MID TERM ASSIGNMENT major international trade policy ANALYSIS OF VIETNAM’S COMPETITIVE ADVANTAGE

FOREIGN TRADE UNIVERSITY HO CHI MINH CITY CAMPUS -*** MID-TERM ASSIGNMENT Major: International Trade Policy ANALYSIS OF VIETNAM’S COMPETITIVE ADVANTAGE Class: K57CLC3 Student name: Nguyễn Thị Dịu Hiền 1801015291 Lecturer: Dr Trần Quốc Trung Ho Chi Minh City, April 2020 download by : skknchat@gmail.com Chapter 1: INTRODUCTION Chapter 2: Analysis of Vietnam’s competitive advantage 2.1 Factor conditions: 2.1.1 Basic endowments: 2.1.2 Advanced endowments: 2.2 Demand conditions: 2.2.1 Vietnam’s market size: 2.2.2 Demand sophistication: 2.3 Firm Strategy, Structure and Rivalry: 2.3.1 Firm strategy and structure by type of company: 2.3.2 Rivalry: 10 2.4 Related and supporting industries: 11 2.5 Chances for enterprises in Vietnam: 12 2.5.1 Opportunities in US-China trade war: 12 2.5.2 COVID 19 pandemic as an opportunity: 13 2.6 Role of the Government: 13 Chapter 3: CONCLUSION 14 REFERENCE 14 download by : skknchat@gmail.com Chapter 1: INTRODUCTION In the context of the increasingly globalized world, free trade is promoted and trade barriers are being eliminated Therefore, the competitiveness of nations becomes more important to the development of that country However, international trade has both sides of effect On the bright side, it allows countries to specialize in the advantaged segments and industries, which supports raising national productivity On the other hand, it puts every nation in a global competition, if one cannot satisfy the high demand of the international market or adapt to the everchanging economic development, then the standard of living in that nation is at risk Therefore, globalization is seen as an opportunity and also a challenge for nations, especially developing countries to innovate and compete against each other This paper will analyze the situation from one of the most dynamic emerging markets in Southeast Asia - Vietnam Throughout 30 years of Doi Moi, Viet Nam’s economy has maintained an average GDP growth rate of 6.6%, featuring among the world’s Top 50 economies (According to World Bank), Vietnam has emerged as a modernized and dynamic economic environment in Asia, actively participates in international trade, accelerating the competitive and export-oriented industries The question is what is Vietnam’s competitive advantage in order to compete with other developing countries in the region and how can we exploit the advantages for business growth To tackle this problem, this paper applies Porter’s Diamond model with six attributions: Factor conditions; Demand Conditions; Related and Supporting Industries; Firm Strategy, Structure, and Rivalry download by : skknchat@gmail.com Chapter 2: Analysis of Vietnam’s competitive advantage 2.1 Factor conditions: 2.1.1 Basic endowments: Geographic location: Vietnam has a strategic location in central Asia with a long coastline and bordered with the main manufacture of the world - China However, the location exposes to natural disasters Vietnam lies in the centre of Asia with a long coastline offer a major advantage for economic development The total area of Vietnam is over 330,900 square kilometers, bordered by China to the north, Laos, and Cambodia to the west Its coastline stretches 3,260 kilometers from East to South With this character of geography, Vietnam has the potential to develop agriculture, tourism, and seaport In Southeast Asia, Vietnam is the center of Indochina, lies between China and other ASEAN countries Base on geography, Vietnam has a clear benefit in promoting bilateral and multilateral cooperation in the Mekong Delta region and ASEAN countries However, the coastal areas expose Vietnam to natural disasters According to an expert in Climate Conference in Copenhagen (2009), Vietnam is in the top five countries that is most affected by global climate change The impact of natural disaster will halt the socio- economic development and challenge the capacity to cope with climate change Natural resources: Vietnam has rich natural resources, however, the irresponsible and illegal exploitation imposes a serious risk for future development Vietnam is endowed with natural plenty of natural assets Over 75 percent of Vietnam’s 33 million hectares of the geographic area is agricultural land The country also possesses plentiful water resources and a dense river network, offering opportunities to develop waterway traffic, hydropower and agriculture Large mineral reserves in Vietnam include: coal; oil and gas; bauxite; and uranium Vietnam has over six billion tons of coal reserves, mainly in Quang Ninh, Tai Nguyen Oil and gas reserves are estimated to be at three to four billion barrels and 50 – 70 billion cubic meters respectively, mainly in the sediments download by : skknchat@gmail.com of deltas and continental shelf Bauxite reserves are projected to be about billion tons and could be over billion tons while uranium reserves are estimated at about 200 – 300 thousand tons - According to the Ministry of Natural resources and Environment However, the wasteful exploitation of natural resources has pose threat to sustainable development The area of minerals and forest is rapidly declining Thus, the irresponsible way of exploiting causes destruction to the environment Therefore, it is a motivation for the country to innovate the technology in order to less depends on the natural resources Populations: Vietnam can leverage the young population and abundant workforce However, the quality of labour is less competitive comparing to other countries in the region The population size of Vietnam recognized in 2018 is 95,5 millions - third largest population in ASEAN (According to World Bank data on population) Vietnam is in the period of golden age structure with 52% of people working age Therefore, Vietnam should focus on meeting the demand of high-skilled industries, including vocational and technical training 2.1.2 Advanced endowments: Skilled labour: According to the General Statistics Office, in the second quarter of 2019, the trained labor force with diplomas and certificates accounted for 22.37%, workers with university or higher degrees accounting for 10.82%, college accounting for 3.82%; intermediate accounting for 4.65% and primary accounting for 3.08% of the total labor force Although the skilled labours have increased gradually, the number of trained workers is only one third of South Korea, Taiwan, and Singapore, while in many countries, the percentage of trained workers has reached over 50% This figure is not commensurate with the number of ASEAN's third largest population in Vietnam, just after Indonesia and the Philippines download by : skknchat@gmail.com Therefore, the main focus of education in Vietnam now should focus on improving the technical skills of labour for higher productivity The workforce also needs an innovating mindset and digital vision to adapt to the dynamic digital market in ASEAN countries Infrastructure: According to WEF Global Competitiveness Report 2019, Vietnam ranked 77th on overall physical infrastructure Water, energy, transport and digital infrastructure are key sectors that are priorities of Vietnam Regards transport and connectivity, in recent years, the Government has investments in the North-South highway system, the ongoing operated Ho Chi Minh City - Long Thanh - Dau Giay is an important project helping the freight transport, other highways is under construction such as Quang Tri - Da Nang and North - South Highway; with railway, across the countries, there are 29 projects is in pipeline, the Metro train line from Suoi Tien - Ben Thanh is in finishing period; in airport infrastructure, Long Thanh International airport is expected to finished by 2025 The significant projects in transport sector will solve the dense traffic in urban areas, shorten the transportation time of freight and have a critical meaning for the success of tourism industry In terms of utility infrastructure, sustain availability of clean water, is a concern in the Mekong Basin, insufficient of water supply hinders the development of areas in the Mekong Delta The rapid growth and urbanization is opportunities to the economy, however, Vietnam has to ensure the utility infrastructure to keep pace with it 2.2 Demand conditions: In the context of globalization, the role of the domestic market seems less important, however, according to Porter’s model, domestic consumers can affect to the way producers perceive, interpret and respond to the buyer’s needs Therefore, characteristics of home demand is critical to the export-oriented industries download by : skknchat@gmail.com 2.2.1 Vietnam’s market size: In this paper, the GDP per capita and the retail sector are applied to reflect the market size of Vietnam Figure - GDP per capita of Vietnam, Cambodia, Thailand, Malaysia Sources: World Bank index According to the graph, GDP per capita of Vietnam in 2018 is 2.566,60 USD, although this number is much lower than other countries in Southeast Asia like Thailand and Malaysia, Vietnam’s indicator is showing stable growth of the income The number reflects the growing in middle class, which is an opportunity for market expansion Figure - Retail revenue and growth rate in Vietnam (2013 - 2020) download by : skknchat@gmail.com Sources: General Statistics Office data Since 2013, retail sectors witness steady and fast growth in revenue In 2018, Retail sales in 2018, the highest ever recorded, total retail revenue is expected to reach USD 180 billion by 2020, which would represent an increase of 26.6% from 2018 With the inflow of investments into the sector, it is expected further growth in the near future With the rapid growth, Vietnam is one of the most dynamic markets for retailing in Asia 2.2.2 Demand sophistication: As the market size of Vietnam is growing rapidly, there are more players entering, including both domestic and foreign firms Therefore, consumers now have plenty of choices with better orientation The upshot of these trends is that competition for local markets is likely to become more challenging, as Vietnamese producers are facing foreign firms in an increasingly open market Meeting that challenge therefore calls for constant innovation to maintain or gain market share download by : skknchat@gmail.com 2.3 Firm Strategy, Structure and Rivalry: 2.3.1 Firm strategy and structure by type of company: National context create the tendencies in how company is organized, created and managed For example, Italy successful company in Italy is small and medium company which are privately owned By contrast, successful companies in Germany is strictly hierarchical managed It also applies for the type of companies in Vietnam Private owned companies: Non-state companies in Vietnam mainly focus on short-term and service-oriented such as retail, hospitalities, restaurants, etc The strategy of non-state enterprise mostly produces standardized, labor-intensive, low-middle quality products The footwear industry can best exemplify these characteristics of Vietnam’s private companies In the footwear industry, the latter tend to be located either at the beginning of the value chain (pre-production activities such as R&D, design, core inputs) or at its end (post-production activities such as marketing, advertising, logistics and sales) These tasks tend to be more knowledge-intensive and are therefore generally conducted in high- income countries such as Italy, UK, and Germany The lower value-added tasks, in contrast, tend to be concentrated on downstream assembly activities and tend to be outsourcing for countries with abundant labor but with low skills as Vietnam This strategy of manufacturing footwear has demonstrated the inefficiency in the footwear industry with solely assembly and export products The position in the top three footwear exporters is not adequate for the value-added that Vietnamese manufacturers have captured On the upshot, the inefficiency also poses an opportunity for Vietnam’s enterprise to develop its own brand name, sales and marketing channel to have high value- added to our products An example of a successful brand of footwear in Vietnam is Bitis, by having an innovative marketing campaign - influencer marketing, and trending design, Bitis has succeeded in positioning its brand in the domestic footwear market Therefore, we can conclude that despite the competitive advantage that we inherited in factor endowments, the economy could still be inefficient if it only produces low value- download by : skknchat@gmail.com added goods In order to create comparative advantage, the only way is to upgrading technology and skills of the current workforce State-owned company: In Vietnam, state enterprises concentrate on capital-intensive activities such as transportation and utilities As SOEs cover most of critical sectors of the development, their purpose is to improve the socio-economy development and ensure national security in energy and food The structure of SOEs is mainly hierarchical, however, SOEs have relatively weak governance and transparency, nepotism is common, higher positions are appointed by the relationship not by adequate qualifications Because of the misallocation and inefficient system of SOEs, the Vietnamese government has a plan to restructure its economy through privatizing SOEs by equitizing and divesting state capital in more than 400 enterprises by 2020 This will open many opportunities for private investors, especially FDI attractions For example, as large agriculture and forestry corporations are beginning their divestment projects, investors may consider investing in these sectors considering Vietnam’s comparative advantage in this industry in terms of market scale and growth, low labor cost, and stable political environment Regards transport and utility infrastructure, increasing funds will contribute to major projects such as airport, highway, solar energy plants, and ensure clean water supply for urbanization 2.3.2 Rivalry: The presence of strong local rivals is a final and powerful stimulus to the persistence of the competitive advantage of a nation One of the most dynamic and rapid growth in Vietnam’s market is retail sector Vietnam's retail market in 2018 was relatively active with many mergers and acquisitions as well as strong growth in the size of domestic and foreign enterprises The most prominent feature of the retail market is competition It is the competition between traditional and modern channels, competition between domestic and foreign businesses, competition between direct sales and online sales The intense competition creates pressures for every company to keep upgrading the technology, design, unique function and lower the cost Vietnam’s enterprise - 10 download by : skknchat@gmail.com Thegioididong aims to open over 1000 new Bachhoaxanh stores across the countries Meanwhile, By 2022, the Central Group (Thailand) aims to open 500 new stores to reach around 750 in Viet Nam This plan is backed by the acquisition of Viet Nam’s Big C supermarkets from Casino Group (France) and 49% of Nguyen Kim electronics supermarket; Aeon (Japan) stated that Viet Nam is a key investment destination in Southeast Asia with plans to open 30 shopping centre The competition is intense and enormous, it should be seen as a motives for domestic enterprise to invest in necessary logistics and infrastructure, for brand-building activities in the form of marketing and advertising in order to gain the advantage over foreign players 2.4 Related and supporting industries: The presence of the nation related and supporting industries that are internationally competitive is important to the nation For Vietnam, supporting industry is an industry of manufacturing components, spare parts, intermediate products,etc acting as an input and assembly of them to become the final product Supporting industry has its own characteristics and plays an important role in the process of industrialization and modernization of the country Therefore, the development of supporting industry plays an important role in determining economic restructuring, improving productivity, labor skills, competitiveness of products and the quality of Vietnam's economy One of a successful model of supporting enterprise in Vietnam is THACO, currently, THACO has a complex of production and mechanical processing with an area of 19 hectares, of which the factory area is 11.5 hectares, 350 mechanical engineers and skilled technical workers alone 1,300 people The Group has produced from supplying lines, materials, material testing, embryonic processing, precision mechanical processing, surface treatment of raw materials and has begun processing components for businesses other than automobiles such as Doosan Vina, General Electric, Makitech (Japan), Agata (Japan), Three Star (Japan) and a number of domestic enterprises located in the area Chu Lai In 2018, 11 download by : skknchat@gmail.com Thaco has processed a turnover of 400 billion Supporting companies in electronics accounts for over 80% of the value of the electronics industry, including the components industry, material industry, mold industry, mechanical processing,etc In particular, semiconductor chip industry accounts for over 70% This development is due to the fact that we attract a number of major electronics manufacturers, such as Samsung, Canon, etc Currently, there are 200 Vietnamese enterprises being suppliers to Samsung, showing that many components have been manufactured by Vietnam Besides, there are many businesses that can high-tech details, for example, Viettel and Vin group have produced mobile phones Thank to the FTAs that have been signed, domestic supporting industries can import the machines for production with 0% import tariffs In order to take advantage of economic of scales, enterprises needs capital support from Government, however, the capital disbursement for enterprises is in low pace and high-required that enterprise cannot reach, for example 4P electronics company (Hung Yen) - a famous brand in the field of electronics support industry in Vietnam, is a supplier for LG and level for Samsung had to sell a production line to a foreign corporation because of its unbearable financial pressure 2.5 Chances for enterprises in Vietnam: 2.5.1 Opportunities in US-China trade war: As the escalating tension between US and China, the cost to product goods in China rises, therefore, companies are looking for an alternative nation to place their factories Among the considered countries, Vietnam is well-positioned to be the next manufacturing centre, especially in electronics sector Figure demonstrates the abilities of high tech production of Vietnam compared to other countries in the region 12 download by : skknchat@gmail.com Sources: Intracen data Vietnam is shifting to manufacture high-tech technology, in 2019, high-tech export value is around 64 US$bn (According to Intracen 2019 data), increase by 8% as compared to 2018 Additionally, Viet Nam is close to the manufacturing centre of southern China, which will be valued by foreign investors who may still want to maintain connection with China’s supply chains According to Ministry of Planning and Investment of Vietnam, “the number of delegations coming to work in 2019 to explore investment opportunities increased sharply, up about 30% over the same period last year” 2.5.2 COVID 19 pandemic as an opportunity: It cannot be denied that Covid 19 pandemic has halted the economy worldwide including Vietnam According to the recently released Asian Development Outlook 2020 of ADB, Vietnam's economic growth will decline sharply to 4.8% by 2020 However, the pandemic is opportunities that has competitive advantage in producing instant food, freezed food Masan is an example of a well-prepared company when facing with coronavirus Shortly before the Lunar New Year 2020, upon receiving information about the evolution of the COVID-19 disease, Masan Group said it had developed a comprehensive and detailed scenario to cope with the disease at VinMart retail chain and 13 download by : skknchat@gmail.com VinMart+ - sub companies of Masan corporation Covid 19 is also a driven for companies to accelerate digitized process Many physical supermarkets such as Co.op mart and Vinmart are making more investment in online website and building their logistics infrastructure to serve consumers in the new platform 2.6 Role of the Government: Throughout 30 years of Doi Moi, Vietnam is now of the most opened economy of Southeast Asia The role of the Government is critical in negotiation for FTAs and FDI attraction to create favorable conditions for economic development In terms of FTAs, in shortly years (2018 and 2019), there are important FTAs that had been signed, they’re Comprehensive and Progressive Trans-Pacific Partnership (CPTPP); EU - VIETNAM (EVFTA); ASEAN - Hong Kong (AHKFTA) The FTAs demonstrate Vietnam’s commitment to international trade and encouragement for foreign enterprises to invest Thanks to FTAs, the exported products from Vietnam can access to large market with reduction in tariff and scale the production line with imported machines with 0% tariff In terms of investment incentives, strategic industries in Vietnam such as high technology, software, new energy, waste recycling and education are provided by Lower tax rates for the whole duration of the investment term; exemption from and reduction of tax rates; Import duty exemption for fixed assets; and reduction/exemption of land rental The Government has advocated and implemented drastic actions through resolutions on improving the business environment and supporting enterprise development Chapter 3: CONCLUSION Vietnam’s dynamic growth since Doi Moi has made a tremendous impact to the livelihoods of millions of Vietnamese people The country has experienced a widely integration of globalization, which creates both challenges and opportunities for national enterprise With more competitors entering the domestic market and the high-required 14 download by : skknchat@gmail.com from the large export market, Vietnam’s enterprises are pressed to continuously upgrading the company’s system to create satisfying products for the customers Thus, the role of leadership in the country is critical to maintaining sustainable growth, reducing risks from deep integration, and supporting the domestic enterprise in terms of orientation and finance REFERENCE Deloitte, 2019 Doing Business In Vietnam 2019 [online] Available at: [Accessed 26 April 2020] General Statistics Office Of Vietnam 2019 Press Release On Labor And Employment Situation In The First Quarter Of 2019 [online] Available at: [Accessed 26 April 2020] Intracen 2020 International Trade Statistics 2018-2019 [online] Available at: [Accessed 13 April 2020] Ministry Of Planning And Investment, 2018 30 Years Of Fdi Mobilization In Vietnam [online] Available at: [Accessed 26 April 2020] PwC, 2019 Doing Business In Vietnam [online] Available at: [Accessed 27 April 2020] WEF Global Competitiveness Report 2019 [online] 15 download by : skknchat@gmail.com Deloitte, 2019 Retail Sector In Vietnam 2019 [online] Available at: [Accessed 27 April 2020] 16 download by : skknchat@gmail.com 17 download by : skknchat@gmail.com ... context of the increasingly globalized world, free trade is promoted and trade barriers are being eliminated Therefore, the competitiveness of nations becomes more important to the development of. .. in Asia, actively participates in international trade, accelerating the competitive and export-oriented industries The question is what is Vietnam’s competitive advantage in order to compete with... success of tourism industry In terms of utility infrastructure, sustain availability of clean water, is a concern in the Mekong Basin, insufficient of water supply hinders the development of areas