Getting Back to Business in Vietnam : Trade: There are rewards for investing in the Asian nation. But U.S. restrictions on deals, the bureaucracy and the lack of basic services make many think twice about doing so.

Imagine trying to do business in a foreign country with no fax or international telephone service. A place with no court system to settle commercial disputes. Forget about traveler’s checks and credit cards; cash only is the coin of this realm.

Imagine running an office or factory where electricity is supplied only three full days a week. You are prohibited from using IBM computers or Xerox copiers because of a U.S. trade embargo. You can’t hire your local staff directly but must take what the government gives you. And you are forced to pay exorbitant wages simply because you’re a foreigner--shelling out, for instance, a monthly salary for secretaries that is three times the average annual income.

Then ask yourself: Do you really want to do business in Vietnam?

This was the bleak business climate that greeted the first wave of foreigners who began returning to Vietnam after the socialist regime opened itself to the world in 1987. And, while things have gradually improved, Vietnam is still no entrepreneurial Eden.

“It’s very well to talk about how wonderful the opportunities are, but when you get in there and think, you don’t want to put too much money in,” said Christopher Bruton, director for Thailand and Indochina for Dataconsult Ltd. in Bangkok. “There’s too much risk.”

Patrick Imbardelli, the irrepressible general manager of the first foreign hotel in Vietnam, begs to differ--although, it must be noted, his Saigon Floating Hotel can be towed to kinder ports should the going get too tough in Vietnam.

“Hell, if it was easy to do business here, everyone would be doing business here,” Imbardelli said. “The rewards go to those who take the risk.”

Americans, strapped with a bitter history of war and a continuing trade embargo, are not investing in Vietnam. But the nation’s economic liberalization and promising resources drew 6,000 foreigners, half from Japan.

So far, however, there has been relatively little hard cash invested. Of the $1.3 billion in foreign projects approved by Vietnam, $800 million has been actually invested. And two-thirds of that is in oil exploration, which involves highly self-contained drilling operations that can be shut down and towed away. That means only $300 million has actually been invested in Vietnam’s on-shore factories, hotels and other permanent projects.

One reason is a natural lag time between contract approvals and start-up operations. But many foreigners also say Vietnam needs to improve its roads, electricity, transportation, banking operations and other systems basic to a business climate before they will take the plunge. There are still enough negative stories----for example, the repeated delay of a hotel renovation project in Hanoi, the cost overruns and poor planning in a Swedish-financed paper mill--to warrant caution, most analysts say.

Once international lending is resumed, however, paving the way for major infrastructure improvements, many foreigners say they are bullish on Vietnam’s future.

“They’re the most tenacious people I’ve come across in the world. In the end they will win,” said John Brinsden, Vietnam manager of Britain’s Standard Chartered Bank. Brinsden has opened 11 new bank offices in India, Malaysia, Singapore, Indonesia, Hong Kong, Iran and the United States.

How have foreign companies fared in Vietnam? Here are three stories that illustrate the challenges--and frustrations--of doing business there:

Saigon Floating Hotel:

Patrick Imbardelli was the pioneer. Last year, EIE International of Japan purchased controlling interest in the Barrier Reef Holdings Ltd., which owns the Floating Hotel, and hired as management Imbardelli’s Australian firm, Southern Pacific Hotels. The hotel was losing up to $8 million a year anchored in the Great Barrier Reef. So, sensing better opportunity, the group decided to hoist the 200-room hotel onto a barge atop a semi-submersible ship and headed for Ho Chi Minh City.

When he arrived in March, 1989, Imbardelli had one burning goal: to deliver the very same first-class service in Vietnam as the firm’s other projects around the world.

It wasn’t easy.

Take direct-dial international telephone service. For nine months, from June, 1989, to March, 1990, Imbardelli badgered authorities to allow it. They consistently refused. Although they cited technological problems, Imbardelli and others said they were also unwilling to surrender state control over telephone calls, which are monitored through central routing.

Imbardelli finally had to enlist the aid of Australia’s public telecommunications firm, OTC. The firm used its leverage of multimillion-dollar investments in research and development and new satellite ground stations for Vietnam to extract government permission.

Credit cards weren’t easy, either. For starters, most internationally recognized charge or credit cards, such as American Express and Diners Club International, are operated by U.S. companies barred from Vietnam by the trade embargo. Visa, however, is owned by an Asian holding company, which licenses rights to individual banks. So, it was concluded, as long as the cardholder’s bank wasn’t American, credit cards could be used.

Except for one small problem. The Vietnamese said no.

“By this time I was swearing, and I can swear in six languages,” Imbardelli said, sipping cappuccino in the hotel’s plush lounge featuring a circular stairway and elegant ambience.

But it seemed the Vietnamese had only misunderstood what credit cards were. When they learned they could redeem the paper slips for cash and keep a portion, they readily agreed. Now most major hotels in Vietnam accept Visa, although Americans are not permitted to use it.

The most massive task was training hotel staff, beginning with the first-ever permission to hire directly. That took 25 meetings to obtain. “At a certain stage, I thought I was going to get thrown out of the country,” said Imbardelli, who took up smoking again as an “escape” from the stress after quitting for two years.

The hotel spent five months training a staff of 360, average age 23, 70% of them holding their first job. Most could only work five hours a day in the beginning, lacking proper nutrition and capitalistic work habits. Twenty percent showed preliminary signs of tuberculosis. The staff underwent intensive training in self-esteem and hygiene, English lessons and guest relations and skills training on how, for instance, to distinguish champagne from wine.

The hotel has been criticized for running a military camp--a security officer checks to make sure employees shower daily, for instance. But Imbardelli counters that 2,000 people are on the waiting list to work in a place that provides free meals, uniforms, health care and English lessons.

He’s also been accused of buying off officials with a $10,000, seven-day trip to Malaysia. But Imbardelli defends it as an “education tour” that gave the Vietnamese their first understanding of international hospitality standards and why he needed the things he was pushing for.

The hotel’s occupancy rates were only 15% the first month and 20% the second month. After the hotel dropped its rates from $150 per night to $95 for a standard room in June, the occupancy rates shot up to 78% in November. As airlines increase flights to Vietnam, Imbardelli predicts a full house by February and a return to the black by mid-year.

For EIE, the payoff is a foothold into the broader virgin market, and the firm is considering other projects, including the expansion of an oil refinery.

Vietnamese authorities are pleased as well. In its guidebook for foreigners, the government-owned Saigon tourist agency touts the arrival of the hotel as a “milestone event in the history of hotel development in this country.”

Canadian Consortium Corp:

Stewart Chen came to Vietnam to raise and process chickens. He ended up running around like one with its head lopped off. When he first arrived in Ho Chi Minh City in March, he spent eight weeks meeting 40 people, all of whom claimed they were the right people to process his project. They weren’t.

Only after he figured out that he had to pay homage to Hanoi did he get his permission to operate. In three days flat.

“It was very confusing. Because of departmental jealousy, each department tries to say that they are the best, they can do the most. They don’t disclose the proper channels,” said the voluble Canadian, who sported suspenders and heavy gold jewelry as he sat surrounded at lunch by Vietnamese women friends.

The chicken exporter encountered one of the most common squawks among foreigners about Vietnam: the sometimes impenetrable bureaucracy. For them, he has this advice: “Go through your embassy. The power still resides in Hanoi.”

He hit on the idea of processing chickens for export after concluding that the French and Japanese had tied up the best commodity trade opportunities. He figured he could carve out a niche by offering agricultural technology. Chickens were an obvious target. By North American standards, Vietnamese chickens are small and tough, taking three months to grow to 2.5 pounds. By contrast, Canadian chickens take just five weeks to grow into a plump 4.5 pounds.

By introducing high-quality feed, Chen figures he can raise output to 20 million chickens a year from the current 7.5 million and double the price. He aims to export 70% of that to North America, including the United States, when the embargo is lifted. His firm negotiated exclusive export rights; he expects a $2-million profit in the first year.

His consulting and marketing firm also plans to open two processing plants in Vietnam that will cut and package the chicken according to international standards. But because jobs are still more important than the latest technology in Vietnam, the Canadian firm will actually downgrade the plant. For instance, all butchering is done automatically in Canada, but Chen will remove the computer controls and use semi-automatic cutting tools instead in order to create 60 new jobs.

To get around another major problem about Vietnam--its limited ability to pay bills with foreign currency--Chen won backing from the Canadian government. Under a program that promotes Canadian technology abroad, the public Export Development Corp. agreed to finance Chen’s project under guarantees from the Vietnamese government that it would eventually repay the $18-million investment.

“It will help develop a tremendous export power in poultry, which will generate the export currency they need,” Chen said.

British Petroleum:

Rick Yvanovich is in Vietnam to look for oil. But finding good help, a steady supply of power and reliable telephone lines became the more immediate priority. After Vietnam’s lack of hard currency, foreigners invariably say the second biggest headache is substandard infrastructure.

British Petroleum solved that problem. It installed its own.

The company signed an exploration contract in February, 1989, and began drilling one of two wells in September. The concessions, located off Danang in central Vietnam, are considered high-risk, but with the promise of a major deposit.

But first the firm had to buy its own satellite link and install its own direct telephone lines to Vietnam’s central exchange, because 24-hour communication with the drilling rig is essential. That couldn’t be guaranteed by Vietnam’s own system, where calls between Ho Chi Minh City and Hanoi can take half a day to connect.

Next Yvanovich’s team had to install its own power generator; a recent visit to his office demonstrated why. During an interview, the lights continually blinked off and on. Power still goes out a few hours each day. And fluctuations in voltages create power surges that knock out the satellite links, so the British firm installed a circuit breaker as well.

They also brought in their own electrical engineers from Bangkok to completely rewire the villa in which they work. Although they considered using Vietnamese help, “it’s quite difficult to get people to do what we want in the time frame we want,” Yvanovich said. It took a year just to get the office running.

Some problems couldn’t be solved. The firm still has to employ most people through a government agency, which charges $200 month for maids--the average Vietnamese’s annual income--and as much as $600 for secretaries. Not only does the agency keep 40% of the take, but the inability to directly hire and promote kills off worker motivation, Yvanovich said.

“You can’t increase their salary because they won’t get it. They have absolutely no incentive to work,” he said.

Although Hanoi has passed a new labor law that purports to allow direct hiring, foreigners say individual contracts still often require hiring through the government agency. As a result, Vietnam is not exploiting what should be one of its chief competitive advantages, cheap labor. Indonesia, for instance, does not employ the dual pricing system and charges an average $1.20 a day for unskilled labor, compared to Vietnam’s $2.

“This high cost of operating in Vietnam is a strong deterrent to doing business there,” said Bruton, the British consultant. “By the time the Vietnamese understand this, several projects will have gone elsewhere and there will be the loss of thousands of jobs.”

Foreign businessmen differ in their assessment of corruption. One said he had to pay 5% of his project’s cost to get official approval. Others said only small “service fees,” ranging from $20 to $100, were necessary to facilitate their requests. The consensus was that corruption is no worse than in other parts of Southeast Asia and demonstrably better than in China.

Still, Bruton, Yvanovich and others say the Vietnamese have made good progress in trying to improve the business climate. In recent months, they have drawn up laws governing labor, taxes, customs, foreign exchange and banking with input from foreign advisers. Although the country still lacks a court system to enforce the laws, most firms protect themselves through contractual agreements to settle disputes by arbitration courts in third countries.

In any case, they say, no one is forcing them to be in Vietnam.

“We’re here to make money and we’re here to find oil,” Yvanovich said. “At the end of the days, if we don’t like it, we should go.”

Area: 331,000 sq.miles Population: 67 million Capitol: Hanoi Currency: Dong Exchange Rate: US$1-6,000 Dong Literacy: 87% Resources: Oil, gas, bauxite, iron ore, agriculture, fishing Per Capita GDP: $200