Viet­nam faces chal­lenges, com­pe­ti­tion ahead of gain­ing mem­ber­ship of the TTP

The China Post - - BUSINESS -

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,

Eco­nomic Re­forms

“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.

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