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Vietnam needs to chart clear path at crossroads of global value chains

Hung Le
Monday,  Sep 11,2017,19:39 (GMT+7)
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Vietnam needs to chart clear path at crossroads of global value chains

Hung Le

Experts discuss Vietnam’s participation in GVCs at the conference last Friday - PHOTO: HUNG LE

HCMC - Vietnam should chart a clear path for development as the country is now at a confusing crossroads: either continuing its low value-added assembly functions to grow as an export platform for the global value chains (GVCs), or leverage the current wave of growth to move up the chain, experts said at a conference last Friday.

A representative of the World Bank noted at the conference that Vietnamese enterprises have largely been marginalized in the process of international integration, as manifested in their scant presence in the global value chains.

The point was stressed at the conference “Vietnam at a Crossroads: Engaging in the Next Generation of Global Value Chains and Enhancing Enterprise Competiveness and Small and Medium Enterprise Linkages”. The conference was jointly organized by Vietnam’s Ministry of Industry and Trade and the World Bank (WB) in HCMC.

The WB in its report noted that Vietnam’s participation in GVCs through foreign-invested businesses has brought in significant export growth and economic development. However, the connectivity between foreign direct investment (FDI) and domestic private sectors is weak.

Most domestic companies specialize in low-value and labor intensive assembly that has insignificantly contributed to the country’s gross domestic product (GDP).

Vietnam has indeed been successful in attracting FDI and FDI flows are welcome as they create additional employment opportunities for Vietnam’s young and growing population. However, linkages between foreign and domestic companies are lacking, suggesting that domestic companies are unable to compete in the current business environment and cannot provide inputs whose quality and quantity meet demands of multinational companies.

This is also shown in the Global Competitiveness Index, in which Vietnam ranked 109th out of 138 nations while Malaysia, the Philippines and Thailand ranked 22nd, 74th and 77th respectively.

According to Charles Kunanka, WB’s senior trade specialist, most large manufacturers in Vietnam like Samsung, Ford and Toyota place high value-added functions in foreign countries while their Vietnamese partners only engage in simple assembly and provision of low value-added components.

To benefit more from GVCs and capture higher value-added functions, the global lender suggested Vietnam’s policymakers view the processes of development differently and take new realities of the global economy into fuller account.

Targeted actions should prioritize low-productivity growth, inadequate skills, slow pace of technology transfer and adoption, few backward linkages to domestic suppliers and infrastructure gaps, said Ousmane Dione, WB’s country director for Vietnam.

If Vietnam is successful in moving higher in GVCs, the country will be able to attract more foreign investments and facilitate domestic firms’ engagement into GVCs.

Over the past 15 years, Vietnam has offered numerous incentives, including financial support, to domestic  small and medium enterprises to help them speed up technology innovation, expand business and improve human resource training quality.

However, Phan Duc Hieu, vice president of the Central Institute for Economic Management, said it is hard for the country to choose a clear path for growth, either as an export platform for GVCs or leverage the current wave of growth. Either of these options requires timely and thorough policy reform as well as domestic enterprises’ determination and activeness.

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