EXPORT GROWTH – SOLUTION TO POVERTY REDUCTION IN VIETNAM

Ministry of education and training Hanoi university of business and technology Faculty of english Graduation ASSIGNMENT EXPORT GROWTH – SOLUTION TO POVERTY REDUCTION IN VIETNAM Supervisor : Dinh Phuong Anh, M.A Student : Hoang Phuong Linh Student code: 09D08556N Class : TA14.01 Course : 2009 – 2013 Hanoi, April 2013 Hoang Phuong Linh- Ta14.01 Acknowledgements I am so glad to have a good opportunity of doing this graduation paper It helps me much in collecting and classifying my knowledge which I have studied To finish paper, I have worked under extremely high responsibility I received many supports from teachers and friends I cannot accomplish this task without their help First of all, I would like to express my appreciation to all the teachers of English faculty, Hanoi University of Business and Technology for teaching me to be a welleducated student I have learnt so many things from what they taught me They have made favourable conditions for me to study at school during my precious four years here Secondly, I would like to give special thanks to Mrs Dinh Phuong Anh, my supervisor, for both her positive response to my ideas for this paper and her advice that helped me to complete it I would not complete my graduation paper without her enthusiastic instructions and correction Finally, I also would like to thank my friends and all the students who helped me implement my study Hanoi, April 2013 Hoang Phuong Linh INTRODUCTION Hoang Phuong Linh- Ta14.01 BACKGROUND With an annual economic growth (GDP) of 8.5% in 2006, the economic of Vietnam is growing more than two times as fast as the world average (3,8%) Vietnam’s rapid economic growth is largely associated with strong exports growth Vietnam has managed to become a key player on the global market for series of commodities and products, notably rice, coffee, pepper and cashew nuts Vietnam is also a leading exporter of footwear Some of the key factors behind Vietnam’s success in exports include the government’s efforts in shifting the economic policy from import substitution to export orientation, liberalizing the economy and embracing the market economy; and the rapid response by Vietnam’s farmers to the marketliberalization of agriculture after the Doi Moo reform; the interest by the global market to tap Vietnam’s cheap, diligent labor After Doi Moi , Vietnam emerged as an attractive region for outsourcing of labor intensive production such as garments, footwear and electronics from the newly industrialized countries with excalating labor cost in the region Nevertheless, Vietnam is facing several key challenges The first challenge is that Vietnam remains a poor country, though it has been one of the most successful countries in the world in reducing poverty Vietnam is a developing country with as population of 85.2 million and gross domestic product (GDP) of $61 billion, per capital GDP is about $715 Secondly, Vietnam’s export of manufactured products is narrow and the transformation to a more diverse export structure is complex According to official Vietnamese trade statistics, Vietnam’s merchandise exports were $114.57 billion in 2012 Thirdly, Vietnam became the World Trade Organization’s 150th member on November 2006 Vietnam’s biggest challenge for the next few years will be to ensure a steady and sustainable growth in the face of intensifying global and regional competition and integration The final big challenge must be considered is that according to the World Economic Forum’s Global Competitiveness Report, Vietnam ranked 77th of the 125 countries in terms of the Growth Competitiveness Index, and 82th of 121 countries in terms of the Business Competitiveness Index Although Vietnam is recognized as having a stable macroeconomic environment, the report highlights important weaknesses in areas such as technology, public institution and business environment Corruption, inefficient bureaucracy and inadequate infrastructure are cited as the most problematic factors for doing business in Vietnam RATIONALE Hoang Phuong Linh- Ta14.01 The objective of this report is to identify sectors that have significant potential for export growth in Vietnam It has solution, strategic focus and aims to guide the government, the private sector and civil society towards the most promising sectors This report also identifies interesting diversification markets in which enterprises in Vietnam have the potential to export more CONTENTS Hoang Phuong Linh- Ta14.01 CHAPTER THEORETICAL FRAMEWORK .5 I.VIETNAM’S CURRENT EXPORT ACTIVITIES EXPORT VALUE 2.WORLD MARKET SHARE .8 4.Clothing and accessories .18 CHAPTER PROBLEMS, SOLUTIONS & RECOMMENDATIONS 20 II.POLICY RECOMMENDATIONS 22 III.SOLUTIONS 25 CONCLUSION .27 REFERENCES 28 CHAPTER THEORETICAL FRAMEWORK This chapter seeks to estimate and compare the export potential of Vietnam in selected industries The term “ export potential ” is used here in a broad sense and is defined as the capacity to expand exports To take the gauge of the export potential, each of the product sectors is examined along two criteria including: Firstly, the current export performance of Vietnam such as value in export, the world market share and trade balance; Secondly, the characteristics of the international environment, such as growth of world demand Hoang Phuong Linh- Ta14.01 I VIETNAM’S CURRENT EXPORT ACTIVITIES The first main composite indicator for the thesis, Vietnam’s current export performance, gauges how successful its enterprises perform in the international markets for the selected product groups Well-performing sectors are considered to have already proven their export capacity and to thus have high potential for future export EXPORT VALUE From the strategic point of the view, big export sectors require special attention Exporters in these sectors have already proven their competitiveness over recent years In other words, the larger a sector’s exports are currently in value terms, the greater is its potential for future growth Chart The turnover of export and import of Vietnam in period 2005-2012 Hoang Phuong Linh- Ta14.01 According to the newest statistics of The General Department of Customs, the total turnover of Vietnam’s export and import from 16/12 to 31/12 reached $10.56 billion, increased 13,1 % compare to the result of six months ago The total value of export in period 2012 reached almost $5.61 billion, increased 19.6% compare to period 2012 Chart The export’s turnover of 10 commodity groups in 2012 compare to 2011 Hoang Phuong Linh- Ta14.01 Vietnam has significant exports for clothing ( $14.4 billion ), footwear and oil (each accouting for roughly $8 billion; followed by fishery products (about $6 billion); electrical machinery and equipment, coffee, rice … WORLD MARKET SHARE Hoang Phuong Linh- Ta14.01 This sub-index calculates Vietnam’s world market share in each individual product group This indicator is partly to compensate for the precious indicator, export value, which favors industries and thus introduces a bias against small industries However, by dividing export value by world exports, even small sectors can achieve a high market share, as is for example the case for honey The world market share is thus a good indicator of the competitiveness of an industry Vietnam has a substantial world market share in coffee (5.8%), footwear (5.4%), pepper and other spices and culinary herbs (4.9%), rice (4.7%), cashew nuts and other nuts (4.2%), fishery products (3.7%), honey (2.2%), bicycles (2.1%), clothing (1.7%) and tea (1.2%) In contrast, Vietnam’s world market share is particularly low for electronic equipment and components, shipbuilding, measuring, checking and precision instruments, plastics, industrial machinery, agricultural machinery, cut flowers, communications and telecommunications equipment, dairy products, stationary and office machines, motor vehicles, and image and sound equipment (all with a world market share of less than 0.1%) TRADE BALANCE This sub-index uses Vietnam’s trade balance as an indicator to gauge the efficiency of the productive capacity of products The trade balance for a product group is calculated as the difference between exports (X) and imports (M) If exports exceed imports representing a trade surplus, national production exceeds national consumption All things being equal, this suggests that the industry has efficient productive capacity and can be considered competitive In contrast, if exports are lower than imports representing a trade deficit, national production is not sufficient to cover national consumption Rather than represent the trade balance (X-M) in absolute terms (e.g US dollar), it is presented relative to the industry’s total trade (X+M) This reduces bias against large industries, which tend to have either strong deficits or surpluses On the basis of the relative trade balance in 2010, it appears that Vietnam is a strong net exporter for coffee; coal; rice; furniture; footwear; honey; tea; and fishery products Vietnam is also a net exporter for clothing and accessories; cashew nuts and other nuts; household and furnishing textiles; arts and crafts; pepper and other spices and culinary herbs; toys and games; jute; rubber; and fruits and vegetables In contrast, Vietnam was a net importer for plastics; industrial machinery and equipment; dairy products; measuring, checking and precision instruments; electronic equipment and components; communications and telecommunications equipment; agricultural machinery; wires, cables and conductors; and motor vehicles Hoang Phuong Linh- Ta14.01 Table Underlying indicators for the composite index “Vietnam’s export activities” Export value, 2010 Footwear Clothing Fishery products Cashew nuts Honey Coffee Rice Oil Pepper Rubber Furniture Bicycles Tea Coal Arts and crafts Electronics Toys and games Household utensils Agricultural machinery Household textiles Fruit and vegetables Electrical (USD Submillion Inde ) x 3,555 2.7 5,802 3.8 3,364 2.6 505 22 1,101 1,306 8,323 190 1,273 1,904 110 111 927 627 1,770 1.2 1.0 1.5 1.6 5.0 1.1 1.6 1.9 1.1 1.1 1.4 1.3 1.8 68 1.0 215 1.1 1.0 101 1.0 263 1.1 611 1.3 Vietnam’s world market share Sub% inde x 5.4 5.0 1.7 2.4 3.7 4.0 Relative trade balance % 90 82 89 Export value growth, 2006-2010 Per Subannua index lly % 4.9 18 1.8 4.8 52 2.9 4.9 25 2.0 Subindex Index Current Export Perform -ance 3.6 3.5 3.4 4.2 2.2 5.8 4.7 0.7 4.9 1.2 1.2 2.1 1.5 1.0 1.1 0.0 0.3 0.2 0.0 0.6 4.4 81 2.8 89 5.0 99 4.8 93 1.5 31 5.0 75 1.9 54 2.0 92 2.7 26 2.2 89 1.8 94 1.8 76 1.0 -69 4.7 4.9 5.0 5.0 3.6 4.6 4.1 5.0 3.5 4.9 5.0 4.6 1.4 34 83 -5 -17 14 -10 91 34 48 15 19 20 129 2.3 3.9 1.0 1.0 1.6 1.0 4.1 2.3 2.7 1.7 1.8 1.8 5.0 3.2 3.2 3.1 3.1 2.9 2.9 2.9 2.8 2.5 2.5 2.5 2.4 2.3 1.2 73 4.6 28 2.1 2.2 1.2 5.0 3.0 65 3.3 2.2 1.0 -57 1.6 117 5.0 2.2 1.5 78 4.7 1.4 2.2 0.3 0.2 1.3 40 3.8 36 2.4 2.2 1.2 -5 2.8 57 3.0 2.1 10 Hoang Phuong Linh- Ta14.01 for fishery products has been impressive By 2010, Vietnam exported more than USD 3.4 billion worth of fishery products Vietnam is among the top ten world exporters of fishery products On top of being a net exporter and possessing a high world market share (about 4%); the country is bucking the global trend with formidable growth rates At a time when global imports grew at least 4% per annum, Vietnam’s exports registered more than 25% per annually in value between 2006 and 2010 According to Vietnam Fishery Products Shrimp Report, in 2010 total fisheries production totaled 3.7 million metric tons4 Moreover, the country is blessed with a very long coastline of almost 3,300 km and huge tidal areas, creating favorable conditions for marine fishing Vietnam also possesses vast areas of fresh and brackish-water suitable for aquaculture In 1990 less than 500 thousands hectares were used for aquaculture, by 2010 the area used reached 1,050 thousands hectares Finally, the factor greatly affects the exporting of this product to the world is the global demand International demand has been growing, but slowly The total world trade of fishery products, fresh, chilled or frozen, is worth about USD 54 billion Between 2006 and 2010, exports in value terms grew by about 4% per annum and slightly faster in volume terms, at 4.5% a year Now Vietnam concentrates on three major markets: Japan, the United States, and the European Union Vietnam will have many trade opportunities when exporting fishery products Although the export potential is considered to be high, this sector faces many challenges The biggest challenge is the product quality The product quality is not uniform, and there are still problems with the hygienic facilities in processing plants due to old technologies For many small-scale firms, financial problems make necessary investments difficult to undertake A major problem affecting the supply and the economics of fish farming is poor disease control For example, outbreaks of shrimp fever are regularly reducing the output of shrimps in aquaculture in Vietnam The industry is also having problems related to infrastructure, including modern ports and safety measures for fishermen, such as storm and flood warning systems Rice Rice plays the most important role among agricultural commodities in Vietnam, in terms of food security, rural wages and employment, and export revenues However, the export potential is considered low http://www.thefishsite.com/articles/307/vietnam-fishery-products-shrimp-report-2007 16 Hoang Phuong Linh- Ta14.01 Until 1989, Vietnam was a rice importer, importing as much as 300,000 tons of rice in 19855 In 1987-1988, Vietnam even had to request for foreign aid to satisfy domestic demand which exceeded production One year later Vietnam was already exporting more than million tons of rice Stable growth followed Between 1989 and 2006, Vietnam exported over 48 million tons of rice to more than 70 countries and territories (mainly Asian markets), with a value of nearly USD 11 billion Rice export quantity growth was about 11% per year on average and over 8% per year in term of value in the same period However, recently export volume and earnings have declined considerably due to ailing world demand and prices In value terms, exports decreased by 17% a year between 2006 and 2010 (Table 1) In view of forecast of slow growth in world demand, and Vietnam’s already dominating position, the forecast for growth is limited Rice yields in Vietnam are high in an international comparison due to intensive farming Moreover, Vietnam was considered to have one of the lowest production costs in the world due to low wage levels prior to the Asian crisis, producing a ton of rice just above half the cost of Thailand, but this cost advantage has declined with the depreciation of most Asian currencies Despite high yields, there are still very high post-harvest losses due to backward harvesting technology, poor transportation means, and poor infrastructure: losses account for 10-12% of the harvest6 Although Vietnam is a competitive rice producer, its exported rice is for the moment of lower quality internationally There are, furthermore, several constraints to improved rice quality, production and efficiency The main problems of rice producers are the highly fragmented nature and the small plot size, which affect negatively productivity, product costs and profitability and which caused some farmers to abandon their activity and try to find employment in a city The fact that inputs are costly or of poor quality may lead to increased production costs for this sector Rice farmers have difficulties in getting good quality seeds, and produce the main part of rice seeds themselves Farmers in some regions, especially Northern Upland, import improved seeds from China, but the supply is unstable More investment in rice seed and stronger participation of research institutes may contribute to alleviate this problem Another problem is the high, and growing, price of other inputs such as fertilizers, and pesticides, which constitute a large share of production cost Another factor affecting the potential of exporting rice is the global demand Rice is the second largest produced cereal in the world, but only roughly 6% of this is traded The world market for rice declined strongly between 2006 and 2010 The market contracted, falling in value by almost 5% a year and in volume by 0.4% a year By 2010 world imports totaled just over USD billion (Table 2) http://www.agroviet.gov.vn http://www.agroviet.gov.vn 17 Hoang Phuong Linh- Ta14.01 Finally, the market access conditions for Vietnamese exporters are the big challenge These conditions for this sector are very poor, as tariffs are high and discriminatory In general this is highly protected sector, and the export potential is considered low Clothing and accessories Clothing is one of Vietnam’s most important export sectors With over million workers, about a quarter of all industrial employment, the textiles and clothing industry represents a key source of industrial employment, and is a leading industry for overall growth and industrialization Recently its export performance in this sector has been impressive Vietnam exported clothing articles for USD 5.8 billion in 2010, representing almost 2% of the world market (Table 1) Growth has been outstanding over the past five years, averaging more than 50% per year in value terms between 2006 and 2010 (Table 3) The United States is by far the largest market for Vietnam, accounting for 55% of total exports, followed by European Union7 The immense and growing world market for clothing and accessories is a great advantage to Vietnam’s textiles and garment sector World market total imported USD 230 billion in 2006 Between 2001 and 2006, world demand grew in value terms by some 5% per annually and even faster in volume terms, at 7% per year (Table 2) So far Vietnam’s success has been based on low labor cost Prior to the Asian crisis and the depreciation of many currencies as a result of it, Vietnamese wages in the textiles and garment sector were among the lowest in the world After the crisis, which hit some of Vietnam’s competitors harder than Vietnam, Vietnamese wages in this sector have risen Though labor cost remains relatively cheap compared to some major competitors such as China, India or Pakistan (Table 3), the productivity in Vietnamese textiles and garments seems to be well below that of China and other Asian competitors Vietnam lacks of skilled workers and technicians and business management skills are poor Table A comparison of wages in the clothing industry Lao PDR Bangladesh Cambodia Wages/hour (US cents) 12.5 18 – 25 23 http://www.tienphongonline.com.vn/Tianyon/Index.aspx?ArticleID=97746&ChannelID=3 18 Hoang Phuong Linh- Ta14.01 Vietnam Indonesia India Pakistan Sri Lanka China 26 27 38 41 48 68 – 88 Source: Stuart-Smith, Dayal, Brimble and Holl In addition, the domestic supporting industries in Vietnam are not entirely satisfactory Vietnam’s textiles production is considered old-fashioned with outdated machinery, at least in the state sector Weaving looms are mostly narrow shuttle, limiting the production variety to low quality cloth As such, the textile sector is unable to supply needed material to garment manufacturing Another challenge to Vietnam’s textiles and garment is that this sector faces discriminatory market access conditions The United States, the single largest market, treats Vietnam in the same manner as most exporters, however, exports from Vietnam continue to be restricted by quotas Although joined the World Trade Organization (WTO), importing countries can continue to maintain quotas without falling foul of the WTO Despite some challenges, the export potential of textiles and garment sector also is considered to be high Arts and crafts The socioeconomic impact of the arts and crafts sector is high, especially in terms of poverty reduction and rural development It greatly contributes to income generation in rural areas, attracting investment for the improvement of infrastructure, and shortening the gap between urban and rural living standards The export potential of this sector is high The first reason is that the growth in exports in value terms was at 20% per annum (Table 2) Moreover, Vietnam has long traditions in artistic crafts The range of Vietnamese art and craft products is wide: wood crafts; bamboo; rattan, rush and leafs; ceramic; embroidery and lace; textile; metal arts; handmade paper; stone arts; born, horn, glass or combination Vietnamese craft items are reputed for their affordable price tags as well as a large variety of unique and distinct designs owing to its ethnic diversity, the main features that fuel their growing popularity in overseas markets A factor advantageous to arts and crafts sector is the international demand growth for cultural goods is satisfactory Over the period 2006-2010, exports grew by 8.2% per annum in volume, and 3.6% in value The market for cultural goods came to USD 36 billion in 2010, with the United States and the European being the leading 19 Hoang Phuong Linh- Ta14.01 world importer In addition, Vietnam’s market access conditions are relatively favorable in this sector The United States, the largest importer, applies either low or no tariffs; its treatment toward Vietnam is the same as towards the majority of competitors Vietnam also benefits from free access to the EU market and for some products in this sector Canada and Malaysia offer Vietnam preferential access compared to the majority of exporters However, the sector has to face a number of challenges The transport links are necessary for the sector’s growth and development, but these in Vietnam are poor Since the most local roads in the craft villages are made of gravel, craft items such as ceramics and baskets suffer damages during delivery Another reason is that these items are mainly transported either by bicycle, animal-driven carriage or manually carried in baskets Roads within the craft villages are often too narrow for the passage of delivery vehicles, thereby preventing the delivery of raw materials in bigger sizes or larger volumes If rural roads were wider, production costs could be reduced since raw material processing could be done right in the village premises The proper development of roads is thus indispensable in achieving ideal distribution and cost reduction In addition, few craft villages have access to market information Producers in rural areas have little or even no information on markets, types and prices They produce according to orders of distributors who only visit the villages from time to time to make the orders While private enterprises in urban areas can get some market information and are more competitive, those in rural areas depend only on orders of intermediaries or tourists As a result, the products lack creativeness They are copied or modeled after existing designs In Vietnam, moreover, there are no capable national craft development specialists to assist craft producers in adapting specific designs to the market needs In summary, although the export potential of some Vietnam’s industries is high, these sectors must face with many difficulties to utilize their capabilities In the chapter 3, I will give some recommendations and solutions to these troubles CHAPTER PROBLEMS, SOLUTIONS & RECOMMENDATIONS I PROBLEMS 20 Hoang Phuong Linh- Ta14.01 While this report has focused on the export potential of specific industries, I would like to stress that Vietnam’s best option is not to pick winners on export markets, but to provide a business environment that is conducive to risk-taking, entrepreneurship, creativity and innovation As in Chapter Two, though having been very successful over the past years, Vietnamese exporters are facing big challenges, many of which are related to the domestic supply side Low quality and little differentiated products One of the major obstacles to export growth in several sectors (oil and agricultural products) is that products are exported in crude or semi-processed form only, which limits the possibility to add value and diversify products The issue of low quality products, for which competition tends to be high and which command low prices, is crucial in many sectors, especially in industrial sectors Low quality and limited differentiation of products is not only linked to technical aspects of production (including technological backwardness), but also to limited know-how in management, design and marketing Limited value added due to strong import dependency for raw materials and intermediate inputs In some sectors, products are exported in processed form, but raw materials and intermediate inputs have to be imported, partly at high import tariffs and transport costs, which drive up overall production costs, and for which regular supply is not always assured Technological backwardness The processing technologies used in a number of sectors are considered outdated, which is partly due to insufficient financial resources at the enterprise level Inadequate infrastructure Transportation cost in the clothing sector, for example, is considered some 20% more costly than in Thailand and China Supporting infrastructure, such as storage and refrigeration, is insufficient for many agricultural commodities For rice, for example, post-harvest loses are high and account for 10-12% of the harvest, mainly due to backward harvesting technology, poor transportation means, and poor infrastructure Low cost competitiveness In several sectors, Vietnam’s exports are limited by high production costs, despite general low labor costs The government and other stakeholders need to pay 21 Hoang Phuong Linh- Ta14.01 attention to two major cost factors compromising Vietnam’s competitiveness: unit labor costs (labor cost per unit of output, which is equal to the ratio of labor cost and labor productivity) and other costs, such as intermediate inputs and transportation For textiles and garment, for example, labor costs are low, but production costs are high because of imported material, machinery and components Limited knowledge of foreign markets and international trade issues Information on international markets is crucial for enterprises wishing to export directly to important markets such as the United States and the European Union However, many exporters have only limited knowledge of foreign markets and need intermediaries As a result of greater trade liberalization in Vietnam, a growing number of enterprises, both public and private, are entering the export trade, but they are facing serious problems and difficulties, including lack of market information and inability to utilize information effectively However, Vietnam’s information infrastructure is considered weak and costly, though progress has been made in recent years Sales management with enterprises often remains passively waiting for clients rather than actively exploring new opportunities II POLICY RECOMMENDATIONS Adapting Vietnamese standards to international standards and reduce health- related risks Quality suffers partly because of the lack of quality standards and regulating agencies conducting inspections It is necessary to adapt Vietnamese standards to render them consistent with international standards This is particularly important for fishery and agricultural products, where world markets are likely to apply stricter hygiene and food safety regulations Non-tariff barriers, especially technical barriers to trade and sanitary and phytosanitary measures have become increasingly important in recent years, partly because of the growing concern of consumers (especially in developed countries) regarding environmental and sanitary risks Investing in upgrading the infrastructure 22 Hoang Phuong Linh- Ta14.01 An ineffective infrastructure is a serious constraint to Vietnamese exports For fishery products, one third of the value of caught fish is lost because of insufficient refrigerated storage facilities and means of transport For this sector, improved infrastructure including modern ports and safety measures for fishermen, such as storm and flood warning systems Favoring the development of clusters Competitiveness depends on how well enterprises make use of their own assets and gain access to new assets by co-operating with other firms and institutions The Government should consider organizing and developing clusters for manufacturers and businesses, located within a geographical region, that have common buyers, material suppliers or service providers Companies can specialize in producing either the necessary parts, tools and equipment and other accessories Regional co-operation will become increasingly important for Vietnam Establishing close and active cooperation between stakeholders and strengthen the role of business associations The government, industry associations and enterprises have to work together to tackle the issues at stake and strengthen Vietnam’s competitiveness It is important that all stakeholders in a particular industry, such as farmers, processors, and exporters, work closely together, possibly coordinated by the responsible Ministry and the business association The role of the association could also be enhanced, as it serves the common rights of the members, and presents on behalf of them, proposals and recommendations to the government or competent authorities relating to the policy and implementation of legal regulations Attracting foreign investment 23 Hoang Phuong Linh- Ta14.01 The competition between developing nations to attract foreign direct investments is fierce, as investment – in general in the form of joint ventures or 100% foreign owned enterprises – is increasingly seen as a key vehicle for economic development, and an indication of a nation’s overall economic health and its economic potential FDI is an efficient means to upgrade production technologies, management skills and general transfer of business know-how, with spill over effects outside the foreign enterprises Furthermore, FDI tend to stimulate economic integration and provide access to global marketing and distribution channels, especially when investment is export-oriented and the target company is part of the investing company’s integrated system of production Though Vietnam has been quite successful in attracting FDI flows, mainly related to the quality and cost of the human resources, it has inherent weaknesses that need to be tackled if Vietnam wants to remain an attractive destination These include the lack of transparency and consistency in the legal and policy framework, for example in relation to taxes, the many restrictions to investment, the general business environment, cumbersome procedures, inefficient bureaucracy and corruption Investing in people Vietnam’s abundant, well-educated, and disciplined labor force is no doubt its most important asset, but the lack of technical capabilities is diminishing overall competitiveness For example, almost all seafood-processing factories in Vietnam currently need skilled and trained workers with technical capabilities and knowledge on hygiene, food safety etc to meet international standards For the future, an adequate supply of trained human resource, especially engineers and technicians, is vital to the development of any industry A key strategy to enhance exports is to further strengthen human resources by continuing in investing in all levels of education and training: basic education, vocational training and language training, especially English, and university education The Government may wish to consider a training strategy at two levels: vocational training for workers in factories to reduce 24 Hoang Phuong Linh- Ta14.01 training expenses, and for managers to effectively grow their businesses Training activities could be organized or carried out by the respective industry associations III SOLUTIONS To improve product quality and design For many industries, Vietnam’s should specialize in standardized, mass- products For such products, price is the main selection criterion on the market, and cost-reduction is the only viable solution for enterprises that want to compete in a market where international competition is fierce However, many products can be differentiated by quality (which relates not only to objective factors, such as reliability and after-sales services, but also to subjective criteria, such as design and reputation) and this increases the choices for companies in which segments they want to compete To create brand names It is important for producers to increase the awareness of the importance of trademarks and the number of trademarks for exported products For example, it is estimated that up to 90% of Vietnamese agro-products exported to overseas markets are without a trademark, which may correspond to the loss of hundreds of million USD annually to the Vietnamese economy This is because exporting enterprises have insufficient information on export markets, are unaware of the importance of trademarks, and are not familiar with the procedure and cost for registering brands, names, and trademarks To invest in science and technology For the agricultural and fishery sector for example, there is a need for investment in post-harvest activities and in the processing sector Poor chilled or frozen storage facilities for example are a major issue It is also crucial to promote modern machinery and new technologies to improve productivity and product quality 25 Hoang Phuong Linh- Ta14.01 To recognize the importance of supporting industries and improve their efficiency Modern companies focus on what they best and buy other inputs and services on the market The underlying principle for supporting industries is to increase competitiveness of assembly firms, so it is vital that these companies can satisfy quality, cost and delivery standards Though supporting industries are beginning to develop in Vietnam, enterprises, both state-owned and private, need to recognize the importance of supporting industries, and to create and develop such industries by their own effort To improve access to information Adequate and updated information is essential to survive in competitive markets Producers, processors and exporters need information on international markets, including patterns and trends in production (for example trends in materials, colors and shapes), consumption, market characteristics, market access (tariff and nontariff barriers), distribution channels, storage, packaging and labeling, pricing and market prospects It would be useful to centralize such information and provide individual companies with constantly updated information To diversify markets and develop trade promotion activities Vietnamese exports in some sectors are concentrated geographically, and market diversification is important to reduce sensitivity to demand-side shocks in individual markets The war n Iraq in 2003 for example led to the collapse of demand for Vietnamese tea Trade promotion activities should be pushed up to expand current markets and acquire new customers Industries should focus on marking activities in key markets (United States, Japan, and European Union) plus in selected potential 26 Hoang Phuong Linh- Ta14.01 markets for which imports are important or fast growing, which are open or have preferential trade agreement with Vietnam CONCLUSION Export development has been one of the main forces behind rapid poverty reduction in Vietnam As stated above, Vietnam’s export performance has been 27 Hoang Phuong Linh- Ta14.01 impressive However, this virtually unmatched performance can not hide the fact that export is struggling with important constraints To increase the export value, Vietnam’s government and enterprises need complement specific strategies with policies that address the major constraints As a result, Vietnam will emerge form the poverty and export is the key to build a prosperous society And Vietnam can by now hold a higher ambition: that of becoming a middle-income country This will entail laying the foundations of a modern market economy Modernizing tax administration, reforming the legal and judiciary systems, reducing corruption, improving governance at local levels, improving product quality and design, upgrading the infrastructure, are the reforms that need to be put on track for Vietnam to move up to the higher development These solutions are bound to further boost business development and living standards more generally REFERENCES − CIA World Fact Book http://www.indexmundi.com/vietnam/gdp_real_growth_rate.html 28 Hoang Phuong Linh- Ta14.01 − Congan (2007) Kỹ nghệ dầu khí Việt Nam chạy đua khai thác dầu thô Đông Nam Á http://www.pidc.com.vn/Default.aspx? pageid=18&mid=140&breadcrumb=31&intSetItemId=31&action=docdetailview&int DocId=88 − Do Manh Hong (2006) Promotion of Supporting Industries: The Key for Attracting FDI in Developing Countries − Food and Agriculture Organization of the United Nations FAO (2001), Regional Office for Asia and the Pacific The FAO Field Programme and Agricultural Development in Asia and the Pacific − International Trade Center UNCTAD/WTO (ITC) Export Potential Assessment Vietnam, Final version − Kieu Oanh (2007) Dầu khí Việt Nam tìm đường giới http://www.vneconomy.vn/? home=detail&page=category&cat_name=0809&id=694ff297e4c10b − MARD Series of Annual Report − Ngoc Le Ba (2005) Export Potential Assessment of Arts and Crafts in Vietnam, Background report for Project No VIE/61/94, implemented by International Trade Center UNCTAD/WTO (ITC) and Vietnam Trade Promotion Agency (VIETRADE) − Nguyen Dinh Chinh (2004) Trend of factors which affecting pig and paddy production − Ohno, K (2005) Supporting Industries – some analytical points for consideration, VDF & GRIPS − Phong Cam (2007) Xuất dệt may Việt Nam vào top 10 giới Retrieved October 4th, 2007 from the World Wide Web http://www.tienphongonline.com.vn/Tianyon/Index.aspx? ArticleID=97746&ChannelID=3 − Reuters (2007) Vietnam estimates proven oil reserves at 3.1-3.3 billion barrels Retrieved January 30, 2007 from the World Wide Web http://www.thanhniennews.com/business/?catid=2&newsid=24787 The Fishsite (2007) Vietnam Fishery Products Shrimp Report 2007 Retrieved July 2007 from the World Wide Web http://www.thefishsite.com/articles/307/vietnam-fisheryproducts-shrimp-report-2007 29 Hoang Phuong Linh- Ta14.01 U.S Department of Trade (2007) Background Note of Vietnam Retrieved June 2007 from the World Wide Web http://www.state.gov/r/pa/ei/bgn/4130.htm U.S Government (2007) International Energy Outlook 2007 Retrieved May 2007 from the World Wide Web http://www.eia.doe.gov/oiaf/ieo/world.html 30