Vietnam faces challenges, competition ahead of gaining membership of the TTP
Aside from lucrative investment opportunities, foreign enterprises covet Vietnam’s market of 92 million people, the third largest in ASEAN. Particularly attractive is the young profile of the population, with 65 percent of Vietnam’s people younger than 35 years old, and their impressive spending power. Though the average monthly salary is only US$200, young Vietnamese everywhere can be seen holding iPhones that cost them three to four months’ salary.
TPP: Forcing Political,
“In the next five years, the results of Vietnam’s reforms will become increasingly evident,” says Tharabodee Serng- Adichaiwit, the general manager of Bangkok Bank in Vietnam, noting that the country has pushed progressively stronger reforms to prepare for membership in the TPP.
Many Taiwanese businessmen with operations in Vietnam contend that the TPP’s biggest contribution to date has been to force Hanoi to engage in political and economic reforms. The most obvious advances have been improvements in administrative efficiency and statutory revisions and transparency, and the reforms have covered trade, environmental and industrial policies.
“Among the 12 members of TPP, Vietnam is the least developed country. Vietnam could face a lot of challenges as well as many opportunities. We can be more integrated with other countries in ASEAN, but it also mean we need to open our market and deal with competition from other countries,” says Nguyen Huy Hoang, the deputy director of the Vietnam Academy of Social Sciences’ Institute of Southeast Asian Studies.
Consequently, the government, enterprises and the public will face major challenges as the common market takes hold.
One poll found that 76 percent of Vietnamese companies do not understand the AEC, and, of that group, more than six of every 10 companies said it would not influence their operations, the highest percentage of any country in ASEAN.
Nguyen Hoa Huang believes the Vietnamese people need to strengthen their capabilities, pointing to the productivity of Vietnamese workers being only half that of Philippine workers, one-seventh that of Thai workers and one-10 that of Malaysian workers.
Another trend, he explains, is Vietnam’s growing selectiveness in accepting proposals.
“The government now hopes to avoid high pollution, low technology investment, favoring high-tech, high value-added manufacturing. Samsung’s smartphone plant is the best example of that,” Nguyen says.
Vietnam has taken several additional steps this year to further open its market and economy. Beginning in early July, foreign nationals were allowed to own and buy and sell property, and the government in September eliminated the restriction limiting foreign investors to a maximum 49 percent stake in most Vietnamese companies, allowing them 100 percent ownership instead. Only a few areas such as the banking industry were ceilings of 30 percent foreign ownership maintained.
Even tourists can see the determination of Vietnamese authorities in promoting reforms. Flip through Vietnam Airlines’ inflight magazine and one sees an article titled “No pain, no gain” in both Vietnamese and English. It summarized the market opening and wave of liberalization coming to Vietnam once the TPP takes effect and said that despite the many challenges companies will face, they had to bite the bullet and persevere forward.
“There’s no free lunch. To gain
foreign investment fruits in this new arena (textiles), Vietnam will also suffer greater competitive pressure as foreign products can be imported into the country at lower prices,” the article read.
Anxiety was also clearly evident in an English newspaper in Hanoi, in which the lead headline on the front page read, “VN businesses face challenges competing in ASEAN market.”
Another measure: Vietnamese customs authorities plan to simplify export and import documentation by the end of the year to speed up customs clearance procedures, helping improve the competitiveness of local companies.
China Steel: Eyeing
a Tariff Edge
Several Taiwanese enterprises have established a presence in Vietnam to maintain their competitive edge, investing nearly US$8 billion ( about NT$ 240 billion) there over the past 25 years.
Kaohsiung-based China Steel is a typical example. China Steel Sumikin Vietnam JSC ( CSVC) Chairman and General Manager Wong Chao-tung arrived in Vietnam four and a half years ago to supervise the construction of the company’s new factory, China Steel’s biggest overseas investment. The company’s investments totaled nearly US$2.4 billion, including the cold rolled steel plant located in Vung Tau province southeast of Ho Chi Minh City, and a 25 percent stake in the Formosa Plastics Group’s Formosa Ha Tinh Steel Corporation in central Vietnam.
The cooperation between China Steel and the Formosa Plastics Group was motivated by regional economic integration.
“Ha Tinh Steel makes upstream hot-rolled steel, while China Steel makes the high end downstream cold-rolled products. As long as 40 percent of the raw materials are made in Vietnam, we qualify for an ASEAN certificate of origin,” Wong explains.
“Using Vietnam’s FTA opportunities to go after the ASEAN, Indian, European and American markets is really advantageous to us.”
Unfortunately for China Steel, it is facing cutthroat competition from Chinese steel makers, which are dumping their products in the Vietnamese market at prices 20 percent below cost. The day before CommonWealth Magazine interviewed Wong, he was in Hanoi to visit Vietnam’s Ministry of Industry and Trade and join with the Vietnam Steel Association in filing a dumping complaint against Chinese steel products.
“Vietnam is an important beachhead in ASEAN. China Steel wants to help Taiwan blaze a new trail in the region,” Wong says boldly.
Challenges and Competition
Vietnam may be accelerating the pace of its economic opening, but paths of reform are inevitably strewn with perilous risks.
As foreign investment pours into the country, for example, Vietnam’s basic infrastructure is being stretched to the limit, both in terms of institutions and physical infrastructure.
According to a paper presented at a seminar held at the end of August by the Asia Competitiveness Institute, part of the National University of Singapore’s Lee Kuan Yew School of Public Policy, the competitiveness indicators Vietnam most needed to improve were the government bureaucracy, the supervision and soundness of the stock market, road networks, education and inflation.
The more liberalized an economy, the more intense the competition. As Vietnam has slowly evolved from an economy of individual companies into one integrated with ASEAN, companies from other countries have long established beachheads in Vietnam.
“Thai and Malaysian investors have moved aggressively into Vietnam, so companies will have to rely on their true capabilities,” says Vedan International (Holdings) Limited Executive Director and CEO Yang Kun-hsiang.
Amid intense competition, size remains a key asset, but even more important is differentiation.
Because of the stiff competition in the market, Tainan Spinning has decided to join with Eclat Textile and Makalot to shift to higher end products, “because it’s increasingly difficult to turn a profit on products that are not competitive,” says Tainan Spinning’s Wang.
Prospective FTAs and TPP membership have only accentuated the dividends and advantages of Vietnam’s reforms. Companies from around the world are flocking into Vietnam, all with different strategies, and one wonders how Taiwan will find its own strategy. Vietnamese authorities have propagated the message “no pain, no gain” in opening its economy, a lesson that Taiwan might want to consider. Translated from the Chinese by Luke Sabatier Additional reading selections can be found at http://english. cw.com.tw