The List

The New Asian Tiger?

Ten things you didn't know about Vietnam's rise. 

It's clear that much has changed in Southeast Asia since the Vietnam War. Over the past 25 years, Vietnam has transformed itself. In 2007, Vietnam became a full-fledged member of the global economic community through its membership in the World Trade Organization. It has become a magnet for foreign investment and is evolving rapidly from an agricultural economy to one focused on higher-value manufacturing and services. But if Vietnam wants to sustain its remarkable growth, it will need to boost labor productivity in the industrial and service sectors in the years ahead.

Here are 10 takeaways from the McKinsey Global Institute report "Sustaining Vietnam's Growth: The Productivity Challenge" that might surprise you.

1. Vietnam has grown more rapidly than any other Asian economy except China.

Vietnam, a country once ravaged by war, has been one of Asia's economic success stories over the past quarter-century. Ever since the Communist Party introduced reforms known as "Doi Moi" ("Renovation") in 1986, the country has reduced barriers to trade and capital flows and opened the economy more widely to private business. During this period, the economy has expanded faster than any other Asian economy except China's, posting annual per capita GDP growth of 5.3 percent. This growth has continued in the face of the 1990s Asian financial crisis and the recent global economic downturn (the economy grew 7 percent per year from 2005 to 2010) -- a more robust record than many other Asian economies can boast.

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2. Vietnam is moving out of the paddy fields.

Vietnam's economy no longer revolves around agriculture. In fact, agriculture's contribution to the country's GDP has been cut in half from 40 to 20 percent in just 15 years, in a much more rapid shift than we have observed in other Asian economies. A comparable transformation took 29 years in China and 41 years in India.

Over the past 10 years, agriculture's share of national employment has dropped by 13 percentage points, while the share of workers employed in industry has risen by 9.6 points and in services by 3.4 points. This shift of workers from agriculture to industry and services has made a powerful contribution to Vietnam's economic expansion because of the large differences in productivity between these sectors. As a result, agriculture's share of GDP has fallen by 6.7 percentage points while industry's share has risen by 7.2 percentage points over the past 10 years.

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3. But Vietnam is a leading global exporter of pepper, cashews, rice, and coffee.

Vietnam is the world's leading exporter of pepper, shipping 116,000 tons of the spice in 2010, and has led the world in exports of cashews for four years in a row. The country is also the world's second-biggest exporter of rice after Thailand and second only to Brazil in exports of coffee, which have nearly tripled in just four years. Vietnam ranks fifth in the world in the production of tea and sixth in exports of seafood such as catfish, cuttlefish, shrimp, and tuna.

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4. Vietnam is not "China+1."

Rising labor costs in China have already spurred some factory owners to shift production to Vietnam, which has an abundance of low-wage labor. The trend has fueled talk among many CEOs about Vietnam becoming Asia's next big platform for manufacturing exports -- a smaller version of China, or China+1.

But Vietnam is very different from China in two respects. First, Vietnam's economy is driven more by personal consumption than China's is. Consumption by households accounts for 65 percent of Vietnam's GDP -- an unusually high share in Asia. In China, by contrast, consumption accounts for just 36 percent of GDP.

Second, while China's rapid economic growth has been fueled by manufacturing exports and extraordinarily high levels of capital investment, Vietnam's economy is much more balanced between manufacturing and services, which each accounting for approximately 40 percent of GDP. Vietnam's growth has been broad-based, with competitive niches across the economy. Over the past five years, output in the industry (including construction, manufacturing, mining, and utilities) and service sectors has grown at comparable annual rates of about 8 percent.

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5. Vietnam is a magnet for foreign investment.

Vietnam is on most lists of attractive emerging markets for foreign investors. Surveys by Britain's trade and investment department and the Economist Intelligence Unit have consistently ranked Vietnam the most attractive emerging-market destination for foreign direct investment (FDI) after the BRIC quartet of Brazil, Russia, India, and China. Registered FDI flows into Vietnam increased from $3.2 billion in 2003 to $71.7 billion in 2008 before falling during the global recession to $21.5 billion in 2009.

Here, again, Vietnam diverges from China. Nearly 60 percent of FDI in China has been poured into labor-intensive manufacturing, compared with only 20 percent in Vietnam. In the latter case, much of the remaining investment has found its way to mining, quarrying, and oil and gas extraction (40 percent) and real estate (15 to 20 percent), reflecting rapid growth in Vietnam's tourism industry. The number of foreign tourists coming to Vietnam has risen by one-third since 2005.

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6. Vietnam has more advanced road infrastructure than the Philippines or Thailand.

Vietnam has begun to make significant investments in infrastructure. Many visitors to Vietnam still view the country's roads as pretty basic. But, for its stage of economic development, Vietnam has been adding road infrastructure at quite a rate. Its road density reached 0.78 kilometers per square kilometer in 2009, which is higher than the road density in the Philippines or Thailand, both economies that are further on in their development than Vietnam is. That same year, electricity networks covered more than 96 percent of the country. New container ports such as those in Dung Quat and Cai Mep and airports such as those in Da Nang in central Vietnam and Can Tho in the Mekong Delta region have improved connections with the rest of the world.

HOANG DINH NAM/AFP/Getty Images

7. Vietnam's young generation is going online.

Vietnam's population is young, well-educated, and increasingly online. Mobile subscriptions in Vietnam grew nearly 70 percent per year between 2000 and 2010 compared with less than 10 percent per year in the United States in the same decade. By the end of 2010, Vietnam had 170 million telephone subscribers, of which 154 million had mobile subscriptions.

At 31 percent, Internet penetration in Vietnam is much lower than in other Asian states such as Malaysia (55 percent) and Taiwan (72 percent). But this is changing rapidly. Broadband subscriptions in Vietnam increased from 0.5 million in 2006 to around 3.8 million in 2010, the same year that 3G subscriptions hit 7.7 million. Once the telecom infrastructure catches up, mobile and Internet use is likely to explode. Already, 94 percent of Vietnam's Internet users access news online. More than 40 percent of users access the web every day.

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8. Vietnam is becoming a top location for outsourced and offshore services.

Vietnam already employs more than 100,000 people in the outsourcing and offshore services sector, which today generates annual revenues of more than $1.5 billion. Several prominent multinational corporations have established operations in Vietnam, including Hewlett-Packard, IBM, and Panasonic. In fact, the country has the potential to become one of the top 10 locations in the world in this sector, due to its relatively large pool of young college graduates (universities send 257,000 young men and women into the workforce each year) and relatively low wages. A software programmer in Vietnam can be employed for less than 60 percent of what it costs to hire one in China, while data-processing and voice-processing agents in Vietnam cost 50 percent less to employ than their counterparts in China.

Outsourcing and offshore services in Vietnam could produce annual revenues of between $6 billion and $8 billion a year, much of it export-oriented -- as long as there is sufficient demand and Vietnam ensures that it can satisfy that demand. This sector could become an engine of job creation in urban areas, employing an additional 600,000 to 700,000 people by 2020 and contributing 3 to 5 percent to Vietnam's GDP growth.

Paula Bronstein /Getty Images

9. Vietnamese banks are lending at a faster rate than their Chinese, Indian, or ASEAN counterparts.

Total outstanding bank loans in Vietnam have increased by 33 percent per year over the past decade -- a stronger growth rate than those recorded in China, India, or any Association of Southeast Asian Nations (ASEAN) country. By the end of 2010, the value of outstanding loans had reached an estimated 120 percent of GDP, compared with only 22 percent in 2000. Although this may be evidence of new dynamism in the Vietnamese economy, oiled by an expanding banking system, the worry is that an associated rise in non-performing loans could trigger significant economic distress in Vietnam (as it has elsewhere) and force the government to intervene in the financial sector to protect depositors, the banking system, and, ultimately, taxpayers.

HOANG DINH NAM/AFP/Getty Images

10. Vietnam's demographic dividend is waning.

Between 2005 and 2010, an expanding pool of young workers and a rapid shift away from agriculture generated two-thirds of Vietnam's growth. The other one-third came from enhanced productivity. But now the first two drivers of growth are weakening. Official statistics predict that growth in the labor force will decline to around 0.6 percent a year over the next decade, compared with annual growth of 2.8 percent from 2000 to 2010. And it seems very unlikely that the transition from farm to factory can continue at anything like the speed we have seen in the recent past.

Productivity improvements will therefore need to pick up the slack if Vietnam is to maintain its historical growth rate. More precisely, labor productivity growth in the service and manufacturing sectors will need to accelerate by more than 50 percent from 4.1 percent annually to 6.4 percent if the economy is to meet the government's target of 7 to 8 percent annual growth by 2020. Should that productivity boost not materialize, Vietnam's growth would likely decline to between 4.5 and 5 percent annually. At that pace, Vietnam's GDP in 2020 would be 30 percent lower than it would have been had the economy continued to grow by 7 percent each year.

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Vietnam has many intrinsic strengths -- a young labor force, abundant natural resources, and political stability. If it acts decisively to head off short-term risks and pursues a productivity-led growth agenda, it can enter a second wave of growth and prosperity.

The List

Celluloid Superpowers

The world's biggest film producers and how they've fared on Oscar night.

 

The Academy Awards may be Hollywood's biggest night, but from Kurosawa to Fellini to Almodovar, major figures of world cinema have often made their mark. But as globalization has transformed the global film market, the world's biggest cinematic players aren't necessarily the ones bringing home the statues. Here's a look at the world's 10 biggest film-producing countries (other than the United States, which would be third after Nigeria with 554.6 films produced per year) and how they've fared historically on Oscar night.

INDIA

Films produced per year: 1,178.2 (According to the latest report by UNESCO's Institute for Statistics)

Best foreign language film nominations: 3

Wins: 0

Hollywood aside, Bollywood is the world's undisputed leader in both the number of films produced per year and average ticket sales. And it's going global as well, taking in more than $1 billion in worldwide revenue per year and producing international superstars like Shahrukh Khan and Aishwarya Rai.

But Bollywood films, often extremely long and heavier on dance sequences and melodrama than plot, have yet to have a major impact in the United States, either with critics or at the box office. The country has earned a paltry three Best Foreign Language Oscar nominations, most recently for the 2001 cricket epic Lagaan. (The late Indian-born producer Ismail Merchant, of Merchant-Ivory fame, received four nominations for films made primarily in Britain.)

India did have something of a coming out party at the 2009 Oscars, when the Mumbai-set, Bollywood-influenced, British-directed film Slumdog Millionaire took home eight awards including Best Picture. Composer and Bollywood stalwart A.R. Rahman took home two statuettes for his work on the film.

Not everyone in the Indian film industry appreciated the film's sometimes whimsical depiction of Mumbai's urban poverty, but perhaps its success, combined with a growing Indian diaspora community, can finally open up the United States to Bollywood's charms.

NIGERIA

Films produced per year: 1,093.5

Best foreign language film nominations: 0

Wins: 0

In 2006, UNESCO announced that Nigeria had overtaken the United States as the world's second-largest film producer. Generally shot on a shoestring budget and distributed by videotape, Nollywood films have become a staple form of entertainment throughout Africa. Because Nollywood films make nearly 90 percent of their revenue from video sales, rather than distribution licensing or theater screenings, piracy has significantly hampered the industry's revenues and growth.

With low production values and over-the-top, often religiously themed subject matter, Nollywood films -- mostly filmed in Yoruba or other local languages -- haven't traveled well outside of Africa, though video stores selling the latest Nollywood titles are now a common sight in many immigrant neighborhoods in the United States.

The only sub-Saharan African films to take home statuettes at the Oscars are the Ivory Coast/France co-production Black and White in Color in 1976 and South Africa's Tsotsi  in 2005.

CHINA

Films produced per year (Including Hong Kong and Macau): 436.8

Best foreign language film nominations: 4

Wins: 0

If you include the semi-autonomous film powerhouse Hong Kong, China leapfrogs Japan on UNESCO list to take its spot as the world's fourth most prolific film producer after the United States. Chinese films -- particularly Hong Kong's brand of highly choreographed action cinema, known as wuxia -- has had a major impact at the U.S. box office -- 4 of America 10 highest-grossing foreign-language films ever are Chinese, all of them martial arts epics. Hong Kong stars from Bruce Lee to Jackie Chan have enjoyed enormous success in Hollywood, and Hong Kong directors ranging from shoot-em-up king John Woo to arthouse favorite Wong Kar-Wai have earned international acclaim. (While the mainland produces far more films per year, Chinese productions have rarely rivaled the success of their Hong Kong counterparts.)

Despite its growing stature in the film world, China hasn't had much success on Oscar night. Acclaimed director Zhang Yimou has seen two films nominated, the 1991 period piece Raise the Red Lantern and the 2002 wuxia epic Hero. Neither has taken home the statuette. Perhaps adding insult to injury, the 2000 film Crouching Tiger, Hidden Dragon, which was filmed in the wuxia style and featured Hong Kong superstars Chow Yun-fat and Michelle Yeoh, but was directed by Taiwanese-born Hollywood director Ang Lee, racked up 10 nominations including Best Picture and took home three, including best foreign-language film. Taiwan got credit for the awards.

China's Oscar campaign was rocked by controversy this year. Its official entry for the award, the Zhang Yimou-directed World War II drama Flowers of War, became a public-relations nightmare after star Christian Bale visited a detained democracy activist while in China promoting the film.

JAPAN

Films produced per year: 409.2

Best foreign language film nominations: 12

Wins: 4

Japan may have been overtaken by China in total films produced, but it has a pretty strong lead in Oscar hardware. Akira Kurosawa's classic, multiple-perspective Samurai drama Rashoman took home the country's first statuette in 1951, the fifth year the foreign-language Oscar was handed out.  Since then, it's had an impressive run of winners, most recently the 2008 dark comedy Departures.

Japan has enjoyed nominations in other categories, including actors Sessue Hayakawa (Bridge on the River Kwai), Ken Watanabe (The Last Samurai) and Rinko Kikuchi (Babel). The Japanese-born actress Miyoshi Umeki won a 1957 Oscar for Best Supporting Actress for her work in the Marlon Brando film Sayonara. She was the first, and to date only, actress of East Asian descent to win an Academy Award.

At the 1990 Oscars, Kurosawa, the highly influential director of such films as Seven Samurai and Ran, was presented with a lifetime achievement award by George Lucas and Steven Spielberg.

FRANCE

Films produced per year: 228.2

Best foreign language film nominations: 36

Wins: 12

As you might expect from the birthplace of cinema, France has had a pretty impressive run at the Oscars. Of the 55 films it has submitted for the foreign-language category, 36 have received nominations -- the most of any country. Its first win was for the now largely forgotten 1947 film Monsieur Vincent. Its most recent win was for 1992's Indochine, a Vietnam-set period piece starring Catherine Deneuve, who also picked up a Best Actress nomination that year.

The French actresses Juliette Binoche (The English Patient) and Marion Cotillard (La Vie En Rose) have picked up Oscars, though only Cotillard has won for a French-language performance. Acclaimed directors Jean Renoir and Francois Truffaut have also received nominations. Avante-guard Jean-Luc Godard received a lifetime achievement award in 2010.

No French films are nominated in the foreign-language category this year, but France's Oscar hopes are riding on The Artist, a French-made silent film nominated for 10 awards including best picture. Vegas oddsmakers are currently favoring The Artist, which would make it France's first ever Best Picture winner.

Rounding out the Gallic flavor of this year's Oscars, Martin Scorcese's Best Picture-nominated Hugo celebrates the career of early cinema pioneer Georges Méliès, played in the film by Ben Kingsley.

RUSSIA

Films produced per year: 227.2

Best foreign language film nominations (including the Soviet Union): 14

Wins: 4

This year's nomination of an Iranian film, A Separation, has gotten more attention than normal thanks to increased tension between Washington and Tehran. But it's worth keeping in mind that Soviet nominees were relatively common, even at the height of the Cold War. Nine Soviet films were nominated from 1968 and 1984. Winners included Sergey Bordanchuk's eight-hour adaptation of War and Peace and the Russo-Japanese co-production Dersu Uzala, directed by Kurosawa.

Five Russian films have been nominated since the fall of the Soviet Union, but so far the only winner has been the Stalin-era drama Burnt By the Sun in 1994. Controversy broke out this year when Russia's 10-person Oscar committee chose Burnt By the Sun-2: Citadel, as the country's official award submission. The film was a flop with both critics and audiences, and many suspected the sequel had been chosen mainly because its director Nikita Mikhalkov is a close friend of Prime Minister Vladimir Putin. The chairman of the Russian Oscar board resigned in protest over the vote.

GERMANY

Films produced per year: 179

Best foreign language film nominations (including East and West Germany): 18

Wins: 3

West Germany received eight nominations between 1956 and 1985, but won only once, for the 1979 adaptation of Günter Grass's The Tin Drum. East Germany only received one nomination, for the 1975 Holocaust film Jacob the Liar. Since the fall of the Berlin Wall, Germany has had nine nominations and two wins, for 2001's Nowhere in Africa and 2006's The Lives of Others. Germany has had an impressive decade in the foreign-language category, picking up six nominations since 2002, more than any other country. Films documenting Germany's turbulent history, such as Downfall, Sophie Scholl: End of Days, and The Baader-Meinhoff Complex, have tended to impress the academy.

Germany got off to a good start at the Oscars. At the very first ceremony in 1929, actor Emil Jannings took home the award for Best Actor and the film Sunrise, directed by German transplant F.W. Murnau, took home the award for "Unique and artistic production." It's been somewhat slimmer pickings since then. German-born Luise Rainer -- the "Viennese teardrop" -- took home consecutive Best Actress statuettes in 1936 and 1937. German-Austrian actor Christoph Waltz won in 2009 for his portrayal of a Nazi "Jew-hunter" in Quentin Tarantino's Inglourious Basterds.

This year, Wim Wenders' 3-D dance film Pina is nominated for Best Documentary.

SPAIN

Films produced per year: 164.6

Best foreign language film nominations: 19

Wins: 4

While not quite in France or Italy's category, Spain's exports have fared pretty well on Oscar night. Legendary surrealist director Luis Bunuel earned three nominations for Best Foreign Film and two for Best Screenplay, though his only win -- for The Discreet Charm of the Bourgeoisie in 1973 -- was produced in France. Pedro Almodovar has had two films nominated, with 1999's All About My Mother taking home the statue. In 2003, he was nominated for best director, and won best original screenplay for Talk to Her.

The last few years have been good ones for Spanish actors at the Oscars, with assists from some of Hollywood's biggest directors. Penélope Cruz and Javier Bardem have each received three nominations. Bardem took home a 2008 Oscar for his role in the Coen Brothers' No Country for Old Men and Cruz won the following year for Woody Allen's Vicky Christina Barcelona.

ITALY

Films produced per year: 124.0

Best foreign language film nominations: 27

Wins: 13

It may not make the most movies per year, but the home of the legendary Cinecittà is an Oscar powerhouse. Italy has taken home more statuettes in the Best Foreign Language category than any other country since 1947, when Vittorio de Sica's neo-realist Shoe-Shine won the award the first year it was given out. Italy owes a large part of its success to its best-known director, Federico Fellini, whose films won the award four times -- more than any other director. Fellini also received 12 nominations for writing and directing, and won a lifetime achievement award in 1993.

Actress Sophia Loren won for best actress for De Sica's 1960 film Two Women. She also received a lifetime achievement award in 1991. At the 1996 awards, Il Postino was nominated for Best Picture, losing out to Bravehart. Interestingly, despite its global acclaim, Il Postino wasn't Italy's submission for Best Foreign Language Film that year. That was the moviemaking drama The Star Maker, which received a nomination but didn't win. At the 1999 awards, the Holocaust comedy Life Is Beautiful received nine nominations and won three, including Best Foreign Language Film and Best Actor for Roberto Benigni. Benigni's exuberant reaction to his award has become something of a classic Oscar moment.

SOUTH KOREA

Films produced per year: 118.4

Best foreign language film nominations: 0

Wins: 0

Despite its increasing commercial success, the Korean film industry has yet to crack the Oscar code. It's not for lack of trying -- South Korea has been submitting movies for the Best Foreign Language category since 1962. (Four of its earliest submissions were directed by Shin Sang-ok, later best known for being kidnapped by North Korea to direct the Dear Leader's cheesy Godzilla knockoffs.)

Several South Korean films have enjoyed international commercial success in recent years, including the blood-soaked revenge thriller Oldboy, monster movie The Host, and the gritty drama Mother. Hopefully, Korea's Oscar drought will be ending soon.

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