Define your own strategy
Professor Michael Porter, probably the most well-known authority on modern management and competitive strategy, is coming back to Vietnam to talk about “Today’s Competitiveness and Corporate Strategy” to the business community next Monday. He is also scheduled to present the Vietnam Competitiveness Report the next day to the Vietnamese government. TBKTSG’s Managing Editor Nguyen Van Phu had a chance to exchange letters with him before his trip.
TBKTSG: What do you have to offer to Vietnam this time that you did not during the 2008 trip?
-Vietnam is at a crucial time in terms of development and I hope that those business leaders who attend my talk will be able to better understand strategy and drive their companies forward to increased, sustainable success in these turbulent times. Besides, I will have the honor of presenting the Vietnam Competitiveness Report in Hanoi in the presence of the government leaders, provides an in-depth analysis of where Vietnam currently stands and makes concrete proposals for a path forward.
TBKTSG: Talking about where Vietnam stands these days, an economics researcher has warned that Vietnam might fall into the trap of free trade trends. What he means is that with the emergence of China as an economic power, the comparative advantages of East Asian countries are changing fast to adapt. Meanwhile, Vietnam might get stuck with its traditional comparative advantages of exporting raw materials and resources, fisheries and forestry products and industrial goods that use intensive labor supply.
- Vietnam has made great strides over the last two decades, with wide-ranging domestic reforms and external opening through WTO accession and other steps. From being closed and centrally controlled, the country has become a vibrant part of the global economy. This process has brought significant benefits to many Vietnamese citizens. Average prosperity has risen and poverty rates have dropped significantly.
While this economic model still has some potential, there are increasing signs that it is losing steam. Characterizing these emerging challenges as indications of a “free-trade trap” is, however, a serious mistake. Opening the economy has been crucial to Vietnam’s success so far. It remains a necessity for future gains in prosperity. But it is, and this is the key point, no longer sufficient.
At this stage of its development, Vietnam is facing a set of significant challenges quite different from before. The country must move beyond competing on its inherited assets – mainly a large, hard-working labor force – and start building unique strengths and capabilities and a much higher quality business environment. The Vietnam Competitiveness Report provides a detailed answer.
TBKTSG: The problem is, given the currency wars countries are waging against one another, the competitive edge can easily be eroded by some percentage points increase in a country’s foreign exchange rate. Do you think the competitive model still works under such circumstances?
- Like all countries participating in the global economy, Vietnam needs to be concerned about the significant global imbalances. A descent into protectionism has so far been avoided, but the large exchange rate movements are clearly a concern. Vietnam has little influence on the move to a more sustainable global architecture, with key decisions taken in Beijing, Washington, or at the G-20 meeting in Seoul. Vietnam’s best defense against global economic trends is to work on its long-term competitiveness.
Competitiveness is the driver of long-term prosperity growth, not short-term exchange rates. The more competitive a country is, the less the economy is affected by exchange rate movements. Just look at Germany and Sweden, two countries with high prosperity and a significant trade surplus despite rising exchange rates.
TBKTSG: It seems businesses around the world are changing their operation models, their competitiveness re-defined, productivity is no longer as important as innovation. Have you changed your view of the world economy during the last two years?
- For companies everywhere, the last few years have been a harsh test. With demand plummeting and access to finance suddenly restricted, many companies had to dramatically adjust the size and scope of their activities. Those companies who are emerging as the strongest are those that had a clear strategy and stuck with it. Having a distinctive positioning in the market, and focusing on it, guided them on areas to cut while preserving activities critical in the value proposition. Such companies are now gaining market share from competitors that cut back indiscriminately.
In countries like Vietnam, companies still have much to do in terms of adopting best practices in management, technology, and operations. Globalization makes accessing these best practices far easier. Those companies that successfully assimilate best practices in the unique context of their countries and industries reap significant benefits, becoming more productive and profitable. Companies that skillfully adapt global practices into local ones can outcompete not only their domestic rivals but even foreign multinationals. This is the kind of innovation, assimilating and adopting information technology, that will be most important inVietnam for many years to come.
TBKTSG: Local businesspeople cannot and should not expect you to give them a panacea that might help them become competitive overnight. But they expect you to tailor your theory to the local characteristics and give them a localized version of how to compete from within Vietnam.
- Over time, Vietnamese companies will need to define true strategies. Today’s success is still often based on exploiting short-term opportunities rather than on building sustainable competitive advantages. The more an economy like Vietnamdevelops, the less this will be a winning approach. The fundamental insights on strategy are timeless. The specific strategy choices, however, can and do change as technologies and markets evolve. Vietnamese business leaders need to understand the fundamental rules of strategy, rather than falling prey to the latest fad in management. Those executives that understand these principles will have a huge opportunity to develop unique strategies that fit the Vietnamese context.