Editor’s Note: In the past in Vietnam, there were the very wealthy, and there were the very poor, and most made a living as subsistence farmers. Now its middle class is one of the fastest growing in Southeast Asia.
The country is a source of cheap labor for global multinational companies. As more companies have begun to manufacture their goods there — Samsung is one such company — Vietnam’s economy has come to heavily rely on exports.
As Vikram Mansharamani recently witnessed, that’s changing.
— Kristen Doerer, Making Sen$e Editor
I just returned from a trip to Ho Chi Minh City (Saigon), where I had a front-row seat to see the forthcoming global consumption boom driven by a rapidly expanding middle class.
During my short trip, I had the chance to meet with business and government leaders, local and foreign investors, artists, farmers and several taxi drivers. I ate at a restaurant that made New York City look cheap with Vietnamese who regularly spend six figures on custom-designed jewelry featuring imported gemstones.
Inequality is still palpable in almost every walk of life, even if the tide appears to be lifting all boats. There are contradictions galore. An attendant at a roadside noodle stand beamed — his face enveloped in a broad smile — after receiving my tip of less than $1.
But one thing is absolutely certain: consumption is booming. The middle class is using its newfound income to emulate a Western lifestyle.
Restaurants and cafes are increasingly common, and multinational corporations — like McDonald’s — are taking note. The company recently entered the country and today has five restaurants in Saigon. In some of these early locations, volumes are running more than 30 percent above even the most optimistic scenario. Many middle-class Vietnamese families now have their Sunday dinner under the golden arches. And the market is so under-penetrated that it wouldn’t surprise me if McDonald’s had a thousand restaurants in Vietnam by 2025.
But food is not the only item chewing up the newfound incomes of the Vietnamese middle class — housing is too. After spending several hours navigating the streets of Saigon on scooter with a local friend, he took me a former colleague’s home. The young man we met described himself as a “farmer.” He was, in fact, an executive at Vietnam’s largest shrimp farming company, and while he was humble, intelligent, and insightful, I was distracted by my surroundings. We met in the courtyard of his apartment building, one that was as modern and as comfortable as the nicest developments in the United States. The pool was filled with middle-class Vietnamese, and although I looked hard, I failed to notice a single ex-pat.
And when, later that evening, I had dinner with my friend and his wife at a top-notch sushi restaurant located atop one of Saigon’s tallest towers, I had my expectations dashed again. Beyond the budget of most Vietnamese, I expected a foreign crowd. But no, the place was filled with locals. Many were entrepreneurs educated abroad; most were in the city to pursue what they felt were unparalleled economic opportunities.
Twenty-five floors below us on the streets, families were heading out to dinner; traffic, overwhelming; restaurants, packed; bars, full; stores, crowded. In general, Saigon was sizzling. All around, it seemed sure to me that a middle class was in the making.
And lest you think Vietnam’s growing middle class won’t affect you, think again. Almost 20 percent of the country’s exports are products made by Samsung Electronics — everything from televisions to smart phones. The electronics giant has invested more than $14 billion into the country and today employs more than 100,000 workers that produce 33 percent of all Samsung smartphones worldwide. What happens when those workers start consuming what they’re producing? Or when they start demanding higher wages?
But of course, there’s more to the Vietnam story than just smartphones. The country is the world’s largest exporter of cashews, Robusta coffee, and peppercorns. With Vietnam’s growing middle class, Vietnam’s economy can reduce their dependency on foreign — and U.S. — consumer appetite. What happens when exports evaporate because local demand booms?