It is no doubt to say that. But if you have good memory, you can see around you there are many great and innovative Vietnamese business as Gach Dong Tam, Ton Hoa Sen, etc in the HR Day last year.

        You mentioned about VNG, oh my god, it’s not an innovation Chris, it’s a truly copy from Chinese market, and there are many things make me have a low respect on VNG model, even they are really rich.

        In your article, I agreed with some some, and disagreed with you the major Chris. As your level, you’d better say “some Vietnamese” or even “many Vietnamese” rather than “Vietnamese” alone.

        Hope that could help!

        • Spartacus, if you created “CambodiaWorks” and no one else was doing it in Cambodia then yes, I would call that an “innovation.”

          “Innovation” doesn’t have to be something no one has ever done before. It just has to be something that none of your competitors have done before. Borrowing ideas and applying in new ways is also innovation.

          When Steve Jobs copied the magnetic electrical cord from rice cookers and applied the idea to MacBooks, that was not a new idea. But what *was* new was applying it to computers. It was brilliant innovation.

          I guess I would define innovation as “doing something different that none of your competitors is doing.” Honestly, I don’t see this much in Vietnam.

          • Huong

            Chris, i agree with you that there’re not much “doing something different” in Vietnam. (So what?)

            The thing is, how does that have anything to do with Cluster-biz?

            Cluster biz is one smart and innovation, proven with time, in Hanoi (otherwise it would has died don’t you think so). If you ever have friends living in the area you will know what it means to them(customers) and you will see that this cluster biz model eliminate its competitors. I won’t explain more about it you should spend more time to understand it abit more.

            If this post is to stir-up / a teasing to something greater it’s done a good job. You see how many people spent time writing to you sharing what they think. If it’s to give some impression about your knowledge and understandings, it fails. You declared something obvious and explain it with a shallow, doesn’t make much sense observation.

          • “Chris, i agree with you that there’re not much “doing something different” in Vietnam. (So what?)”

            That’s my whole point.

            “Innovation” can be defined as “doing something different” from competitors to win more customers. I rarely see that in Vietnam.

            I guess we do agree after all!

          • Linda

            HA! So pretty much all the “disagreers” actually agree but are in denial? Hmm..

  • Long T Nguyen

    I totally agree with what you point out in this post. The same thing happens in schools where young Vietnamese pupils/students have to think the same way, answer the same things to get the “standardized” marks in exams. If one thinks differently and gives another methods to solve the problems, s/he hardly gets good marks.

    I am a Vietnamese guy growing up in that environment.

    • Yep. The education system values rote memorization over analytical or creative thinking. It doesn’t help.

  • Neo

    it is undeniable that innovation is not a VNese s strength, but trying to attribute it to any single reason would be too simplistic. there are a whole range of historical, cultural and socio-economic reasons. but to me, the habit of thinking small and the lacking of a regional/global ambition seems to be the biggest barriers.

    • It’s interesting to study the history of conflict in Vietnam involving the Mongols, China, France and the USA. Vietnamese displayed amazing innovations and creative ways to solve problems with limited resources.

      I think the explanation lie withing the idiom “Necessity is the mother of innovation.” During the wars it was innovate or lose.

      In Vietnam currently there isn’t enough competition. Too many companies are able to survive with mediocre products or services. Hence there isn’t enough “necessity” to spur innovation.

      The reasons for a lack of competition include a lot of red tape, regulatory difficulty and a lot of politically connected state-owned enterprises who can use political muscle to choke off private competitors.

      Anyone have other ideas here?

  • Ha Tia

    Say we are not as innovative as American! True! Say Vietnamese are
    rarely innovative compare to what? compare to other countries of GDP per
    capita at the same level. Apple to apple?! compare to the US then
    ofcourse we are not very innovative, what’s new?!

    Go
    back to the basic principle of what’s innovation for? Innovation costs
    money. 90% innovation ideas fails, read it somewhere. And innovation is
    at the end of the day to make profits. The scale of the business has to
    be big enough to fund the R&D department. That explains why we are
    not very innovative??? Beside education system blah blah.

    And
    not to forget that Vietnam is far behind the world in many ways,
    infact we should learn from other countries but execute it properly.
    Must be able to produce surplus value before thinking about leading
    (innovation). Daily demand is not yet met for most Vnmese. 3 meals a day
    is still a concern.

    I am not saying he is wrong totally, I am just saying this Chris Harvey is boring and shallow, no new new.

    • Hi Ha Tia,

      Thanks for participating in the conversation.

      Cheers,
      Chris

  • Haianh

    Amazing!
    This guy used to be a chief executive at Vietnamworks – one who dealt
    directly with Vietnamese labor force and even adopted a Vietnamese name
    (Lâm) when he introduced himself to Vmese girls at the bars … Yet he
    doesn’t understand neither a simple concept of microeconomics nor a more
    sophisticated understanding of Vietnamese people. This goes on to show
    that some foreigners get by too easily in VN by being white (no offense
    to the good ones who are really trying)

    • Hi Hai Anh,

      Thanks for commenting.

      Cheers,
      Chris

    • Tien Do

      Is this the way to contribute effectively to a post on the Internet?
      Nobody cares about what he did in the past, all they care is the valuable information which he spent his precious time to put it here.
      Think twice before saying sth on an article like this. Is it helpful or wasteful?
      Peace.

    • adam

      i totally agree this post points at the blatently obvious but offers no solution….i totally agree with this post about this joker..so the solution would be to silply innovate then have everyone simply copy, or should they park themsleves in the middle of nowhere then have a million dolalr budget in prder to get presence, or should the lobby the vn gov to create anti price fixing laws Lam?..the truth is the west does and have price fixing even with the laws against it. Its a shame that the vietnamese are so weak that they would give a voice to any caucasian regardless how ignorant he is

  • Huong

    Hi Chris,

    You jumped to conclusion so quick. Limited resources is the push to
    innovation. But when it comes to doing business, R&D and patent law
    is
    the most important. There’s nothing to do with cluster-biz as in your
    post !!! In my view, its example like “Hàng Bạc, Hàng Tre” is the best
    model for modern retail/wholesale supermarket. Event big brands today
    can’t compete with
    that in the areas.

    Hai-anh is right, that
    microeconomics has nothing to do with innovation. Appreciate your
    observing and sharing though I think you need a deeper understanding.

    And, please don’t say Thanks and Cheers after this, it’s not innovative and sexy enough for a post like this :-)

    • Hi Huong – Thanks for your comment. A few thoughts:

      – Wow this post must have hit pretty close to the mark to get people so riled up.

      – I chose the cluster biz example because cluster businesses are so common in Vietnam. Shops in each cluster stock the same products and feature the same prices. They rarely if ever try to do anything different from each other. I used clusters to illustrate a business strategy that is quite common in Vietnam — “copy, then charge the same or lower price.” Although there are examples of businesses doing things differently, they are the exception to the rule.

      – In all the comments from people who have differing viewpoints, not one of them (except you with the Hàng Bạc, Hàng Tre example) has offered examples of Vietnamese businesses doing something new and thinking differently from their competitors. Although rare there are examples — I find it curious that no one cites them to support their point of view.

      – I don’t know “Hàng Bạc, Hàng Tre” supermarket. Can you explain how they do business differently from other supermarkets?

      – We differ on the point “microeconomics has nothing to do with innovation.” In my view microeconomics has everything to do with innovation because microeconomics is the study of how businesses and individuals make choices. Perhaps we are using the term differently.

      – Limited resources is one push to innovation but certainly not the only one (I’m not sure any of my posts/comments claimed it was). There is an idiom in English — “Necessity is the mother of invention.” It’s true. Innovation can come from many places though.

      – You hit on a very important point with patent law. Being unable to protect intellectual property is one big reason why few Vietnamese firms bother to create innovative intellectual property. Another example is how Vietnamese singers cannot make money selling their music because pirating is rampant and there are no laws to protect their songs. Strengthening IP law would help encourage IP-based forms of innovation, such as software, music, art and entertainment.

    • Tien Do

      What else he is supposed to say when the other guy mocked him and put him down like that…. Lol…

  • Whats the latest buzz word in marketing? Aggregation. Where does it come from: America. What are Vietnamese doing? Aggregating. LOL! :) It is innovative after all.

    • Sure — innovation doesn’t have to mean something new. Most of the time is is borrowing an idea that none of your competitors is doing.

  • Tien Do

    Thank you Mr. Chris for this useful post. I totally agree with you. Please keep doing the great thing like this. Entrepreneur is who I want to become now. Have a great day. :)

  • Cuong

    Wow, all the commentators here are immature, haters, arrogant, petty, bullies… All the typical stereotypes about Vietnamese people are well represented here. Didn’t your mothers teach you to be nice in any culture people?? Oh wait, you don’t even fucking know the definition of the word “nice” because you’re all been tearing this post apart for every single word he wrote here instead of taking it for what it is. He’s obviously sharing what he learns through his own lens. Everyone deserves to have their opinions about anything and everything. If you don’t like it, go fuck yourself. But you don’t come to people’s home and tell them their kids are ugly. There is no culture that teach you all this. If you disagree, find a nice way of presenting your argument instead of personal attack (read: insecurity). So fuck off and go do something else meaningful to the world.

    I’m Vietnamese myself but you all are so fucking typical, just do something to prove others that we aren’t. Such a disgrace to our own people!

    And by the way, everybody has a different definition of innovation, perfection, success…. so don’t fucking judge and think you’re right.

    And now… you all are going to tear my reply apart by analyzing every single word I typed in here. Go ahead and prove I’m right!!! Pathetic!!!

  • Cuong

    And Chris, my personal advice is you don’t have to educate people on everything (especially what innovation means in this case) because it’s not worth your time. I would only talk to people that have enough background/knowledge (or just common sense in this case) and appreciate the post for what it is. Unless you’re trying to sell these people something, it’s not worth explaining to everyone what innovation really means. Also, as a fun exercise, you could write up a post about Vietnamese people aren’t very successful and let them all tear it apart about the definition of the word “success”.

  • Thuy

    Hi Chris,
    It’s very interesting reading this article and the comments from the readers from the view of cross-cultural psychology. I hope you don’t mind if I use it as an example for the coming exam :)
    Thanks for the great posts!
    Thuy

  • Linda

    Hi Chris. Haven’t been to your blog in the longest time so thought I’d make a stop. Anyway, I saw this post, read the comments, and I could not agree with you more.

    Even though I’m not very in tune with my Viet culture, growing up in a Vietnamese household and being surround by pockets of Vietnamese communities, I think Viets are very much monotonous and creatures of habit when it comes to business and education. My mom was a teacher in Vietnam and even she admits that their education system focuses more on memorization and reciting, rather than analyzation and critical thinking. Numerous reports from standardize tests across nations conclude this every year! And I think this trains them to not be able to think outside of the box. They’re set in what is already around them and burrow themselves to fit in. Of course there are a few exceptions, the bright stars among typical ones, but a large majority are like this. I think their government and culture also plays a key role in preventing them from being different and innovative, like getting scolded for “arguing” by having different ideas from their elders (mainly teachers and parents), so I can’t blame them. It’s a vicious cycle that they’re accustomed to. I agree Viets are smart, but collectively and culturally, they’re unable to see it for themselves, and the ones that do, get chastised or beaten to keep their mouth shut.

    Ha, and my apologies if my comment sounds a bit cut throat. I think after reading some of your comments…some of them just makes me cringe because of ignorance. Sigh.

    • Hi Linda,

      Good to hear from you again!

      I agree with you. Being different and thinking differently are not encouraged by Vietnamese education and general culture. That helps explain the lack of innovation you see here.

      If I may be so bold, I think this applies generally to Asian culture. People are strongly discouraged from being or thinking differently from the crowd. It’s less risky and more comfortable to do what everyone else is doing. While this may result in greater “harmony” (as the Chinese like to put it) it also results in less innovation. I honestly think that people wear “thought grooves” in their minds and just are unable to conceive of new ideas sometimes.

      There are business mavericks who create new things in Asia (Son in Japan and Jack Ma in China come to mind). It’s just that there are fewer of them.

      I want to be clear I believe that this has *nothing* to do with the innate ability of people. It’s a function of training, culture and habit.