VietNamNet Bridge – Economists says if the ceiling on advertising expenditures is lifted, it may do more harm than good to Vietnamese businesses.

In the past, Vietnamese businesses claimed their right to self-determination, asking the Ministry of Finance (MOF) to remove the cap on ad expenses. However, they now fear that their wish has come true.

They have been warned they may be “crushed” by foreign-invested enterprises able to spend much more money on ads and marketing, thereby increasing the popularity and presence of their products in Vietnam.

Under the Corporate Income Tax Law which took effect on January 1, 2014, businesses must not spend more than 15 percent of their total production costs on ads, marketing, commissions and sales promotion campaigns.

Businesses said this hinders healthy competition among enterprises and places  barriers on the ad industry.

Dr. Tran Dinh Thien, head of the Vietnam Economics Institute, noted that lifting the cap on the businesses’ ad budget is inevitable, particularly in the context of global economic integration.

MOF, which has been harshly criticized for the unreasonable regulation for years, has finally “given in”, proposing to the National Assembly to remove the cap.

Thien, who believes the removal is inevitable, also warned that the cap removal would create an unequal competition between Vietnamese businesses and FIEs.

He commented that the cap removal would be “reasonable” only if businesses are financially capable enough and the State improves its management skills.

Dr. Cao Sy Kiem, chair of the Small and Medium Enterprises Association, also warned that if MOF removes the cap at once, small- and medium-sized enterprises will be defeated in the market.

“FIEs have great advantages over Vietnamese businesses, including powerful financial capability and the ability to access bank loans at low interest rates in their home countries,” he explained.

“It is necessary for Vietnam to set up regulations which are in accordance with international practices in the context of global economic integration, and can also benefit the Vietnamese business community,” Kiem said.

Disagreeing with removal of the ad budget ceiling, Ngo Trung Hung, director of Dai Viet Hung Production & Trade Company, noted that Vietnamese businesses would not get any benefits from it.

“My company, for example, spends VND80 billion a year on ads. If the ceiling is lifted, the spending on ads may rise to VND100 billion, a modest increase. Meanwhile, if an FIE increases its ad budget from VND1 trillion to VND2 trillion, we can in no way compete with it,” he said.

Hung said that instead of imposing a cap on ad spending, it would be better to set a cap on company’s revenue. This is a solution used in China.