MID TERM ASSIGNMENT major international trade policy ANALYSIS OF VIETNAM’S COMPETITIVE ADVANTAGE

Throughout 30 years of Doi Moi, Viet Nam’s economy has maintained an average GDP growth rate of 6.6%, featuring among the world’s Top 50 economies According to World Bank, Vietnam has em

FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

-*** -MID-TERM ASSIGNMENT

Major: International Trade Policy

ANALYSIS OF VIETNAM’S COMPETITIVE

ADVANTAGE

Class: K57CLC3 Student name: Nguyễn Thị Dịu Hiền

1801015291 Lecturer: Dr Trần Quốc Trung

Ho Chi Minh City, April 2020

Chapter 1: INTRODUCTION 3

Chapter 2: Analysis of Vietnam’s competitive advantage 4

2.1 Factor conditions: 4

2.1.1 Basic endowments: 4

2.1.2 Advanced endowments: 5

2.2 Demand conditions: 6

2.2.1 Vietnam’s market size: 6

2.2.2 Demand sophistication: 8

2.3 Firm Strategy, Structure and Rivalry: 8

2.3.1 Firm strategy and structure by type of company: 8

2.3.2 Rivalry: 10

2.4 Related and supporting industries: 11

2.5 Chances for enterprises in Vietnam: 12

2.5.1 Opportunities in US-China trade war: 12

2.5.2 COVID 19 pandemic as an opportunity: 13

2.6 Role of the Government: 13

Chapter 3: CONCLUSION 14

REFERENCE 14

Chapter 1: INTRODUCTION

In the context of the increasingly globalized world, free trade is promoted and trade barriers are being eliminated Therefore, the competitiveness of nations becomes more important to the development of that country However, international trade has both sides

of effect On the bright side, it allows countries to specialize in the advantaged segments and industries, which supports raising national productivity On the other hand, it puts every nation in a global competition, if one cannot satisfy the high demand of the international market or adapt to the everchanging economic development, then the standard of living in that nation is at risk Therefore, globalization is seen as an opportunity and also a challenge for nations, especially developing countries to innovate and compete against each other This paper will analyze the situation from one of the most dynamic emerging markets in Southeast Asia - Vietnam

Throughout 30 years of Doi Moi, Viet Nam’s economy has maintained an average GDP growth rate of 6.6%, featuring among the world’s Top 50 economies (According to World Bank), Vietnam has emerged as a modernized and dynamic economic environment

in Asia, actively participates in international trade, accelerating the competitive and export-oriented industries The question is what is Vietnam’s competitive advantage in order to compete with other developing countries in the region and how can we exploit the advantages for business growth To tackle this problem, this paper applies Porter’s Diamond model with six attributions: Factor conditions; Demand Conditions; Related and Supporting Industries; Firm Strategy, Structure, and Rivalry

Chapter 2: Analysis of Vietnam’s competitive advantage

2.1 Factor conditions:

2.1.1 Basic endowments:

Geographic location: Vietnam has a strategic location in central Asia with a long

coastline and bordered with the main manufacture of the world - China However, the location exposes to natural disasters

Vietnam lies in the centre of Asia with a long coastline offer a major advantage for economic development The total area of Vietnam is over 330,900 square kilometers, bordered by China to the north, Laos, and Cambodia to the west Its coastline stretches 3,260 kilometers from East to South With this character of geography, Vietnam has the potential to develop agriculture, tourism, and seaport In Southeast Asia, Vietnam is the center of Indochina, lies between China and other ASEAN countries Base on geography, Vietnam has a clear benefit in promoting bilateral and multilateral cooperation in the Mekong Delta region and ASEAN countries

However, the coastal areas expose Vietnam to natural disasters According to an expert in Climate Conference in Copenhagen (2009), Vietnam is in the top five countries that is most affected by global climate change The impact of natural disaster will halt the socio-economic development and challenge the capacity to cope with climate change

Natural resources: Vietnam has rich natural resources, however, the irresponsible and

illegal exploitation imposes a serious risk for future development

Vietnam is endowed with natural plenty of natural assets Over 75 percent of Vietnam’s

33 million hectares of the geographic area is agricultural land The country also possesses plentiful water resources and a dense river network, offering opportunities to develop waterway traffic, hydropower and agriculture Large mineral reserves in Vietnam include: coal; oil and gas; bauxite; and uranium Vietnam has over six billion tons of coal reserves, mainly in Quang Ninh, Tai Nguyen Oil and gas reserves are estimated to be at three to four billion barrels and 50 – 70 billion cubic meters respectively, mainly in the sediments

of deltas and continental shelf Bauxite reserves are projected to be about 6 billion tons and could be over 8 billion tons while uranium reserves are estimated at about 200 – 300 thousand tons - According to the Ministry of Natural resources and Environment

However, the wasteful exploitation of natural resources has pose threat to sustainable development The area of minerals and forest is rapidly declining Thus, the irresponsible way of exploiting causes destruction to the environment Therefore, it is a motivation for the country to innovate the technology in order to less depends on the natural resources

Populations: Vietnam can leverage the young population and abundant workforce.

However, the quality of labour is less competitive comparing to other countries in the region

The population size of Vietnam recognized in 2018 is 95,5 millions - third largest population in ASEAN (According to World Bank data on population) Vietnam is in the period of golden age structure with 52% of people working age Therefore, Vietnam should focus on meeting the demand of high-skilled industries, including vocational and technical training

2.1.2 Advanced endowments:

Skilled labour:

According to the General Statistics Office, in the second quarter of 2019, the trained labor force with diplomas and certificates accounted for 22.37%, workers with university or higher degrees accounting for 10.82%, college accounting for 3.82%; intermediate accounting for 4.65% and primary accounting for 3.08% of the total labor force Although the skilled labours have increased gradually, the number of trained workers is only one third of South Korea, Taiwan, and Singapore, while in many countries, the percentage of trained workers has reached over 50% This figure is not commensurate with the number

of ASEAN's third largest population in Vietnam, just after Indonesia and the Philippines

Therefore, the main focus of education in Vietnam now should focus on improving the technical skills of labour for higher productivity The workforce also needs an innovating mindset and digital vision to adapt to the dynamic digital market in ASEAN countries

Infrastructure:

According to WEF Global Competitiveness Report 2019, Vietnam ranked 77th on overall physical infrastructure Water, energy, transport and digital infrastructure are key sectors that are priorities of Vietnam

Regards transport and connectivity, in recent years, the Government has investments in the NorthSouth highway system, the ongoing operated Ho Chi Minh City Long Thanh -Dau Giay is an important project helping the freight transport, other highways is under construction such as Quang Tri - Da Nang and North - South Highway; with railway, across the countries, there are 29 projects is in pipeline, the Metro train line from Suoi Tien - Ben Thanh is in finishing period; in airport infrastructure, Long Thanh International airport is expected to finished by 2025 The significant projects in transport sector will solve the dense traffic in urban areas, shorten the transportation time of freight and have a critical meaning for the success of tourism industry

In terms of utility infrastructure, sustain availability of clean water, is a concern in the Mekong Basin, insufficient of water supply hinders the development of areas in the Mekong Delta The rapid growth and urbanization is opportunities to the economy, however, Vietnam has to ensure the utility infrastructure to keep pace with it

2.2 Demand conditions:

In the context of globalization, the role of the domestic market seems less important, however, according to Porter’s model, domestic consumers can affect to the way producers perceive, interpret and respond to the buyer’s needs Therefore, characteristics

of home demand is critical to the export-oriented industries

2.2.1 Vietnam’s market size:

In this paper, the GDP per capita and the retail sector are applied to reflect the market size of Vietnam

Figure 1 - GDP per capita of Vietnam, Cambodia, Thailand, Malaysia

Sources: World Bank index

According to the graph, GDP per capita of Vietnam in 2018 is 2.566,60 USD, although this number is much lower than other countries in Southeast Asia like Thailand and Malaysia, Vietnam’s indicator is showing stable growth of the income The number reflects the growing in middle class, which is an opportunity for market expansion

Figure 2 - Retail revenue and growth rate in Vietnam (2013 - 2020)

Sources: General Statistics Office data

Since 2013, retail sectors witness steady and fast growth in revenue In 2018, Retail sales in 2018, the highest ever recorded, total retail revenue is expected to reach USD 180 billion by 2020, which would represent an increase of 26.6% from 2018 With the inflow

of investments into the sector, it is expected further growth in the near future With the rapid growth, Vietnam is one of the most dynamic markets for retailing in Asia

2.2.2 Demand sophistication:

As the market size of Vietnam is growing rapidly, there are more players entering, including both domestic and foreign firms Therefore, consumers now have plenty of choices with better orientation The upshot of these trends is that competition for local markets is likely to become more challenging, as Vietnamese producers are facing foreign firms in an increasingly open market Meeting that challenge therefore calls for constant innovation to maintain or gain market share

2.3 Firm Strategy, Structure and Rivalry:

2.3.1 Firm strategy and structure by type of company:

National context create the tendencies in how company is organized, created and managed For example, Italy successful company in Italy is small and medium company which are privately owned By contrast, successful companies in Germany is strictly hierarchical managed It also applies for the type of companies in Vietnam

Private owned companies:

Non-state companies in Vietnam mainly focus on short-term and service-oriented such as retail, hospitalities, restaurants, etc The strategy of non-state enterprise mostly produces standardized, labor-intensive, low-middle quality products The footwear industry can best exemplify these characteristics of Vietnam’s private companies In the footwear industry, the latter tend to be located either at the beginning of the value chain (pre-production activities such as R&D, design, core inputs) or at its end (post-production activities such

as marketing, advertising, logistics and sales) These tasks

tend to be more knowledge-intensive and are therefore generally conducted in high-income countries such as Italy, UK, and Germany The lower value-added tasks, in contrast, tend to be concentrated on downstream assembly activities and tend to be outsourcing for countries with abundant labor but with low skills as Vietnam

This strategy of manufacturing footwear has demonstrated the inefficiency in the footwear industry with solely assembly and export products The position in the top three footwear exporters is not adequate for the value-added that Vietnamese manufacturers have captured On the upshot, the inefficiency also poses an opportunity for Vietnam’s enterprise to develop its own brand name, sales and marketing channel to have high value-added to our products An example of a successful brand of footwear in Vietnam is Bitis,

by having an innovative marketing campaign - influencer marketing, and trending design, Bitis has succeeded in positioning its brand in the domestic footwear market

Therefore, we can conclude that despite the competitive advantage that we inherited in factor endowments, the economy could still be inefficient if it only produces low

value-added goods In order to create comparative advantage, the only way is to upgrading technology and skills of the current workforce

State-owned company:

In Vietnam, state enterprises concentrate on capital-intensive activities such as transportation and utilities As SOEs cover most of critical sectors of the development, their purpose is to improve the socio-economy development and ensure national security

in energy and food The structure of SOEs is mainly hierarchical, however, SOEs have relatively weak governance and transparency, nepotism is common, higher positions are appointed by the relationship not by adequate qualifications Because of the misallocation and inefficient system of SOEs, the Vietnamese government has a plan to restructure its economy through privatizing SOEs by equitizing and divesting state capital in more than

400 enterprises by 2020 This will open many opportunities for private investors, especially FDI attractions For example, as large agriculture and forestry corporations are beginning their divestment projects, investors may consider investing in these sectors considering Vietnam’s comparative advantage in this industry in terms of market scale and growth, low labor cost, and stable political environment Regards transport and utility infrastructure, increasing funds will contribute to major projects such as airport, highway, solar energy plants, and ensure clean water supply for urbanization

2.3.2 Rivalry:

The presence of strong local rivals is a final and powerful stimulus to the persistence of the competitive advantage of a nation One of the most dynamic and rapid growth in Vietnam’s market is retail sector Vietnam's retail market in 2018 was relatively active with many mergers and acquisitions as well as strong growth in the size of domestic and foreign enterprises The most prominent feature of the retail market is competition It

is the competition between traditional and modern channels, competition between domestic and foreign businesses, competition between direct sales and online sales The intense competition creates pressures for every company to keep upgrading the