The Liability of Foreignness
Foreign firms have now found themselves confronting a challenging operating environment in Vietnam tied to violent demonstrations that involved thousands of protestors venting their displeasure with China’s deployment of an oil rig near the disputed Paracel/Xisha Islands, claimed by both China and Vietnam. Although protestors targeted “Chinese” firms, they also lashed out at plants owned or operated by firms from Hong Kong, Japan, Taiwan, Singapore, and South Korea. Indeed, factories with “any Chinese writing or names became targets of destruction.” Foreign companies suffered millions in losses from arson, looting, and vandalism, shutdowns, and damage to support facilities.
Home country government responses ranged from expressing strong concern to demanding action against those involved in the violence to the evacuation of nationals. The recent turmoil in Vietnam is yet another wakeup call—and there have been many lately—for foreign firms to pay more attention to political risk issues, especially when alternatives such as shifting operations elsewhere are not that appealing. Purging signs and materials of all Chinese characters is but a temporary expedient and posting, as some have done, signs saying “we are not from the PRC” or “we support Vietnam on the Paracels” is a risky tactic that may provoke a PRC backlash. Pressuring Hanoi seems logical, but heavy pressure may be counterproductive if it makes the government look weak and subsequently forces it to be unresponsive or more tolerant of protests in order to maintain the nationalist mantle. In the final analysis, foreign firms need to think hard about how to address the liability of foreignness. This may require them to take local Vietnamese partners, to work more closely with local Vietnamese governments, or to put Vietnamese workers and managers front and center. Only such tactics will make them less inviting targets of nationalist fury over the longer term.