Special Report-Vietnam's capitalist roaders follow China's trail

Nguyen Duc Tai was on a mission one sweltering January morning in Vietnam's commercial capital, Ho Chi Minh City. Flush with cash from his annual bonus, he wanted to buy his wife a new mobile phone, a gift for the coming Tet lunar new year holidays. In a county where the average annual income is about $1,100 (£698.70), a good phone is a big investment. Tai wanted to make the right choice with his 5 million dong ($250). "It was so confusing. I went to two shops, but no one could give me the full picture of what I could get for my money. They showed me one or two phones. That's not enough. If they could show me 10 at similar prices I could make a decision. The 35-year-old smelled opportunity. "I said to myself, 'There's something wrong here. I have money. I'm willing to pay. But I cannot find what I want. There is a mistake somewhere and if I can fix that. The customers will support me'." Fast-forward six years and Tai is chief and co-founder of Mobile World, Vietnam's largest cellular phone retailer, part of a new breed of fast-growing companies tapping a swelling middle class in the Communist-run country of nearly 90 million people. Vietnam has emerged over the past decade from the hangover of war to play a central role on Asia's factory floor, producing everything from footwear to computer parts. An economy once built around carpet-bombed rice paddies now boasts gleaming shopping malls and towering skyscrapers. BMWs and Rolls Royces jostle for space on streets clogged with motor-scooters and bicycle rickshaws. As northern neighbour and former imperial ruler China begins the transition from sweatshop economy to consumer society, Vietnam hopes to follow. Companies such as Mobile World could lead the way. But in recent months, Vietnam's problems have overshadowed its promise - from spiralling inflation to a stumbling currency, red tape, a debilitating trade deficit and creaking infrastructure. Policymakers face critical choices in the next few years that could either make Vietnam the world's next emerging-market star or deepen its economic malaise. That forms a sober backdrop to the ruling Communist Party congress that began on Wednesday, where delegates will give their nod to maintaining policy goals aimed at delivering economic growth of up to 7.5 percent a year for the next five years. Addressing Vietnam's urgent problems is not on the formal agenda, although stabilising the economy is a hot topic behind the scenes. Even without bold reforms, nimble companies are shaking up the private sector, led by executives inspired by success stories from China. Despite Vietnam's chronic economic problems, Mobile World for instance has grown from seven stores to more than 70 over the past three years with nearly 4,000 staff. Revenue doubled last year to $150 million and is projected to double again this year. Net profit, $5 million last year, is expected to triple this year to $14 million. "We don't care about politics," laughs Tai. "We care about the customer." Interviews with business executives, investors and independent analysts reckon Vietnam's burgeoning prosperity trails China's by a decade or so. Young executives, and the overseas' investors who back them, have settled on a simple premise: what works in China, should work in Vietnam. "China is basically five to 10 years ahead of Vietnam. So it is a good leading indicator for what's coming," said Chris Freund, managing partner at frontier-market investor Mekong Capital, whose funds invest in 21 Vietnamese companies including Mobile World.