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Investor Relations

Vietnam rising – on a tide of a nation committed to success

By Amit Verma, Country Head, Olam Vietnam and Olam PNG

At a time when G7 countries are trading threats and tariffs, it’s interesting to consider how a slew of free trade agreements (FTAs) are helping to shape the future for Vietnam. FTAs have helped bring Vietnam to a tipping point in its economic development. The country has begun or completed negotiations for agreements both collectively, as a member of ASEAN, and bilaterally with the EU, Japan, Chile and the Eurasian Economic Union.

And while the fate of the Trans Pacific Partnership (TPP) remains uncertain, Vietnam is ploughing ahead with initiatives to increasingly integrate itself into the global economy. The EU- Vietnam FTA is likely to come into effect within this year, liberalising 90% of imports in both directions over the next 10 to 15 years – a remarkable milestone for a country that adopted a market economy only some 20 years ago.

The consensus, therefore, is that the outlook for Vietnam is bright. Currently ranked 47th in the world in terms of GDP, according to PwC, Vietnam may be the fastest-growing of the world’s economies, with a potential annual GDP growth rate of about 5.1%, which would make it the 20th largest in the world by 2050. Vietnam now leads Southeast Asia – including surpassing high performers such as Malaysia and Thailand – in the Greenfield FDI Performance Index and saw US$24.4 billion foreign capital investment in 2016.

Vietnam’s growing global profile and contribution to the agri-business sector has been remarkable and Olam has contributed and participated in this growth:

  • At around 26 million bags – increasing to 28 million by 2020 – Vietnam is the largest contributor to global trade of Robusta coffee. We are the largest exporter amongst all international trade houses as well as the largest producer and exporter of soluble coffee from this country.
  • The country leads global exports of cashew kernels and processing of raw cashew, a trend expected to continue. We command a 21% market share in cashew kernels exports and also boast the largest cashew processing facility. Including our strategic investment in Long Son we currently have a share in excess of 25% in Vietnam.
  • Since starting commercial pepper production in 1995, Vietnam has become the world’s largest producer – contributing 45% of global pepper output – and close to 65% of international pepper trade, a trend which we expect will go on. We are the leading exporter of pepper from Vietnam.
  • Vietnam is the third largest exporter of rubber and rice and expects to see increased productivity levels.

So from Olam’s perspective, the positive trajectory remains clear and there are a number of factors underpinning Vietnam’s growing global profile and contribution to the agri-business sector.

One major influence – unsurprising to anyone familiar with the country – is the work ethic and sense of community which define the nation’s farmers. Productivity levels are extremely high and an entrepreneurial attitude creates record yields. The close-knit nature of the farming communities also sees a commitment to sharing learning and best practices, supported by the government throughout the provincial system.

The government has focused on infrastructure development, including road connectivity, mobile and internet access, ensuring that supply chain losses are minimised and farmers are able
to increase their returns by accessing distant markets. Government support, including low-cost, short term credit, also means farmers can generally manage their working capital needs.

Like all emerging markets, Vietnam must address the risks that come with such a high growth rate. The financial sector remains only partially opened and all key entities are state-owned. Foreign banks have not established a significant role in the domestic market because of capital limits. Inflation remains a threat because of limited financial risk management practices at state-owned banks.

While there are some challenges in pockets of a complex bureaucracy and legal system, low technology levels affecting certain industries and other market vulnerabilities, what is also manifest is an overall commitment to establishing strong international trading partnerships, a business environment gradually adjusting to the needs of well-intentioned foreign businesses, and a government highly supportive and responsive to the needs and potential of its agricultural sector.

Riding on a rising Vietnam

Since opening our representative office 21 years ago, our presence in Vietnam has grown exponentially. Today we employ 5,000 people at 14 locations in central and southern Vietnam and our employee base is expected to grow to 6,500 over the next three years. With revenue of close to a billion US dollars we have established market leadership in cashew, instant coffee and spices. Olam Vietnam is amongst the top 100 largest Vietnamese enterprises according to the VNR500 index.

Olam’s success has tracked the growth of Vietnam and our Vietnam strategy has evolved in the past decade with the key pillars today, including:

  • Product synergy: Many of Olam’s focus products are aligned with Vietnam’s leading exports and create efficient trading opportunities for us. Our green coffee presence is a good example of us creating and seizing market opportunity.
  • Low production costs: The high productivity of Vietnamese farmers equates to a low cost of production. This productivity leads to increases in local production which minimises issues on raw material availability. This is critical to many of our local processing and exports operations.
  • Value-added processing: As destination processors continue to face rising costs and labour shortages in Europe and the US – with costs also rising in China, Thailand and Indonesia – Vietnam has become an ideal manufacturing base for our key commodities. The government’s focus on duty-free raw material imports for value-added processing, combined with labour efficiency, has created opportunities for us, especially in Edible Nuts, Spices and Coffee. We have increased our volumes for raw cashew processing, almond processing and regrading of hand cracked walnuts, as well as our capacity for soluble coffee and ground spices production.

Aside from this strategy that has seen us become the leading exporter for most of the products we handle, our levers for future growth will be based on:

  • Development of a manufacturing mindset: Our world class facilities and processing factories – which focus not only on product quality and innovation but also employees’ health and safety – are crucial to buyers making us their supplier of choice. Our teams work with our central Manufacturing and Technical Services function to keep up our operating standards significantly higher than any of the other factories in Vietnam.
  • Embedding sustainability in every aspect of our business: We continue to improve our sourcing of raw materials by working with farmers and supply chain partners. This includes offering more certified products, such as organic cashews, UTZ certified coffee, fair trade certification. We are also providing increased level of traceability to our buyers for all our products including cashews, spices and coffee and we will also be using the AtSource platform to showcase the same.
  • Continual improvement of standards on yields and costs: Our manufacturing operations focus on investment in cost efficiencies – from improved raw material sourcing, mechanisation to deployment of new technologies. We will embrace more digital technology in our manufacturing locations, in order to improve our processes and ensure sustained cost advantage.
  • Focus on processing scale: While investing in new products and growth initiatives, we focus on products which create benefits of scale. Our soluble coffee plant is the single largest processing plant for bulk supplier companies. Our pepper facility has the country’s largest steam sterilisation capacity. Our almond processing facility is the biggest in Asia and will further scale up in 2019.

Looking ahead, our continued success will require that we do everything possible to remain as the supplier of choice for our buyers – by remaining cost competitive in Vietnam, we will continually invest in health and safety initiatives which are such a value and quality differentiator for products like edible nuts and pepper; and keep innovating in product development, quality and packaging.

Arguably, however, our guarantee of ongoing growth and success will come from creating a strong leadership pipeline which embraces Olam’s values. In this respect, we are fortunate that Vietnam is home to a pool of young and ambitious talent determined to build the best possible future for themselves and their country. Indeed, Vietnam’s economic growth in the last decade has been driven by the largely well-educated half of the population who are under the age of 30.

And, of course, some of the hardest working and most productive farmers on the planet.