Vietnamee small and medium sized enterprises (SMEs) lack preparedness to cope with cross-cutting issues posed by the Trans-Pacific Partnership (TPP) and need changes in management and production methods to more effectively compete after the pact comes into effect.
The National Assembly Committee for Economic Affairs has approved Vietnam’s participation in the TPP as of April 2014 but cautions that in the future, membership is going to require deeper liberalization of trade policies.
Although the TPP offers opportunities for Vietnamese businesses to penetrate new markets and improve their competitive edge, Vietnam will face increased competitive challenges from other nations once the agreement is signed.
It is most certain that the TPP will directly and negatively impact all Vietnamese SMEs that do not adequately prepare for its implementation.
Opportunities can become challenges?
Dr Nguyen Duc Kien, deputy head of the NA Committee for Economic Affairs said that the participation of Vietnam in the TPP will provide Vietnamese domestic businesses greater access to the markets of other TPP member nations, each of which will have differing and complex requirements related to such things as quality standards that must be met before Vietnamese products will be permitted into the market.
Regarding TPP’s advantages, Dr Hoang Phuoc Hiep, head of the Faculty of Economics Law from the Hanoi University of Business and Technology (HUBT) said that the signing of TPP will help Vietnam better allocate human resources within the economy more effectively, speed up the restructuring process and bolster the renovation of the growth model.
Trade liberalization with major markets such as the US, Canada, Mexico and Japan and elimination of import tariffs will also give fresh impetus to Vietnamese exports. Most notably, this will open up tremendous opportunities for the garment, textile and leather footwear sector to expand markets in other TPP nations. While other sectors like seafood, wood and farm produce are also poised to enjoy great benefits.
Hiep noted that the impact of the TPP on the Vietnamese economy is not necessarily always going to positive for all sectors and businesses in Vietnam. Opportunities can turn to become challenges if the macro-economic strategy is inadequate or if governmental policies and reforms are lacking.
Factoring in recent trends in the flow of international foreign investment into Southeast Asian nations like Vietnam in what he refers to as the “Chinese factor”; Hiep says that, Chinese businesses and other economics are making proper adjustments in their business strategies.
Many Vietnamese businesses are not reacting to the signing of TPP with such vigilance and as a consequence may be setting themselves up for failure; Hiep said or they may just simply miss out on participating in the opportunities it affords.
Hiep quoted information from Bloomberg’s as saying that Chinese businesses have made early preparations for the TPP and cites one of China’s major garment and textile groups Tehong Textile, which has expanded their activities abroad, primarily in Vietnam, as a case in point.
From mid-2012 forward, Texhong Textile has poured US$300 million investment funds into expanding its fabric manufacturing facilities in the northern province of Quang Ninh, bringing its total factories in Vietnam to four.
Additionally, in November 2012, a joint venture of Shengzhou Sunrise Textile Co., Ltd and Thien Nam Investment and Development Joint Stock Co was established under the name of Thien Nam Sunrise Textile Joint Stock Company.
With total investment capital of US$24 million, the joint venture built a spinning factory with a capacity of 300 tonnes per month. As yet one more instance, Hong Kong’s Crystal recently announced that it will invest US$425 million in the Pacific Crystal textile project and another US$120 million in Tinh Loi garment project.
Meanwhile, Le Tien Truong, deputy general director of the Vietnam National Textile and Garment Group (Vinatex) said that one of the challenges his company faces is rapid and strong investment of foreign investors and the resulting competition it portends.
Chinese businesses are preparing to capitalise on the passage of the TPP in terms of finance, technology and market compared to local businesses, Truong warns.
Lack of TPP information make businesses difficult to adapt
Dr Tran Dinh Thien, Director of the Vietnam Economic Research Institute said that the competitive edge of Vietnamese SMEs in the international arena is going to be limited and in actuality may more than likely turn negative for some localities unable to adequately cope and fail to meet the demand for development, even in the agriculture, industry and service sectors. Most importantly, sudden trade liberalization could potentially lead to bankruptcy and unemployment at businesses with low competition capacity, if adequate preparations are not undertaken.
In addition, other significant issues faced by SMEs when joining TPP are the protection of intellectual property rights, environmental standards and rules of labour that all can have severe negative adverse consequences if these issues are not adequately addressed and prepared for.
These issues could represent the death knell for Vietnamese SMEs and offset all of the other advantages from reduction in import tariffs and increased market access if not properly addressed.
Most notably, Thien said that SMEs have inadequate information on TPP due to poor dissemination. Meanwhile, these businesses must be fully cognizant of the agreement, so that they can devise proper plans to make appropriate changes in production and business activities.
Therefore, he warns that to reduce the risks of joining the TPP, Vietnamese SMEs are fully advised to adequately prepare for the TPP and make necessary changes in management and production to improve their competitive edge.