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Totally underwhelmed

Released at: 09:11, 10/08/2015

Totally underwhelmed

As the TPP approaches it seems that most SMEs in Vietnam are woefully unprepared for what's to come.

by Quynh Nguyen

Countries joining the TPP, including Vietnam, should now begin final, thorough preparations before the “21st century trade agreement” is signed. Most small and medium-sized enterprises (SMEs) in Vietnam, however, even textile businesses, which will gain many advantages from the TPP, appear to be largely in the dark over its contents.  

Some 97 per cent of the 800,000 businesses in Vietnam are SMEs, with Ho Chi Minh City having nearly 200,000. According to Ho Chi Minh City Enterprises Association, though, only half of its enterprises know fully about the TPP. With TPP negotiations entering the final stage, such a situation is indeed worrying.

Knowledge shortfall

The Ho Chi Minh Investment and Trade Promotion Center has organized a range of workshops on the TPP and invited enterprise to attend for free but few have taken up the offer. “Businesses lack knowledge about the TPP, and some know nothing at all about it,” a representative from the Center said. Even in textiles, which will benefit the most from the TPP, businesses are ill-prepared to seize the opportunities.

According to the Vietnam Textile and Garment Group, of the 2,000 textile enterprises in the country the number who have thoroughly prepared for the TPP can be counted on just one hand. Many say that the economic situation is difficult and their efforts are focused on simply surviving, and so have no time to care about the TPP. SMEs share a common shortcoming - short-term vision - considering the TPP to still be far away and having little effect on their business activities, said Mr. Ly Hoang Nguyen, Director of Nguyet Nhan Trade and Technical Services. “Businesses have an interest in the TPP but it’s not exhaustive, yet they know that if they understood it clearly and fully they would be able to benefit from it,” he said. “Most enterprises that are really interested in the TPP are large corporations, because they are more able to study it and prepare for it, while for SMEs this is very difficult.”

Meanwhile, Mr. Nguyen Van Than, Vice President of the Vietnam Association of Small and Medium Enterprises, claimed that SMEs aren’t alone in lacking awareness about the TPP, as large enterprises are not as well prepared as people may think. “SMEs are often reluctant to embrace challenges and don’t think about long-term benefits,” he said. “More importantly, they are not aware of what their strengths might be in the TPP.”

Other SMEs, especially those in the agricultural sector, believe they won’t be able to access the TPP because they don’t have the capacity to reach out to foreign markets. A representative of one agricultural enterprise said that with major players such as the US, Canada, Australia, and New Zealand being members of the TPP, many tariff barriers in Vietnam will be removed and their agricultural products will flood into the country. “SMEs in the agriculture sector will then face many difficulties in competing in the domestic market, let alone foreign markets,” the representative said.

An estimate from the Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD) showed that, after the TPP is signed, US pork exports to Vietnam will increase 43.2-fold against 2014, from $2.3 million to $100 million. Meanwhile, the total production value of Vietnam’s entire livestock sector now stands at about VND140 trillion ($6.4 billion) to VND150 trillion ($6.9 billion). Enterprises in the livestock sector are mostly small-scale, with only about 23,000 farms earning annual revenue of $23,000 or higher, which is much less than in other countries around the world. Ms. Duong Thi Thanh Ha, Director of the Minh Dang Trading and Service Co., a small agricultural enterprise, said the benefits of joining the WTO remain unclear to this day, so what happens after the TPP is signed is also unknown. “I just hope that the State will take measures to support SMEs so we are not totally removed from the game,” she was quoted as saying.

To overcome

It can be clearly seen that along with the opportunities the TPP will also present many challenges. Vietnamese enterprises, generally speaking, are marked by low competitiveness, especially SMEs. They will be unable to take advantage of the opportunities from the TPP to expand their export markets and will probably lose market share at home, according to Mr. Tran Dinh Thien, Head of the Vietnam Institute of Economics.

The difficulties for textile SMEs is that when the TPP comes into effect enterprises must implement the “yarn forward” rule, or rule of origin, which means that the yarn they use must be manufactured in Vietnam or in one of the other TPP members. This requires the domestic textiles industry grow strongly. SMEs must actively seek more raw materials from domestic sources, not simply importing from China, as has long been the case. In dyeing, Mr. Thien said ten hectares of land is needed for one dyeing factory and billions of dong for importing equipment and machinery. “This is beyond the capacity of SMEs,” he said. “It is therefore necessary for the government to give due regard to planning and supporting SMEs to develop raw material zones.”

For his part, Mr. Nguyen Son, Deputy Director General of the Interagency Steering Committee for International Economic Integration, said that the most important factor now for Vietnamese enterprises exporting to Japan, for instance, is not tariff barriers but technical barriers like quality and origin. “Quality requirements regarding exports to Japan are very strict and many Vietnamese enterprises fail to meet them,” he said.

By way of example, he said that a few years ago Japan Customs, in a small inspection, found that some shrimp shipments from Vietnam contained antibiotic residues and so decided to conduct inspections on all shrimp shipments to the country. This suggests that barriers relating to quality are the most important matters businesses in Vietnam, especially SMEs, must overcome. Therefore, SMEs seeking to benefit from the TPP will have to improve the quality of their products. The most important task for SMEs in agriculture, besides focusing on improving their production efficiency, is to build an agricultural value chain, from farm to table. Only by maximizing the efficiency of a value chain can they produce quality products, ensure food safety, and have reasonable prices. This is an issue the State will help SMEs to address.

Despite confirming the importance of State support to SMEs, Mr. Than said it is more important for businesses to actively research and understand the TPP. “Even with State support, if SMEs don’t actively prepare for the TPP it will be very difficult for them to obtain any benefits from the agreement,” he added. The risks have been identified, but the task of preparation seems only at the beginning stage and most SMEs are simply not interested. Greater efforts are required from both the State and enterprise associations to turn this around.

“When participating in the TPP, Vietnamese businesses must accept conforming to the rigorous standards imposed by major countries such as the US, Japan, and Singapore. Too many Vietnamese enterprises, especially SMEs, pursue a strategy of crude production. They like to increase production without much attention given to upgrading quality. This is a mindset that needs to change. Enterprises must understand that we gain benefit from added value rather than just increasing production. Many companies still produce cheap rice at only VND10,000 ($0.45) to VND20,000 ($0.93) a kilogram, without any centralized production of high quality. We are integrating into the world, so enterprises that want to compete must focus on quality rather than quantity. Furthermore, besides participating in global production chains, such as in mobile phones or automobiles, Vietnamese enterprises need to focus on products that are only found in Vietnam. I believe that Vietnam has many specialties that could become export strengths. Enterprises must also apply high technology to gain better performance in terms of both quality and productivity.”

Mr. Tran Dinh Thien, Head of the Vietnam Institute of Economics

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