Businesses need to innovate for greater benefits from digital economy

The digital economy has ushered in an era of new business models and methods which present huge opportunities for businesses to expand their markets, reduce business costs and promote after-sales services as well as facilitating global shopping habits.

Furthermore, the development of digital technologies will help to provide a low cost route for small and medium-sized enterprises to become involved in the global supply chain.

The latest technological breakthroughs enable supply chains to connect and distribute more effectively, reducing logistics and transaction costs.

According to reports from Google and Temasek, the digital economy in the ASEAN region has seen major breakthroughs in recent years, especially in 2017.

The growth rate of the digital economy in the ASEAN region exceeded expectations in 2017, ballooning by 27% to US$50 billion and accounting for 2% of the region’s GDP, it is expected to amount to 6% of GDP by 2025.

Major industries which have contributed to such vigorous growth include online tourism, e-commerce, online car bookings, and mass media and online entertainment.

With a population exceeding 90 million, which includes 58 million internet users and over 125 million mobile phone subscribers, more than 3,000 businesses have modernised their activities while others have found success in such fields as information technology, software, and digital applications.

Vietnam is seen as having great potential for the development of its digital economy. At present, the proportion of the retail market accounted for by e-commerce is just 3.6% - a modest level compared to the average throughout the Asia-Pacific region.

Ms Pham Thi Thu Hang, director of the Institute for Business Development under the Vietnam Chamber of Industry and Trade says, “although Vietnam’s private sector has seen improvements in 2017, there remains many problems due to the increasing number of small businesses suffering high losses.”

The State has encouraged individual business households to establish themselves as full businesses. Aside from this transformation, there should be support policies to strengthen business capacity and reduce costs for micro businesses, she said.

Hang warns that Vietnam should gear up to develop e-commerce business (Business to Business) to provide support services to the target group, which is especially important as Vietnam has not yet developed the service segment to the required level.

The establishment of B2B is a necessity at a time when the country has accelerated the process of modernization and industrialization process, applied advanced technologies, created added value, and participated in the global value chain.

Businesses will be eliminated from the market without enhancing their capacity to become involved in these processes, says Ms Hang.

The President of the Vietnam Chamber of Industry and Trade, Mr Vu Tien Loc, says if Vietnamese businesses can take advantage of new technologies, they can enhance the efficiency of their businesses, expand their market shares and penetrate new markets.

Particularly, hi-tech products will generate value, reducing the cost of production and of the workforce.

The benefits of the digital economy will not be restricted to technology companies but will also provide Vietnamese businesses with the tools to compete with other enterprises in the ASEAN region in the field of the digital integration.

However, Mr Loc says, “apart from the opportunities, the digital economy’s new business models and methods have also posed a number of challenges to Vietnamese businesses. If local businesses fail to seize opportunities presented by the modern trend, they could lose their place in the domestic market and face a lower ranking in the global supply chain.”

According to Mr Loc, the shortage of human resources in the field of information technology is one of the biggest challenges facing Vietnam’s digital economy. 

There remain hindrances in terms of the legal environment, security, confidentiality, and implementation of e-commerce.  Moreover, the adaptability of businesses, especially SMEs, to the digital economy remains  limited.

Prices plunge for coffee exports over five months

Vietnam exported 825,000 tons of coffee worth US$1.602 billion in the first five months of the year, up 1.8% in volume but down 12% in value from a year ago, according to statistics from the General Statistics Office (GSO).

In the reviewed period, the average price of exported coffee was estimated at US$1,942 per ton, down 13.6% over the same period last year.

According to the Import and Export Department under the Ministry of Industry and Trade, instant coffee exports saw a remarkable 23.5% rise in volume with more than 41,000 tons worth US$160.95 million shipped in the first four months of the year, there was however a 19.6% decline in value.

Although the restructuring of the coffee industry has been largely positive, the value of coffee exports has decreased significantly compared to last year’s corresponding period.

There was a sharp drop in the price of coffee on the domestic market in the first five months of the year.

The price of coffee seedlings fell by VND400-600 to VND35,100-35,500 per kilo over last year,  the lowest level in the past two months.

The Ministry of Agriculture and Rural Development predicts that coffee prices will not rebound in the local market in June as the global supply source looks as if it will remain abundant for the second half of the year.

Weather factors might affect the global supply source in the medium and short-term but will not have a serious impact, says the ministry.

Positive signs for rice exports

An estimated 452,000 tons of rice were shipped overseas in May, bringing the total export volume for the first five months of 2018 to 2.66 million tons, worth US$1.45 billion, up 13.9% in volume and 40% in value against the same period last year.

China remained the biggest importer of Vietnam’s rice in the period.

On the domestic market, the price of paddy rice has seen an increase due to growing consumption demands, with the price of normal paddy rice rising by VND100-200 per kilo, while high-quality paddy rice has increased by VND400-500 per kilo.

Rice exports have been thriving from early in the year. The Ministry of Agriculture and Rural Development forecast that by the end of this month, the domestic rice price will continue its upward trend due to the prospect of exports to the Philippines.

In addition, the growth in rice exports has been attributed to changes in the structure of exports, the improving quality of rice, and a breakthrough in export prices.

HCMC to hold conference on CPTPP trade deal

The HCMC Department of Industry and Trade, in coordination with the International Integration Support Center and relevant agencies in the city, will organize a conference to introduce the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Vietnam and 10 other Pacific Rim countries signed the landmark CPTPP trade agreement in Santiago, Chile  in March this year. The deal will reduce tariffs in the member countries which together make up more than 13% of the global economy - a total of US$10 trillion.

Set to take place on June 21, the forthcoming free-admission conference will delve into opportunities and challenges for Vietnam.

Many other issues related to CPTPP will be presented at the conference, such as the negotiating process, the strategic significance of the pact to Vietnam, and what makes CPTPP different from the other free trade agreements which Vietnam has joined.

Participants will be briefed on tariff commitments, rules of origin, commitments to cross-border trade in services, openness policies and investment protection, among others.

Deputy Minister of Industry and Trade Tran Quoc Khanh, who is also chief economic and international trade negotiator, and others from the Ministry of Industry and Trade, the Ministry of Finance, and the Vietnam Chamber of Commerce and Industry will speak at the event.

For further information and registration, contact Ms. Quynh Nhu, Import-Export Management Office, HCMC Department of Industry and Trade, by email at htqnhu.sct@tphcm.gov.vn or phone on 028.38277124 - 0908.863.063.

Conference time: 8:00 a.m. – 12:00 a.m., June 21, 2018

Conference venue: 111 Ba Huyen Thanh Quan Street, Ward 7, District 3, HCMC.

Bao Viet Securities eyes modest earnings in 2018     

Bao Viet Securities Joint Stock Company (BVSC) targets VND504 billion (US$22.4 million) in total revenue and VND134 billion in post-tax profit for 2018, the company has announced.

The expected figures are up by 4.2 per cent and 9.5 per cent, respectively, compared to last year’s performance, the company’s management board said at the annual shareholders’ meeting on Tuesday.

In 2017, BVSC earned VND483.8 billion in total revenue and VND122.4 billion in post-tax profit, up by 47.8 per cent and 27.1 per cent from 2016.

The company exceeded its full-year earnings forecast for 2017 by 49.3 per cent in revenue and 10.7 per cent in post-tax profit.

The expected earnings for 2018 are also higher than the previous numbers reported in the local media.

The growth in BVSC’s earnings in 2017 came from good market trading conditions with the local stock indices – the VN Index and HNX Index – achieving good gains throughout the year as well as from higher-than-expected performances in three key segments – financial services, investment and advisory.

BVSC also plans to utilise 5 per cent of its post-tax profit to fund its charter capital reserve and another 5 per cent to add to the financial risk provision.

The company will also add VND5.1 billion to its welfare fund and pay VND50.5 billion worth of 7 per cent dividend to existing shareholders.

The remaining amount of post-tax profit worth VND45 billion will be used to fund the company’s business activities in 2018.

Thirty-two shareholders, including 10 authorised ones, attended BVSC’s annual shareholders’ meeting. They hold 43.65 million shares, or 60.46 per cent of the total number of voting shares.

Founded in 1999 as a member of the insurance-finance group Bao Viet Holdings under the Ministry of Finance, BVSC has risen to become one of the top securities firms in Viet Nam, providing financial services and investment advisory to investors, investment funds and banks in both domestic and foreign markets. 

Vietnam boosts farm produce sales in traditional markets

Linking enterprises and farmers via the cooperative model is a practical requirement for Vietnam’s agriculture to boost farm produce sales. This is a fundamental solution to surpass small-scale, unsustainable trade for years in Vietnam.

The Vietnam Cooperative Union for Safe Agricultural Consumption (UCA) under the Vietnam Cooperative Alliance has developed a UCA supermarket chain, known as UCA Mart, in order to increase Vietnamese agriculture produce’s share in the local and overseas market.

The Union has worked with more than 100 cooperatives nationwide to turn out safe farm produce, especialy regional specialties. The products can be traced to their origin and certified for food hygiene and safety.

Pham Manh Tuan, Chairman of the UCA Board of Directors, says that in Vietnam there are hundreds of cooperatives producing safe agricultural products but they haven’t gained a firm position in the market due to the market’s fierce competitiveness and the proliferation of unsafe food.

He says UCA Mart is a bridge linking Vietnamese farm produce with farmers.

“We manage the whole chain from production to transportation. Our vehicles go to the farmers’ fields to gather farm produce and transport to preliminary treatment areas before packaging and moving them to points of sale,” Tuan added.

The Vietnam Cooperative Union for Safe Agricultural Consumption plans to work with safe farm produce cooperatives nationwide to establish large-scale production zones.

Farm produce sold in the UCA supermarket chain is strictly controlled by UCA chapters across the country.

Nguyen Thi Tham, Deputy Director of the Da Mai Safe Vegetable Production Cooperative, said “We have benefited from the UCA buying our vegetables. They go to our fields and determine which vegetables are qualified or unqualified. They strictly follow the prescribed process.”

Producers want fertilizer to be subject to VAT

Fertilizer producers have petitioned lawmakers to add fertilizer to the list of products subject to value added tax (VAT), reports the website of the Ministry of Industry and Trade.

The Fertilizer Association of Vietnam (FAV), the Vietnam Farmers’ Union (VNFU) and the Vietnam Chamber of Commerce and Industry have also suggested imposing a VAT rate of 5% on fertilizer as earlier.

At a seminar on tax policies for promoting production and business held by Tuoi Tre newspaper on June 2, attendees said since fertilizer was free from VAT, domestic fertilizer producers had not been entitled to VAT refunds for input materials, which had sent fertilizer prices rising 5-8%.

The situation has paved the way for foreign fertilizer to enter the local market more easily as it is not subject to VAT either.

Vietnam imported 3.7 million tons of fertilizer in 2014 but the figure leapt to 5.6 million tons last year, according to data by the General Department of Vietnam Customs.

Local firms now do not get refunds for VAT paid for machinery, equipment and other fixed assets in their projects.

Nguyen Hac Thuy, acting chairman and general secretary of FAV, told the seminar that Law No. 71/2014/QH13 treating fertilizer as a VAT-free item should be amended to help local producers out of the doldrums.

Duong Tri Hoi, deputy general director of PetroVietnam Fertilizer and Chemicals Corporation (PVFCCo), said the law has piled pressure on local companies, especially those having invested in modern technology. Between 2015 and 2017, the amount of VAT deductions which PVFCCo should have enjoyed totaled VND1 trillion.

Ha Bac Nitrogenous Fertilizer and Chemicals Co Ltd has the same fate as its production costs annually grow by VND250 billion. DAP - Vinachem JSC saw its costs rising by VND360 billion within three years.

Foreign-invested fertilizer producers such as Baconco Co Ltd, Japan Vietnam Fertilizer Company and Viet Han Fertilizer Co Ltd are not spared either.

Grab rolls out cancelation fee in Vietnam

Ride-hailing app Grab has officially introduced a cancelation fee for passengers who frequently call off their bookings in Vietnam.

The fee, VND10,000 (US$0.44) per cancelation, will be imposed on customers who have canceled at least seven rides in a seven-day period, local tech news website ICTnewsreported on May 31, citing a Grab announcement.

The money will be deducted from the user’s GrabPay or GrabPay Credits account.

GrabPay is the in-app mobile wallet that is linked with users' credit/debit card while GrabPay Credits is a top-up prepaid account for those who do not want to share their card information with the app.

To ensure that the company is able to collect any imposed cancelation fees, cash-only users who cancel six times within seven days will be asked to connect a credit or debit card with their GrabPay account or top-up their GrabPay Credits balance, in case they cancel a seventh time.

Passengers who refuse the request, or fail to pay the cancelation fee, will have their accounts temporarily suspended.

Currently, Grab’s cancelation fees only apply to its ride-hailing services including GrabCar, GrabTaxi and GrabBike in Vietnam, leaving the delivery - GrabFood and GrabExpress - unchanged.

ICTnews also quoted Grab as saying that passengers have the right to refuse requests from their drivers to cancel a ride.

The reason behind Grab’s new policy, according to ICTnews, is that cancelations made by drivers or passengers cause huge inconveniences for both sides – the loss of earnings for drivers already on their way to pick up a passenger and a loss of trust from passengers who depend on the service for transportation.  

Grab said cancelation rates are also taken into account in its driver performance metrics.

Consequently, to reduce the impact of passenger cancelations on its drivers, cancelation fees will be officially effective and then paid to drivers through Grab.

The tech company had already instated cancelation fees in 2017 for passengers in Thailand and Singapore and is introducing similar charges in the Philippines.

Beer brands pour big bucks into ads as Vietnam bucks global trend

Global consumption has not increased in a decade, but Vietnamese are having a beer blast.

As more and more Vietnamese drinkers take to beer and competition heats up, leading brands are spending big on advertisements.

Saigon Alcohol Beer and Beverages Corporation (Sabeco), the leading beer producer in Vietnam which brews the well-known Saigon and 333 beers, spent VND1.2 trillion (US$52.9 million) on advertising last year.

While this figure is slightly less than its 2016 outlay, it still places Sabeco on the top of advertisement budgets list in the beer industry, spending more than VND1 trillion spent on product promotion in each of the last three years.

Meanwhile the producer of Hanoi and Truc Bach beers, Hanoi Beer Alcohol and Beverage Jsc, known as Habeco, spent VND568 billion (US$24.6 million) on ads last year, over 3 times its 2014 expenditure.

The increased spending is a response to Habeco’s declining share of the beer market in recent years, from its heydays of having the most popular brands in Northern Vietnam. The company has been augmenting its advertising budget as “there has been no breakthrough in the marketing activities of the brand,” according to Viet Capital Securities, which claims to provide comprehensive research to assist investors in maximizing profits.

Sabeco, Habeco, along with Heineken and Hue Brewery (which is owned by Carlsberg) made up 90% of the beer market in Vietnam last year. The big four are known to spend big on advertisements as they compete with each other in the Vietnamese market, which is considered to have more advantages than other countries.

“While beer consumption in many countries has stalled, there is still a lot of potential for this industry in Vietnam,” said Nguyen Van Viet, president of the Beer, Alcohol and Beverage Association (VBA) in a recent conference.

In China and some European countries, beer consumption has stagnated or even declined slightly. But in Vietnam it is forecast to rise in the coming years, Viet said.

He is backed by a study of the Asia-Pacific beer market conducted by Euromonitor, which claims to be the world’s leading independent provider of strategic market research.

The study found that beer consumption in the world has not increased in a decade, but in Vietnam, this figure is increasing rapidly.

In 2008, Vietnam ranked 8th position in beer consumption in Asia, just 8 years later it had climbed to 3rd position, behind Japan and China.

In a market dominated by big players, new businesses are having trouble making a stand. Laser, Fosters and Zorok are among the brands that have tried and failed to gain a decent foothold in the Vietnamese consumer. Local media reports have said that the high costs of advertisements had made it difficult for these firms.

Sapporo, one of the newer entrants, has recorded higher consumption in recent years, but very high marketing costs have seen to it that its profit is not substantial, Viet said.

Last year, Vietnam consumed over 4 billion liters of beer, and a Vietnamese person consumed 45 liters on average, according to VBA. The country targets production of 4.1 billion liters of beer in 2020 and 5.5 billion in 2035.

Ninh Thuan develops large-scale fields

Phuoc Hau commune in Ninh Thuan province has been selected to pilot large-scale fields for agricultural production. The Phuoc Hau cooperative has developed a business model that includes large-scale fields in agricultural value chains in order to create breakthroughs in local agricultural production.

Phuoc Hau Co-operative is applying a model to combine large rice fields, pig-raising, and value chains. After 4 crops, the Phuoc Hau Cooperative has seen some success. The number of households involved in the model has increased to nearly 450. The co-operative’s registered capital has increased to US$66,000.

These achievements are attributed to close links between the cooperative’s council and members in supplying seeds and selling products. The Phuoc Hau Club was set up to learn new techniques from agricultural experts, share experience in breeding, and seek outlets for products.

Van So, a member of the Phuoc Hau Agriculture Service Cooperative, said: “We have attended a training course on how to obtain loans for raising pigs. The cooperative members are glad they joined the Phuoc Hau club.”

Members of the cooperative have agreed to raise the locally bred black pigs because they are easy to feed, easy to sell, and most local people have experience in husbandry. What they have to do now is strictly conform to the recommended feeding process. Most of what they produce is sold through the Phuoc Hau club to tourists and local people. The rest is sold under contracts with a number of companies in Ho Chi Minh City.

Quang Dai Hoang, Director of the Phuoc Hau Cooperative, said: “The cooperative plans to diversify its business lines to increase the members’ income. The cooperative has submitted a proposal to the provincial Farmers’ Association to provide financial support for the farmers who raise black pigs in combination with providing agricultural tourism.”

The black pig husbandry model has received strong support from the Farmers’ Association. The cooperative has successfully set up link among farmers, the state, scientists, and enterprises.

Vo Chi, Deputy Chairman of the Ninh Thuan Farmers’ Association, said: “Phuoc Hau cooperative will link pig raising to buying pig products wholesale. The cooperative has a plan to sell pigs in the locality and to companies in HCMC.”

The Phuoc Hau cooperative is developing the first large-scale field in Ninh Thuan province. To replicate the model, the provincial Department of Agriculture and Rural Development is planning a concentrated production area and has increased the application of technology to production. 

Vietnam records a sharp rise in new export orders

The Vietnam Manufacturing Purchasing Managers' Index (PMI) rose to 53.9 in May from 52.7 in April, with a record rise in new export orders, according to a report in the Nikkei Asian Review.

A reading above 50 is a signal of improvement, while one below 50 points to a slowdown in manufacturing activity.

New orders rose at a sharper rate than in April, pushed on by a record expansion in new export business. Growth of output and employment also picked up. Business conditions have now strengthened on a monthly basis throughout the past two and a half years.

Andrew Harker, Associate Director at IHS Markit said, "A record rise in new export orders is the key highlight from the latest PMI, helping to drive growth across the sector."

Harker also pointed out that output price inflation continued to ease as companies often favored holding down prices to help secure sales rather than passing on sharp rises in input costs.

Meanwhile, in the first five months of the year, Vietnam earned US$15.6 billion from exporting agro-forestry-aquaculture products, up 9.9% against the same period last year, according to statistics from the Ministry of Agriculture and Rural Development.

Moreover, the rate of expansion was rapid and the fastest in 14 months. The increase in overall new orders was supported by the strongest rise in new business from abroad since the survey began in March 2011. With new orders increasing, firms raised output accordingly.

Production grew at a solid pace, the fastest expansion in three months. Output increased across all three broad sectors, with growth strongest in investment goods.

In line with greater numbers of new orders and output requirements, manufacturers increased their staffing levels at a swifter pace in May. The rate of job creation was the highest since January.

Suppliers’ delivery times continued to lengthen at a marginal pace during May, with respondents often linking delays to raw material shortages.

Alongside faster increases in output and new orders, business confidence picked up in May. More than 52% of respondents expect a rise in production over the coming year, with confidence mainly linked to predictions of further growth in new orders.

Dr Bui Quang Tin from the Banking University of HCM City said the PMI has been on the increase since the beginning of 2018 and is returning to period of growth like that of early 2017.

Mr Tin predicted that PMI would continue to rise in the coming months based on factors such as the momentum of growth over the first five months, and State policies which help simplify administrative formalities and increase flexibility in businesses activities.

More than 80 Chinese businesses to buy Luc Ngan lychees

More than 80 Chinese businesses will arrive in Luc Ngan district of Bac Giang province to buy lychees during the upcoming harvest season, says Tran Quang Tan, director of the provincial Department of Industry and Trade.

Mr Tan says a conference to boost lychee consumption in 2018 was held in Pingxiang, Guangxi, China on May 29, drawing the participation of hundreds of Chinese agencies and businesses. Bac Giang leaders invited more than 80 Chinese businesses to Bac Giang to inspect lychee plantation areas and place orders for the fruit.

Mr Tan reveals that on June 8, the province will welcome more than 300 domestic and foreign businesses who will be presented with information regarding the preparations for lychee consumption and conduct a survey on the provincial plantation areas.

The province has yielded a bumper crop this year thanks to the favourable weather conditions, with an estimated output of around 150,000-180,000 tons.

Last year, around 30% of Vietnam’s lychees were exported to China, and 10% were shipped to other markets, while the remainder was distributed on the domestic market. This year around 40% of lychee production will be for export as demand grows due to the higher quality of the Vietnamese fruits.

Industry bitter about Vietnam tax on sweetened drinks

A Finance Ministry proposal to slap a 10% special consumption tax on sweetened drinks would hurt small and medium businesses, critics say.

Business representatives and some experts say the beverage industry is already taxed heavily, and the latest addition could prove to the last straw.

The tax proposal, first announced last year and expected take effect in 2019, aims to promote healthier habits by discouraging the consumption of sweetened drinks.

The Ministry has cited reports from the World Health Organization, saying overconsumption of sweetened drinks lead to obesity and that a fourth of Vietnam’s population are already obese or overweight adults.

“The tax will help regulate the consumption of sweetened beverages, and it's also an international norm,” the proposal says.

However, the Vietnam Association of Liquor, Beer and Beverage (VBA) has protested the move, saying the tax could hurt small and medium businesses by promoting circulation of fake products.

“The tax proposal would lead to higher production costs, allowing fake and low-quality products to thrive,” it said in a statement.

Many industry insiders also say they are already paying no less than 10 different types of taxes.

“If this tax proposal passes, we won’t be able to survive,” a Thursday report by the Tuoi Tre newspaper quoted an unnamed vice director of a beverage firm in the southeast province of Binh Duong as saying.

Nguyen Van Viet, president of VBA, suggested an incremental imposition of the tax in order to reduce the burden on businesses.

The industry stand has been backed by several ministries, who reject the Finance Ministry’s rationale that sweetened drinks contain an unhealthy amount of sugar, warranting a special consumption tax.

The Ministry of Industry and Trade said in a statement that imposing a special consumption tax on sweetened drinks because they contain sugar was not a convincing enough reason.

It said the Finance Ministry needs to give clearer explanations for its proposal.

The Trade Ministry statement echoed the argument made last October by the Vietnam Chamber of Commerce and Industry (VCCI) that a special tax should only be imposed after adequate studies have been made on the drinks’ impacts on consumer health and if the tax could help reduce the risks significantly.

The Ministry of Planning and Investment is also against the proposal, which it says could adversely affect the beverage industry and its large workforce.

In Vietnam, special consumption taxes are levied on items and services considered unhealthy or luxurious, like tobacco, liquor and cars.

Many Southeast Asian countries have already imposed taxes on sugary drinks, according to the Finance Ministry.

The current rate is 20%-25% in Thailand, 5%-10% in Laos and 10% in Cambodia.

Myanmar, the Philippines and Indonesia are considering a similar tax.

Footwear giants shift outsourcing from China to Vietnam

Major brands in the footwear industry are shifting their outsourced work to Vietnam instead of China, but experts doubt this will be a good thing in the long run.

Sneaker giant Adidas last year had 44% of its footwear produced in Vietnam, more than double the 19% made by suppliers in China. This figure also marked a 31% increase from 2012 for Vietnam and a 30% plus decrease for China.

A similar move can also be seen at Adidas’ rival Nike, which had 46% of its footwear made in Vietnam last year, against just 27% in China.

While China remains the top supplier in the fashion industry, Vietnam is now seen by major brands as a solid and critically important supplier in second place, according to survey results released by the United States Fashion Industry Association.

“We are reporting a change in the sourcing trend, from ‘China Plus Many’ to ‘China Plus Vietnam Plus Many,’” the association said.

The typical sourcing portfolio today is 30%-50% from China, 11%‑30% from Vietnam, and the rest from other countries, it added.

According to experts in the industry, China manufacturing has become more focused on high value, and with workers’ wages rising, low-cost manufacturing is no longer its priority, according to The Diplomat magazine.

This explains why Vietnam, Indonesia and Bangladesh are producing more shoes and apparel for export.

However, while this trend can yield short-term benefits to Vietnam, long-term consequences will be severe, Professor Nguyen Van Nam, former director of the Institute of Trade Research under the Ministry of Industry and Trade, told the DatViet (Vietnam’s Land) newspaper.

Since advanced technology is not widely applied in Vietnam, the manufacturing sector exploits labor and pollutes the environment, he said.

“Vietnam needs to push for the newest technologies in manufacturing, otherwise we will be a ‘landfill’ of other countries,” he added.

Nguyen Duc Thuan, president of the Vietnam Leather Footwear and Handbag Association (LEFASO), highlighted another challenging aspect of the shift at a conference earlier this year.

As workers in other countries are assisted by machines in the production process, each of them can make 1.2 pair of shoes in an hour, while their Vietnam peers can only manage 0.7, he said.

“Labor productivity obviously increases when technology and high management skills are used, and this is a challenge that Vietnam needs to meet,” Thuan said.

Vietnam’s footwear export value has been growing in recent years, from US$8.4 billion in 2014 to US$14.65 billion in 2017, a 42% increase.

The country contributed a billion pairs of shoes to the 27 billion pairs produced globally last year.

MSMEs need Gov’t support to benefit from FTAs     

Trade facilitation, partnerships and capacity-building activities are needed for Micro, Small and Medium Enterprises (MSMEs) in APEC-member economies so they can take advantage of Free Trade Agreements (FTAs), speakers said at a workshop held on June 7 in HCM City.

Pham Quynh Mai, deputy general director of the Ministry of Industry and Trade’s Multilateral Trade Policy Department, said MSMEs were the engines of growth and innovation in the APEC region.

MSMEs account for over 97 per cent of all enterprises and employ over half of the workforce across APEC economies, she said.

They contribute significantly to economic growth, with MSMEs’ share of GDP ranging from 20 per cent to 50 per cent in most APEC economies.

However, only a limited percentage of MSMEs engage in overseas activities due to limited awareness of how to take advantage of FTAs and join regional and global supply chains, she added.

In that context, one of the key pillars under an APEC initiative is improving knowledge sharing about trade facilitation, business support, partnerships, and capacity-building activities for MSMEs, according to Mai.

MSMEs need to study inclusive business models, examples of successful export MSMEs, and lessons extracted from successful experiences in internationalisation and cooperation among economies.

Viet Nam can benefit from its strategic geographical location in a dynamic Asia-Pacific region and its proximity to global manufacturing value chains, speakers said.

Sixty-five per cent of the country’s population is under 35 years old, and there are also affordable labour costs as well as an emerging middle class.

However, experts also warned that costs and risks of international integration could be significant for Vietnamese MSMEs, and as such, improving the overall business environment continues to be key.

Viet Nam has committed to further institutional and structural reforms to help MSMEs, Mai said.

Dr Rajan Sudesh Ratna, economic affairs officer at the UN’s Economic and Social Commission for Asia and the Pacific, said FTAs provided MSMEs with access to markets, creating value chains, bringing in FDI inflow and technologies, reducing trade costs, and enhancing linkages among industries.

“FTAs also provide technical assistance, capacity building and assist FTA member economies in improving their overall capacity to benefit from trade, harmonising procedures and rules of different agreements among common economies,” he said.

Regarding the Rule of Origin (ROO) in FTAs, Naoya Sumimoto, customs specialist at the Tokyo Kyoto Accounting Office, said the ROO identifies where the exported goods originated.

“ROO is crucial to determine whether or not the exported goods are qualified for preferential tariffs under specific FTAs or Economic Partnership Agreements,” he said.

The workshop also discussed trade in services, including issues such as market access, schedules of commitments, and most favoured nation (MFN) treatment in addition to intellectual property and competition.

On June 8, the workshop will continue with a discussion about successful uses of FTAs by APEC member economies.

The outcomes of the workshop will be reported to the APEC SME Working Group for consideration and will serve as input for the working group to develop action plans to facilitate MSMEs’ integration in global value chains.

Last year, leaders of 21 APEC-member economies met in Da Nang to discuss ways to promote regional trade agreements and move towards the realisation of a Free Trade Area in the Asia-Pacific region.