Upmarket

Dan Gross is now blogging the same journalism tour I took to Vietnam:

In our travels, we heard repeated stories of how Vietnamese brands and consumers had fought off cheap Chinese imports by improving quality and focusing on brands. In urban clothing stores, consumers are far more likely to find domestically made clothes than Chinese ones. "Now the time for cheap products has gone by," said Nguyen Thi Thanh Hu, general director of apparel maker Garco 10, which derives about 20 percent of its sales from the Vietnamese consumer market. Last summer, a Vietnamese company, Viet Tien, signed a deal with Perry Ellis to license its Manhattan line of clothes for the domestic market.

In the 1990s, said a senior trade official, cheap Chinese beer flooded the market. "Ten years ago, eight of every 10 bottles of beer in the market were Chinese-made, and everybody was afraid," he said. But Vietnamese brands like 333, Saigon, and Tiger Beer (foreign-owned but brewed domestically) took marketing cues from Western beer companies and began advertising on television. As they did so, better-off consumers grew more sophisticated. "In the past, we just drank any beer we had," said the trade official. But today, "there is no Chinese [brand] in the market to compare."

The arrival of cheap Chinese motorbikes a few years ago forced Japanese firms to cut prices significantly. But Vietnamese consumers with disposable income now look beyond price. The trade official said he bought a Chinese-made motorbike for his daughter, but she sold it after a year and purchased a Japanese-made one instead. At Le Quy Don High School, a magnet public school in Ho Chi Minh City, we chatted with students. (Most disconcerting flat-Earth moment: the unanimous roar of approval that arose when we asked if they liked Hannah Montana.) "The goods imported to Vietnam from China are not really good," Bang Thanh, a 16-year-old wearing stylish sunglasses, told me. "The Honda motorbikes they make there and bring in are no good."

Of course, national pride—and not simply a rising sense of consumer sophistication—filters into the resentment of all things Chinese.

Over and over again, the journalists asked the same question about China: how are you planning to compete with China's massive economies of scale? Over and over again, we heard the same answer: quality. We'll find an upmarket niche, said officials, entrepreneurs, and development officials.

What Mr Gross is slightly too nice to say is that this makes no sense. Vietnam still lags China on value-added goods production; its main export is low-end textiles. No one managed to elucidate any very good reason that Vietnam would, suddenly and for no apparent reason, get better at making stuff than the Chinese are. Currently, China has a productivity advantage combined with massive economies of scale, which is a pretty hard combo for Vietnam to beat.

Domestically, Vietnamese-made products are upmarket from Chinese imports, but that's because the imports in the Vietnamese market are the absolute rock-bottom Chinese products, the local equivalent of that beer they used to sell in white cans marked "beer". In developed country export markets, however, which is where all the money is, China has an edge in both quality and quantity.

But as I said earlier, Vietnam has one advantage that no one we interviewed mentioned: we kinda like them. China's billion+ masses scare workers in the developed world, inviting protectionist legislation from politicians. To be sure, Vietnam is also currently laboring under textile quotas, but its currency and wages are not an emotional issue for voters from Milan to Monterrey. That's one reason that multinationals who don't want all their eggs in any one national basket are enthusiastically diversifying into Vietnam. This might--emphasis might--give the country enough breathing room to climb above China on the value-added production ladder.