Hotel and Tourism Development in Vietnam Essay

Terry Lam, Lecturer, Department of Hotel and Tourism Management, The Hong Kong Polytechnic University — Since 1996, the introduction of an economic reform policy, Doi Moi, Vietnam has undergone a transition from a centrally planned economy to a free-market-oriented economy. Vietnam’s entry into ASEAN in 1995 and the restoration of diplomatic relations with the U. S. are expected to bring a boost to the tourism and hotel industry in the country. Nonetheless, Vietnam is not ready for a large influx of tourists at the moment as there are a number of constraints hindering its development.

This paper aims at providing an overview of Vietnam’s tourism industry, its market potential and challenges during this transition period in the economy. Recommendations for future tourism developments are also presented. Introduction The famous Vietnam War came to an end when the U. S. withdrew its troops from Saigon (now called Ho Chi Minh City) in 1975. Devastating wars had caused Vietnam’s economy to virtually collapse.

Rarely did visitors go to Vietnam for travel or to do business in the 1970s and early 1980s.In 1986 the Sixth Party Congress of Vietnam approved an economic reform policy called the Doi Moi, designed to remove restrictions on investment by the private sector, introduce foreign investment law, devaluate the official exchange rate and restructure the banking system. Foreign visitors started going to Vietnam to explore business opportunities.

The introduction of Doi Moi, on the one hand, has helped the tourism industry to develop from scratch since 1987. On the other hand, the country’s political stability has also laid down a good foundation for its tourism development.Nevertheless, there are a number of constraints hindering Vietnam’s tourism development.

They include the poor infrastructure, lax legal systems, graft, the lack of accommodation facilities of international standard, and inadequate skilled workers and qualified management people. This paper, therefore, aims at providing an overview of Vietnam’s tourism industry, its market potential and challenges. Recommendations are presented for future tourism development in the country.

Major Tourism Market Vietnam has a high market potential to make tourism become a major industry.According to the Service of Tourism of Ilo Chi Minh City (HCMC), foreign arrivals reached 985,000 in 1994, growing from 440,000 in 1992, representing an upsurge of 124% during the period (Table I). Government information on the number of visitors is patchy and inconsistent, but some other government statistics reveal that Vietnam welcomed 650,000 visitors in 1993 (HKTDC, 1994), and 1,400,000 visitors in 1994 (Wong and Bloomberg, 1995).

In terms of market share, Taiwan was ranked top, with the largest influx of visitors into Vietnam in 1994, while the U.S. and France, at second and third, also dominated the market (Table 2). According to the World Tourism Organization, approximately 2 million Vietnamese tourists or Viet Kieu, located in some 80 countries, will dominate the market when they return to their homeland for a visit (EIU International Report, 1993). Investment in Accommodation According to a report of the Information Center of the State Committee for Sciences in Vietnam, in 1993 there were 10,500 hotel rooms in Vietnam, of which about 4,000 were of international standard.The Vietnamese government planned to increase this number to 9,000 international-standard rooms by the end of 1995, to accommodate about 500,000 visitors per year (EIU International Reports, 1993).

Although the Vietnamese government encourages hotel investors to look optimistically into this booming industry, the supply cannot always match the demand, as for instance in 1994, when there were close to one million visitors to Vietnam. The huge demand for international hotel rooms has caused a rash of hotel development in major tourist destinations.There is a lack of strategic planning for and control of hotel development by the Vietnamese government, and there are no accurate figures for developers’ reference. Many hotel projects have come about based purely on developers’ assumptions about the demand side of rooms in the cities. Poor infrastructure has also slowed down the growth of tourism. As a result, there is an oversupply of rooms in HCMC, where hotels were forced to enter into a “price war” (Agence France Presse, 6/27/95).

Source: Service of Tourism, HCMC 1995 Factors Shaping Vietnamese TourismFactors shaping the Vietnamese tourism industry are: the environment, politics, and government involvement, all of which are closely linked and crucial to the successful development of tourism in the country. Vietnam has many natural endowments and resources that are major attractions for tourists. Hanoi and HCMC are the most popular cities for visitors, as people can find elegant French architecture and boutiques, and weathered colonial buildings there. The 3,000 km coastline also contains plenty of untouched scenic spots and beach resorts, which have become popular tourist attractions.Vietnam was accepted as a member of Association of South East Asian Nations (ASEAN) in July 1995. According to the agreement, the other ASEAN members will provide assistance to Vietnam in terms of manpower training and development, financial support and involvement in promotional activities, such as encouraging ASEAN-bound visitors to extend their trips to Vietnam. In July 1995, the U. S.

restored bilateral diplomatic relations with Vietnam. To many Vietnamese, the return of the Americans represented the return of commerce and tourism (Chicago Tribune 5/1/95).Financially, hotel investors are now able to obtain low-cost financing from banks and other financial agents, which believe that the investment environment has become less risky in Vietnam. Subsequently, newly-established international hotels providing a continuous supply of hotel rooms, and an upgrading of tourism facilities, are feasible, providing an impetus to tourism development. The Vietnamese government’s determination to develop tourism as its dominant foreign exchange earner cannot be underestimated.

In order to highlight the key roles of the tourism industry and to facilitate its development, the Vietnamese government set up a new and improved Vietnam National Administration of Tourism (VNAT) in 1993. The new VNAT has goals focusing on the need for stronger State management, strategic planning, training and the easing of formalities for the tourism industry. Working with provincial tourism service bureaus, it also helps make plans for the introduction of new standards and licensing policies. Problems of Hotel and Tourism DevelopmentAlthough Vietnam seems to have shown signs of resurgence after adopting economic reforms in 1986, there remain considerable obstacles and constraints that have hindered its hotel and tourism development. There is a lack of accurate and basic statistical information about visitors, which is important for investors wishing to draft development strategies and plans. The multiplicity of organizations involved and the lack of historically reliable and timely statistics make it difficult to understand the tourism industry in Vietnam (Hobson, Heung ; Chon, 1994).

Pickpockets and robberies are common in cities, and travellers are advised not to stroll alone on streets at night. Many tourist areas even have non-existent or non-functional street lighting. Therefore, safety has become a major issue for travellers. Tourism and hotel investment is hampered by a lack of investment funds from the almost bankrupt Vietnamese government. This causes investors to rely on foreign banks for loans and financial support.

Should there be any sense of investment instability, it will affect financing and development project.Fortunately, confidence among prospective investors and banks has soared in recent years, and the international financial credit for Vietnam has increased (Schwarz, 1995). Cumbersome application processes for the approval of property designs and construction permits by hotel investors in Vietnam have commonly resulted in delays to their projects. In this connection, construction costs are high. Graft is serious in Vietnamese government departments. Officials have to be bribed in order to expedite the application process, but this adds to operating expenses and causes construction costs to escalate (Collins, 1995).

Investors are therefore cautious, and they calculate the opportunity costs before putting their money into such a high-risk investment environment. Vietnam has suffered from a high inflation rate. According to the General Statistics Office, the year-on-year rate for May 1995 reached 19. 4 per cent, and prices had risen 10. 5 per cent in the first five months of that year (Agence France Presse, 6/9/95).

Added to this, the shortage of building materials and supplies has forced hotel developers to import cement, iron, glass, marble and other materials, at high cost, from foreign countries.Consequently, some hotel projects have come to a halt or been converted into offices or residences due to financial difficulties. Vietnam has an inadequate system of business laws and policies to govern the business community. The interpretation and application of laws and decrees by different levels of government authorities are confusing, which has undermined investors’ confidence. What makes this even worse is that fast-changing rules and regulations are unclear and annoying to investors.

Very often, business deals cannot be guaranteed, even when the contract has been signed by all parties concerned (Reuters, 1995). The poor public infrastructure in Vietnam is a major constraint to hotel and tourism growth in the country. Roads are poor, with many potholes. Transport links between the north and south parts of the country are inadequate. Floods in roads after downpours are very common in tourist destination sites, causing a great deal of inconvenience to tourists. The railway system is very weak and substandard.

Trains, still using steam engines, are slow and of poor quality.Poor transportation networks and facilities have impeded travel by international tourists within the country. Domestic air travel is operated mainly by Vietnam Airlines, but the aircraft are old and poorly maintained. Other than HCMC, Hanoi and Da Nang, where international airports are found, other tourist attraction regions rely very much on domestic air travel. Unfortunately, a lack of capital to modernize and expand provincial airports has slowed the tourism development of those tourist attraction regions.

Conclusions and RecommendationsIt is apparent that Vietnam is facing many problems in the development of its tourism industry. There are several crucial issues that the Vietnamese government needs to look into immediately if it wishes to welcome 9 million foreign arrivals by the year 2010 (Los Angeles Times, 1995). Internally, stringent law enforcement measures must be undertaken in order to ensure a safer environment for tourists, especially in the major tourist regions. Sound management of tourist attractions is required, for instance by selling tickets and by careful maintenance of heritage ruins and facilities.Although Vietnam plans to invest billions of dollars to upgrade its transport networks and other infrastructure in the next five years (Financial Times Business Report, 1995), an imperative task is to improve the drainage system in the cities. As mentioned, tourists are inconvenienced by flooding on the streets after every downpour. In order to attract hotel investors, government bureaucracy and red-tape procedures must be simplified so as to expedite the development of the investors’ hotel projects and to speed up their financial returns.

A favourable profit tax rate for investors could be another impetus. In order to attract tourists, the conservation of heritage and cultural remains is essential. The development of natural parks could be another starting point. Training centres for tourism industry staff should be established in order to upgrade service standards, which are now inadequate. Externally, strategic marketing planning and promotion activities are required to improve Vietnam’s public image and expand its international market share.

Neighbouring countries such as Laos, Thailand, Cambodia and the Philippines have similar historical and cultural backgrounds, and have common tourism objectives and goals. Instead of promoting Vietnam as a single tourist destination, it would be a great advantage for Vietnam to work with those neighbouring countries to promote their destinations as a single package (Heung & Leung, 1996). Tourism is beginning to take off in Vietnam. The recent growth in the number of tourist arrivals indicates that there is a huge potential for tourism development in the country.Although there are tremendous obstacles that Vietnam has to face in the course of its tourism development, particularly with respect to the country’s unfavourable international image, its abundant human resources and the government’s determination to promote tourism have laid down a good foundation for its tourism resurgence in the future.

References* Agence France Presse (6/9/95). Inflation At 19. 4 Percent Exceeds Forecast. South China Morning Post. June 9. * Agence France Presse (6/27/95). Lick of Planning for Infrastructure and Promotion Deals Blow to Industry.

South China Morning Post, Business Section, June 27, p. 7. Chicago Thibune (1995). May 1, pp. 3. * Collins, M. (1995).

Coping with Corruption. Asia, Inc. , July, p. 20. * EIU International Tourism Reports (1993). Indochina-Vietnam, Cambodia & Laos, No. 2, 65-69.

* Financial Times Business Report (1995). Asia-Pacific Telecoms Analyst, March 27, p. 17. * HKTDC (Hong Kong Trade Development Council) Report (1994). Trade and Investment Opportunities in Vietnam, September, pp. 9-13.

* Heung, V. & Leung, K. P. (1996). Tourism Marketing and Promotion for Indo-China: The Consortium Concept. Second International Conference-Tourism Indo-China: Opportunities for Investment, Development, and Marketing.April 25-27, pp. 87.

* Hobson, P. , Heung, V. , & Chon, K (1994). Vietnam Tourism Industry: Can it be kept afloat? Cornell H. R. A. Quarterly, 35 (5), 42-49. * Los Angeles Times (1995).

June 12, p. 5. * Reuters (1995). French Colonial Yields to Concrete. South China Morning Post, Business Section, July, 6. * Schwarz, A. (1995). Business-Economics, July 6, 68.

* Service of Tourism (1995). HCMC. * Wong, L.

& Bloomberg, C. (1995). HK Pipped in Rooms Race.

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hotel-online. com/Trends/JournalTravelTourismMarketing/HotelDevelopmentVietnam_Nov1997. html