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Outsourcing no more

When we only dominate the processes of assembly, we are lost at the most important stages of the value chain, from invention to design to distribution...

 

Không cam phận làm thuê

 

Vietnam recently signed the Regional Comprehensive Economic Partnership (RCEP), with 15 state members, including the 10 ASEAN countries, China, Japan, South Korea, Australia and New Zealand.

RECP is the fruits of eight years of negotiation, which opens more opportunities for Vietnam to access the market of 2.2 billion people, accounting for 30% of the world's population, and a total GDP of more than US$26 trillion, equivalent to 30% of global GDP and nearly 28% of global trade.

Strong globalization

Together with EVFTA, CPTPP and many other FTAs that Vietnam signed before, RCEP - although not considered a new generation FTA - contributes to realizing Vietnam’s policy of international economic integration, which has been implemented since the 9th National Party Congress.

With the signing of 14 FTAs, Vietnam has become the most open economy in the world, as total annual import-export value has reached nearly 200% of GDP. Vietnam has widely opened its doors to the world.

These FTAs benefit Vietnam’s exports, enable more FDI inflow along with management skills, and most importantly, domestic reforms must also be substantial as Vietnam has to obey integration commitments.

What can Vietnam produce?

However, many concerns still remain. In the context of door opening, import taxes will reduce to 0% for almost all goods, from consumption to capital goods. So will we still have the opportunity to build our own industries, especially processing and manufacturing?

If we cannot build engineering, processing, and manufacturing industries, we will forever perform outsourcing contracts - the lowest point in the global value chain. We will be a consumer market for foreign products, and will remain as hired workers in our homeland forever.

When we only dominate the assembling process, we are in a disadvantageous position in the most important stages of the value chain, from invention to design and distribution - the stages that bring about the highest added value and highest salary.

Since the 2000s, Vietnam has been implementing a protective policy for the automobile industry. Vietnam has imposed very high tax rates on imported cars in an effort to create a market for foreign assemblers. However, Vietnam licensed dozens of foreign car brands, which has torn the market apart.

As a result, when the country fully opened its market to ASEAN, Vietnam still had no local auto industry. There are a few domestic auto assemblers, but they are facing a difficult situation because of integration.

Imported auto components are subject to high taxes, while complete cars imported from Thailand or Indonesia are subject to 0% tax. The prices of domestically assembled cars are higher than that of imported cars. Without supporting industries in Vietnam, we can't expect to do anything.

Which Vietnamese businesses are capable of making solar panels or making wind fans when renewable energy projects are growing like mushrooms after rain and are especially encouraged by environmentalists? No one!

The door has been opened wide; production capacity is weak; opportunities to occupy a higher position in the value chain are increasingly difficult; the quality of human resources is still the "bottleneck" of development... When will Vietnamese people no longer do outsourcing, and no longer be hired workers for foreigners in their homeland?

Reviewing industrialization plan

Recently, a quite optimistic statement was made: "Some export industrial products have a large segment, and occupy a firm position in the world market."

Supplementing this statement are the statistics: In 2019, Vietnam’s garment and textile exports reached $32.8 billion, ranked 7th in the world; leather and footwear exports $18.3 billion, 2nd in the world; mobile phone exports $51.4 billion, 2nd in the world; processed seafood exports $8.5 billion, 4th in the world; wood furniture exports $10.7 billion, 5th in the world.

These numbers are very high, but what percentage of the added value belongs to Vietnamese? The FDI sector has accounted for 50% of industrial production value and 70% of export value for many years. Thus, they have held most of the cake.

According to statistics, every year FDI firms remit up to $19 billion of net profit back home. If Vietnamese businesses are stronger, they will earn a lot from that cake.

In the past, the former Soviet Union was very enthusiastic in helping Vietnam in the process of industrialization by assisting Vietnam to build some industrial factories. Unfortunately, nearly all of those establishments have disappeared.

Resolution No. 23-NQ/TW issued in 2018 defines the general goal: By 2030, Vietnam will complete the goal of industrialization and modernization, basically becoming an industrial country in the direction of modernization; Vietnam will be among the three leading ASEAN countries in industry, with a number of industries being internationally competitive and deeply involved in the global value chain. With a vision to 2045, Vietnam will become a modern industrialized country.

Which state-owned enterprises and private enterprises will help realize these goals?

Tu Giang

FTAs set to continue representing driving force for exports next year

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