Vietnam's small firms may not fair well against Asean competition

Small and medium-sized enterprises in Vietnam have paid little attention to the formation of the Asean Economic Community (AEC), while larger companies with a “national brand name” are actively preparing for the regional integration process.Le Thanh Hai, deputy manager of the Vietnam Chamber of Commerce and Industry’s (VCCI)Enterprise Development Foundation, said in mid-November that many enterprises were still little interested in the AEC,as polled by Viet Nam News just prior to establishment of the community.Hai’s statement is similar to what Hanoi Youth Entrepreneur Association Chairman Le Vonh Son described during an online talk held by the government portal at the beginning of the year, when this chairman said roughly 80 per cent of domestic small and

medium-sized enterprises were indifferent to AEC integration. Nguyen Hong Son, the principal of the University of

Economics and Business under the Vietnam National cent of the local firms had knowledge about theAEC, citing academic research.The companies say they have their own reasons for the ignorance.Vuo Van Phong, Chairman of Hanoi-based event organizer Nai Xuan Media told Vietnam News that his company is yet to prepare for the AEC since it mainly deals with Japanese and South Korean partners, countries that are not part ofAEC.He said that, at present, the company is not worried about competition in the eventorganising field from Asean firms. Its studies show that, except for outstanding Singaporean organisers, other players in Myanmar,Indonesia, Laos and Cambodia are showing“average” performance.Vietnam Retailers Association Vice Chairman Pham Ninh Noan also told a conference held by the Bank for Investment and Development of Vietnamin Hanoi last June, that domestic firms have not paid much attention to the AEC because their trade rotation inside the region accounted for only 20 to 25 per cent of their turnover.Vietnamese businesses have mainly depended on markets outside Asean, such as the United States, the European Union and Japan, he pointed out. At a forum held by the Central Institute for Economic Management and the School of Public Policy, University of Tokyo in Hanoi recently, economist Pham Chi Lan said that 70 per cent of domestic SMEs are not involved in import-export, thus they do not feel the pressure of integration. On the other hand, they are struggling to survive in the local business environment, she added. Earlier this year, the director of tire maker Minh Noc Limited Company in HCM City, Nguyen Quoc Anh, told the Voice of Vietnam that his firm has had to work hard to cope with market difficulties for the last few years, to stabilise production that serves both domestic demand and exports to South Korea and Japan. The company this year borrowed US$500,000 to invest in a new production line, following declines in bank interest rates. Preparation for the AEC has just stopped at this level, as the director believed that, regional integration will have insignificant impacts on SMEs.The regional economic community will form as one of the most promising regions in the world, with a single market of over 600 million people and a combined GDP of almost $3 trillion.Tariffs set by member countries will gradually fall to zero per cent, encouraging exports,investment and economic growth.“The AEC will create a vast market in the region, bringing about opportunities for robust enterprises with economic advantages in production and distribution scales, which enable them to expand with lower costs,” said Long Hoang Thai, the director of the Ministry of Industry and Trade’s Multilateral Trade Policy Department. “At the same time,enterprises will have chances to develop niche markets,” he said,where diversified demand of Asean businesses and consumers will drive goods and services portfolios to grow more rapidly.However, Thai was quoted as saying in an online report of the National Institute for Finance that the AEC will put great pressure on the domestic business community, where up to 97 per cent of the 500,000 businesses are SMEs.He warned that fierce competition with imported goods, and stiffer competition in attracting investment against regional rivals are likely to force some local enterprises and sectors to narrow production scales, and even quit the market.VCCI’s Legislation Department Director Nau Anh Tuan specified in the report that, while Vietnam has witnessed trade deficits with Asean for the last few years, 97 per cent of goods that the country imports from the bloc will enjoy tax exemption by 2018.He noted that investments by other Asean nations in Vietnam have also continuously increased, totaling some 2,600 projects and about $55 billion in value as of June 2015.The report added that, currently, the average labour productivity of Vietnam is equivalent to only half that of the Philippines, one fourth of Thailand’s, one tenth of Malaysia’s, and less than three per cent of Singapore’s.Meanwhile, the Vietnam Trade Promotion Agency said many enterprises, which have joined the National Brand Name Programme – a programme run since 2012 to promote the image of the country, are proactively strengthening their own capacity and working out measures to cope with the challenges. Viglacera Corporation is one example, exporting building products to more than 40 countries worldwide, including France, Italy, Russia, South Korea and Indonesia. Viglacera’s Deputy General Director Nguyen Minh Tuan said domestic firms in this area have been witnessing tough competition from Chinese and Thai companies. But he added: “If Vietnamese enterprises attach special importance to enhancing the quality of products with stronger investments in technology, they will be able to compete with Asean rivals.”Vinamilk Chief Executive Officer Nguyen Quoc Khanh acknowledges competition is an indispensable trend since the world’s leading dairy firms are already present in Vietnam.“Our solution is to invest in modern production technology and grasp consumer demand well to create diversified products,” he said, adding that his company has nearly half of the domestic dairy market and exports to 31 countries and territories. VIETNAM Asean Rank Area (sq km) 331,212 4th Population1 94,348,835 3rd GDP2,3 (2014 US$ million) 186,223.6 6th Exports2,3 (2014 US$ million) 148,091.5 5thImports2,3 (2014 US$ million 145,685.6 5th Net FDI2,3 (2014 US$ million) 9,200.1 5th Tourist arrivals3 (2013, ’000s) 7,572.4 5th

 

1 CIA World Factbook (July 2015 est.)

2 Preliminary 2014 figures

3 ASEANstats

Vietnam

 

Nguyen Tho Nien, General Director of garment and footwear firm An Phoc in HCM City, said she expects that the AEC will provide member countries the opportunity to associate in developing sources of materials, which can guarantee a stable supply for regional production and support global manufacturing. Nguyen Hoa Cong, Chairman of the Vietnam Electric Cable Corporation, whose annual urnover reaches $133 million to $222 million, suggested that the government should build appropriate technical trade barriers to prevent low-quality imported products.

Some other national-brand-name business leaders share that argument. For an SME like Nai Xuan Media,which has $213,300 in equity, its suggestion is simpler.Chairman Phong of Nai Xuan said: “It will be good for us to expand our business into Asean markets, but we lack information about them. Every day we just hear general news from the media about integration.“The Ministry of Information and Communications should hold forums to train companies in our sector in preparation for the AEC,” he said.