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Business

In their own hands

Released at: 10:18, 14/10/2015

In their own hands

Only those enterprises that are fully prepared for the battle to come will thrive and survive in regional and global integration.

by Minh Tien

The Vietnamese Government has been negotiating and signing many important free trade agreements (FTAs) in recent times, which will open up myriad opportunities for the country’s business community in this age of integration. Small and medium-sized enterprises (SMEs), however, will find it difficult to expand and penetrate into new markets or even defend their home turf, which has been and will be inundated by regional and international competitors, according to Mr. Pham Ngoc Long, Director of the SME Management Science Institute.

Speaking of the opportunities to come from the ASEAN Economic Community (AEC), the Trans-Pacific Partnership (TPP), and other FTAs, Mr. Nguyen Dinh Cung, President of the Central Institute for Economic Management (CIEM), raised concerns about SMEs slipping in both numbers and strength. “The scale of Vietnamese SMEs remains modest, with too many small enterprises in the economy and too few giants, who play an essential role in integration,” he said.

Defending the home front

SMEs account for 97 per cent of all enterprises in Vietnam, with a great many of the remainder being owned by the State. The scale and competitiveness of SMEs, however, has long been weak. Figures from the General Statistics Office show that while there was a fall in the number of enterprises filing for dissolution in the first eight months of 2015, at 6,290 (mostly enterprises with registered capital of less than VND10 billion, or around $500,000), the number of enterprises suspending operations reached 39,056, or 2 per cent higher than in the same period of last year.

Mr. Nathan Lane, the Economic Officer at the Consulate General of the United States in Ho Chi Minh City, shares a view that SMEs are the backbone of regional economies in ASEAN, accounting for more than 90 per cent of the total and creating 50 to 80 per cent of employment. He stressed that the SME business community is the locomotive of comprehensive economic development in this age of integration but due to a lack of vision and proper business strategy, coupled with a low competitive position, most find it extremely difficult to join global supply chains and have proven unable to do more than assembly and processing.

According to Mr. Dau Anh Tuan, Director of the Legal Department at the Vietnam Chamber of Commerce and Industry (VCCI), only 30 per cent of Vietnamese products being exported to ASEAN enjoy export incentives. Meanwhile, despite the fact that Vietnam has not yet fully integrated, its market has been watched closely by regional competitors. Since 2010 goods from ASEAN have been pouring into Vietnam in significant quantities, eventually pushing the trade balance into deficit. ASEAN currently comes after only China in exporting to Vietnam. The Steering Committee for International Integration believes that competition will become even fiercer in the year to come, with 100 per cent of tariffs on goods from ASEAN being exempted. 
The rising challenges in the context of poor competitiveness mentioned by Mr. Lane present the clear possibility that Vietnamese enterprises will lose the fight on their home turf. Mr. Le Vinh Son, Chairman of the Hanoi Young Entrepreneurs Association, said the local market has been flooded with ASEAN goods for many years.

According to VCCI, SMEs account for nearly 97 per cent of the total number of enterprises in Vietnam. Only 36 per cent of these enterprises, however, are engaged in exports, while the figure in both Malaysia and Thailand is 60 per cent. More critically, only 31 per cent of Vietnamese enterprises participate in global supply chains. A recent report from the Ho Chi Minh City People’s Committee revealed that only 300 local enterprises were capable of joining global supply chains, and only then at the level of providing components. Interest among Vietnamese enterprises in joining global supply chains in this age of regional and international integration is clearly inadequate.

In the short term, the manufacturing of consumer goods is the sector affected the most, with a remarkable number of Thai enterprises managing to penetrate into and then dominate Vietnam’s market. Mr. Pham Dinh Doan, Chairman of the Phu Thai Group, posed questions about Vietnam’s retail market in the post-2015 period, when the economic needs test for foreign investors and enterprises is removed. “With strong market penetration by foreign players, Vietnamese goods may lose shelf space in supermarkets,” he believes.

Meanwhile, upcoming FTAs such as the Vietnam-Korea FTA and the FTA between Vietnam and the Eurasian Economic Union will put huge pressure on Vietnam’s steel industry. Ms. Ninh Thi Bich Thuy, CEO of TVP Steel, complained that local enterprises are locked in a fierce battle with cheap steel imports from China and the challenges presented by t