Vietnam’s Economic Growth Challenges Rural Businesses to Adapt

April 11, 2012

By Le Thu Hien and Nguyen Thu Hang

Giang has lived his whole life in the village of Phu Lang, a traditional ceramic handicraft village about 30km north of Hanoi. Giang’s entire family has been producing the same jars and pots that they and many other family businesses in the village have for decades. However, when we last met with Giang, he told us that business is increasingly bad: plastic and steel household products from China and Thailand have reduced the demand for ceramic goods.

While families of the rapidly expanding urban middle class are flourishing, many in rural areas are being left behind: in 2011, monthly income per capita in urban areas was nearly double that in rural areas.

Many families in the village are abandoning this ancient craft, with young people gravitating toward jobs in the cities. But Giang is determined to stay put. The challenge, he says, is for Phu Lang to adapt to the modern economy, and it is critical that new, market-oriented products and services are developed in the process.

Phu Lang’s story is a familiar one in rural Vietnam. Extraordinary growth in the past 30 years has driven Vietnam from being one of the five poorest countries in the world to an average per capita income of over $1,000. The benefits, however, have not been evenly shared. While families of the rapidly expanding urban middle class are flourishing, many in rural areas are being left behind: in 2011, monthly income per capita in urban areas was nearly double that in rural areas.

As with other export-dependent developing economies in the region, the global financial crisis led to lower growth, falling production, and unemployment, bankrupting small businesses and dragging households back under the poverty line. Countries with mature economies and responsive political and social institutions can draw on a range of expertise and support from government agencies as well as civil society organizations (CSOs). In less developed countries like Vietnam, a nascent civil society sector with limited capacity and inadequate public services and social safety nets means there are fewer options for offsetting the negative impact of the crisis on the poor and those teetering between basic sufficiency and poverty.

Despite being negatively affected by the economic crisis, the handicraft sector remains one of Vietnam’s 10 biggest export sectors, providing jobs for 1.5 million people, many of them in rural and mountainous areas. But, as demand for traditional handicrafts decreases, businesses are closing rapidly. Many residents have moved to the cities in search of work, resulting in increased social fragmentation and weakened traditional community ties.

The Asia Foundation, with support from the Rockefeller Foundation, is working to strengthen the ability of Vietnamese CSOs to help businesses like Giang’s survive the global economic crisis and serve their communities in the long term.

In the Red River Delta, we’ve worked with the Vietnam Rural Industries Research and Development Institute (a local NGO established by the Ministry of Science and Technology) to develop new economic and employment opportunities for traditional craft villages in Bac Ninh province.

After consulting local authorities, partners, and community members, three villages were chosen for the pilot project. We designed activities to identify and utilize local resources, and to develop management structures, products, marketing, and facilities. The three villages, Dinh To (soy bean sauce), Phu Lang (ceramics), and Hoa Long (Quan Ho folk songs) now run regular tours for tourists from nearby Hanoi. Between June and December 2011, the three villages received 555 tourists from 14 large-scale foreign and domestic tours, as well as many other small group visits. Watch a video of a community-based tour in Bac Ninh.

In addition, we’ve also been working to strengthen cooperatives, still a potentially important source of employment in many rural areas. In a socialist state like Vietnam, which was not developed with the market in mind, the shift to a market-based, competitive growth strategy has been challenging for many. However, over the last decade a number of dynamic agro-industrial cooperatives in the Mekong Delta have forged a potentially innovative shift in rural dynamics.

We support the Southern Center for Support and Development of Cooperatives, Small and Medium Enterprises to enhance the capacity of five cooperatives in the Mekong Delta which impact more than 400 households, to offset the negative impact of the economic crisis and secure the long-term viability of new cooperative models. The project improved management and internal governance, developed the skills of key personnel and the functioning of management boards, and improved skills related to agricultural production. Training courses were followed by coaching for key individuals on business strategy, marketing, and value chain and brand development. All five cooperatives now have medium-term business strategies, have specialized in the products in which they have the greatest comparative advantage, and have developed a brand identity. A new information network and database facilitates market access and adaptation of cooperative operations to agricultural technological innovations.

Since the program began in 2010, Suoi Lon Mango cooperative (Dong Nai province) has seen a 19 percent increase in membership and an 88 percent increase in total sales. The Tam Vu Dragonfruit cooperative (Long An province) has more than tripled its membership since 2010 and saw its sales reach an annual VND 12 billion ($600,000). Bolstered by the training program, the Thanh Tan custard apple cooperative in Tay Ninh province invested in a business to provide directly to its members key agricultural inputs such as high-quality seeds and fertilizers without the added costs of a middleman. The business currently has an annual turnover of VND 5 billion ($250,000). The Cooperative Association of Tay Ninh is now rolling out the training program to other cooperatives in the province.

In Hanoi last month, we brought together these cooperatives, local authorities from the handicraft villages, NGO partners, and researchers from the North and South to share experiences that they’ve had supporting these market-based economic development models and to discuss challenges. Participants expressed the need for more targeted training, networking, and coordination between government agencies and NGOs; greater access to market opportunities; and better legal framework to support more dynamic cooperatives and the migrant worker population.

Modern Vietnam is undergoing a series of seismic shifts. The extraordinary pace of these social and economic changes leaves businesses, organizations, and communities, particularly those located far away from the urban economic centers, struggling to survive. The issues these communities face are complex, requiring a comprehensive approach, engaging communities and strengthening market-based rural institutions to develop and pursue renewed economic models. By strengthening the capacity of rural cooperatives and communities they are now able to compete in the marketplace – critical to the long-term livelihoods of thousands of Vietnam’s rural families.

Le Thu Hien is The Asia Foundation’s program manager for the Governance program and Nguyen Thu Hang is a program officer with the Governance and Economics team in Vietnam. They can be reached at [email protected] and [email protected], respectively. The views and opinions expressed here are those of the individual authors and not those of The Asia Foundation.

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