No place for enterprises with short-term strategies

Expectations for increased export revenues to ASEAN are waning but it also affords domestic enterprises a moment to reflect on their weaknesses and strengths, and then work to restructure themselves in order to achieve the desired growth.

Accepting the challenges

With Vietnam joining the AEC, Vietnamese enterprises will have access to a large market of 600 million people where their goods can flow without tariff barriers and enjoy a unified single-window system.

But export data after one year since the trade pact came into effect showed that domestic enterprises seem to be losing ground on the AEC battlefield.

According to the Ministry of Industry and Trade, Vietnam’s exports to ASEAN were estimated at US$17.4 billion in 2016 but the proportion of utilising preferences from tax cuts was only 32%, much lower than that of other free trade agreements.

After one year of the AEC, Vietnam’s exports to ASEAN fell sharply while many imports rose significantly.

Nguyen Thi Thu Trang, Director of the Vietnam Chamber of Commerce and Industry (VCCI)’s WTO Centre, says one of the reasons why Vietnamese enterprises are yet to take advantage of opportunities brought about by the AEC is due to a lack of information.

A VCCI survey in April last year showed that up to 94% of enterprises were aware of the AEC but only 16% fully understood its commitments.

Vo Tri Thanh, an economist, says when talking about the AEC a major focus has been placed on the export of goods while little attention has been paid to the services sector.

Tourism is a key example of Vietnam failing to fully utilise the ASEAN market. If opportunities are seen to be restricted to merchandise exports only, Vietnamese enterprises cannot capitalise on big opportunities from this market.

WTO Centre Director Trang shares the same view, citing a commonly held belief that ten economies in ASEAN have similar goods structures so they must compete fiercely, thus the benefit is lowered.

But according to modern economic theory, each group of consumers has a different demand, so if enterprises are innovative and offer many choices to consumers, they can still win on the AEC market.

Looking from another point of view, Trinh Minh Anh says export and import values are important indicators but they alone are not enough to assess the AEC integration process as AEC is in fact a regional economic integration process, not a trade agreement with concrete commitments.

The realisation of the AEC has been implemented over a long time before commitments in specific trade agreements were fulfilled.

Integration definitely does not always include only “fragrant flowers and sweet fruits” but there will be a proportion of enterprises which cannot stand the pressure of competition and which will be forced to dissolve or restructure themselves. In addition, many enterprises will grow up during the integration process.

Opportunity for restructuring

Opportunities and challenges always go together during international integration.

The lesson for domestic enterprises after one year of joining the AEC is that they must be proactive in integration in order to benefit, which requires them to enhance their competitiveness and formulate a long-term business strategy.

Sectors that Vietnam has major advantages in such as garment and footwear need more support to conquer the ASEAN market.

Among the ten members of the AEC, Indonesia, Malaysia, Cambodia, Thailand and Myanmar also produce garments for export but Vietnam only has to compete with Thailand as the country possesses a high level of technology, human resources management and an extensive distribution network.

Vietnam’s garment exports rose only slightly after one year of joining the AEC, which demonstrates that the challenge does not lie in the similar goods structure within the region or a lack of market opportunities but lies in the quality and design, which are yet to meet the demand of importing countries.

CEO of Hung Yen Garment Company Nguyen Xuan Duong says Vietnam’s garment sector has not yet received adequate investment to make a difference. Enterprises need to change their thinking and business strategy while at the same time developing a widespread distribution network or utilizing the distribution systems of foreign enterprises by providing high quality and competitively priced products. Otherwise ASEAN enterprises will soon surpass the Vietnamese garment market.

For the agricultural sector, there is no other option except enhancing quality and ensuring food safety by promoting large-scale production and applying good agricultural practices.

This requires the government’s support, enterprises’ innovation and farming households’ enhanced awareness.

This is because the development gap between Vietnam and a number of ASEAN countries is reflected in the size of the economy, the size of enterprises, technological level and workers’ skills.

Dr Dang Kim Khoi says the government should facilitate enterprises to enhance their capacity during AEC integration. Support measures should focus on credit, agricultural land lease, research and technology transfer.

In addition, knowledge and information about the AEC in particular and international integration in general should also be provided to enterprises in a timely manner.

In order to remove trade and technical barriers set up by ASEAN countries to protect domestic production, Nguyen Thi Mai Linh from the MOIT says that Vietnam should soon sign mutual recognition agreements on agriculture and food to create conditions for exporting these products to the ASEAN market.

After one year since joining ASEAN, the largest gain is seen in Vietnam’s amended and refined institutions to create a more attractive business environment.

Integration is an inevitable trend that cannot be stopped; during the process, stopping or slowing down means failure. The game of integration is not for the short-sighted.

As such the AEC doesn’t act as a magic wand for enterprises but can facilitate and bring about opportunities to enterprises to participate in the global production, distribution and value chains.

With government support and their own restructuring efforts, Vietnamese enterprises can establish their worthy positions in the AEC playground.