“Asean Community - Opportunities and Challenges, Solidarity and Cooperation”

Vietnam officially became the 7^th member of ASEAN in 1995, joined the ASEAN Free Trade Area (AFTA) in 1996. Over the past 20 years on the path of integration, Vietnam has made great contributions to the region in such fields as politics, economics, culture, society and international relations.

 

As one of the fastest growing regions in the world, the GDP of ASEAN went up from 3.18 percent in 2013 to 3.33 percent one year later. The economic scale of ASEAN is now estimated at 15 percent of the GDP of the US, while just 10 years ago the number was only 7 percent. The purpose of AEC 2015 is to build an ASEAN with 4 features.

1.2.1. Unique market and common manufacturing unit, built via free movement of goods and services, non-border investment; free capital circulation, and shipment of skilled workers.

1.2.2. Competitive economic zone, built via frameworks of policies on competitiveness, customer protection, intellectual property rights, infrastructure development, taxes and e-trading.

 

1.2.3. Stability of economic development, realized via development plans of small and medium-sized enterprises (SME) and the implementation of integration initiative in order to narrow the development gap in ASEAN;

1.2.4. Integration into the world economy, realized via strict consultation in partnership negotiations and in the process of participation in the world supply network in the framework of WTO.

 

In the first aspect, there were some remarkable achievements in the realization of a unique market and common manufacturing unit, the most notable of which was tax reduction. After the establishment of the ASEAN Free Trade Area (AFTA), the preferential tax in ASEAN-6 (Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand) has been reduced almost to zero. Consequently, more than 70 percent of trade transactions in ASEAN were exempted from tax. About 5 percent of ASEAN’s trade transactions were imposed a tax rate of over 10 percent tax. With that low tax rate, the priority recently is given to removing non-tariff barriers in ASEAN.

 

Other achievements gained through the encouragement of trade and investment liberalization, such as National Single Window mechanism - a Single Window policy to enhance customs clearance speed - are being realized in ASEAN-6. Almost all these economies now obey international laws on investment liberalization. However, 4 new members of ASEAN, namely Cambodia, Laos, Myanmar and Vietnam, still slowly adapt themselves to new changes.

 

Service Commerce is a field that is less liberalized, partly because it’s still in the infant period in comparison to commodity trading, and hard to be predicted. Agreements are set up to reach consensus among concerned parties so that they accepted each other’s certificates and qualifications. These services need to be expanded and conducted in order to improve the shipment of skilled labour.

 

For the second aspect of high competitive economic zone, competitive policies need to be adjusted to protect intellectual property rights. Getting the standards harmonized and united could bring great interests for the development of the ASEAN market.

 

The third aspect focuses on sustainable economic development. This requires effective measures to erase income difference and narrow the development gap among ASEAN member countries, as well as ASEAN enterprises. The progress should come from new members through restructuring process to foster trade and investment, apart from waiting for the possible impacts of integration.

 

The fourth aspect is reflected in global economic integration, through which remarkable progress is revealed by realizing ASEAN’s integration into the world. The region’s long term commitment towards ASEAN plus’ plans has been one of prominent features that should be highlighted in order to maintain and promote movements in South East Asia.

 

Opportunities and challenges in the 4 above aspects of AEC have been capturing greater concerns of private sector and the whole community. AEC could be oriented by governments, however this could not be successful without the active participation of enterprises and the public in general.

 

Recently, ASEAN has become the second largest goods supplier of Vietnam, just behind China. ASEAN is also the 3^rd biggest importer of Vietnam, after the US and EU.

Statistics by the Customs General Department show that in the first 9 months of 2014, Vietnam’s total import-export turnover from ASEAN market reached US$30.63 billion, representing an increase of 4.1 percent compared to the previous year’s same period. The figure marked the lowest development speed so far.

 

Vietnamese enterprises earned US$13.64 billion from exports to ASEAN market, increasing slightly by 0.3 percent and accounting for 12.4 percent of Vietnam’s total export turnover. Key Vietnamese export items in the first 9 months of 2014 included crude oil, steel, machines, equipment, spare parts, rice, garment and sea food. Some items seeing decline in revenue were computers and electronic products and components, telephones and spare parts, oil and gas, transportation vehicles and spare parts.

In return, Vietnamese enterprises imported commodities worth US$16.99 billion from ASEAN, increasing 7.4 percent and accounting for 15.8 percent of Vietnam’s total import turnover from global market. Key import items included oil and gas, timber products, machines, equipment and spare parts, plastics, vegetable, raw material, telephones and components. However, there were some items with strong decline in value such as crude oil, fertilizer, cattle-feed and fresh food, milk and dairy products.

ASEAN’s FDI projects were found in 55/63 provinces and cities in Vietnam, with an average investment capital per project of US$21.3 million.

 

By September 2014, ASEAN investors were involved in 2,431 valid projects, with total registered capital of US$51.83 billion, accounting for more than 21.4 percent of Vietnam’s combined foreign investment capital from all countries around the world. On average, each ASEAN project was fuelled with US$21.3 million, or US$14.45 million more than the figure of a project funded by other countries. ASEAN projects focused on 18/21 economic sectors of Vietnam.

 

ASEAN investors got involved in projects in 55/63 provinces and cities of Vietnam, mostly operating in big cities with good infrastructure. Ho Chi Minh City took the lead with 1,036 projects worth US$13.2 billion in total (accounting for 42.6 percent of the number of projects and 25.46 percent of investment capital). Ha Noi ranked second with 391 projects, with total registered capital of US$8.53 billion (accounting for 16 percent of the number of projects and 16.47 percent of registered capital). Third position was secured by Ba Ria – Vung Tau province with 66 projects, totally worth US$6.16 billion (making up 2.7 percent of project number and 11.89 percent of combined investment capital).

 

Singapore was the biggest ASEAN investor in Vietnam with 1,312 projects, with total registered investment of US$31 billion (accounting for 53.9 percent of project number and 59.87 percent of combined investment capital). Malaysia ranked second with 473 projects worth US$11.83 billion in total (making up 19.4 percent of project number and 22.8 percent of total registered capital). Thailand was placed third with 365 projects totally worth US$6.63 billion (accounting for 15.01 percent of project number and 12.8 percent of combined investment capital). Other investors were Brunei, Indonesia, the Philippines, Laos and Cambodia.

 

By August 2014, Vietnamese investors had poured money in 515 projects in nine ASEAN member countries, with total registered capital of US$9.67 billion. On average, each ASEAN project attracted US$18.77 million from Vietnamese investors.

 

Laos took the lead in attracting Vietnamese investors, who injected capital in 248 projects with total registered investment of US$4.73 billion, accounting for 48.15 percent of project number and 48.97 percent of total registered investment). Cambodia ranked second with 161 projects worth US$3.45 billion in total (making up 31.26 percent of project number of 35.6 percent of total registered investment). Third place was secured by Malaysia with 10 projects worth US$754.68 million (accounting for 1.9 percent of project number and 7.8 percent of total registered investment capital.

 

Since Vietnam began its renewal process, the country’s business community has constantly developed in both scope and scale. The number of enterprises has increased from more than 4,000 in 1992 to 401,000 by the end of 2014. In addition, in the 2002 – 2011 period, especially after Vietnam joined the World Trade Organization (WTO) in 2007, the country has witnessed strong economic growth that reflected in business operation. The number of employed workers has increased five times in the reviewed period, with annual growth rate of employment rising by 10 percent per annum. The investment capital of Vietnamese enterprises has gone up more than 10 times, or 30 percent each year. The total revenue of Vietnamese enterprises has increased by almost 9 times.

 

Recent research shows that the impact of international integration process, five years after Vietnam’s WTO admission and the establishment of ASEAN Free Trade Area (AFTA) on the development of Vietnam’s business community conducted by VCCI in 2012, has created good conditions to stimulate labour productivity and business operation. International economic integration has generated numerous opportunities for local exporters by expanding market and promoting trade liberalization. Therefore, Vietnam’s export market has been increasingly expanded, while export price of many kinds of goods has risen remarkably. Apart from an increase in export volume, there’s also an increase in export value, thus making positive changes to Vietnam’s export structure towards a higher proportion of processed goods and a lower proportion of raw material exports.

 

However, Vietnam’s competition capacity is still at a low level and on an unsustainable basis. Most local businesses are small and medium size with limited capacity in terms of technology and investment capital. Local enterprises do not have many famous brand names. They mostly focus on outsourcing and depend heavily on imported input materials. Moreover, Vietnam’s human resources have not yet met requirements as the number of skilled workers is still low.

 

Regarding AEC 2015, most Vietnamese enterprises have not been fully aware of challenges posed by AEC. At present, they have not taken the necessary preparations to make use of opportunities offered by AEC. Many local businesses are optimistic about the movement of labour and the removal of trade barrier. They are expected to welcome more investment inflow to sharpen their competitive edge, especially in the fields of education and training.

 

Nevertheless, it is undeniable that Vietnamese enterprises have not made adequate preparation to compete against foreign rivals in the region, particularly in the labour market. Only more than 40 percent of them get full awareness of AEC’s impact on their business operation, while in other ASEAN member countries, the rate is much higher.

 

Lacking full awareness, many Vietnamese businesses, especially SMEs, may face difficulties in taking the advantages of AEC, such as preferential tariffs, simple customs procedures, mutual-recognition of some prioritized sectors in ASEAN...). Most local enterprises consider AEC as a good chance to access markets and increase export revenue, which are quite limited in AEC. AEC aims to create a united processing venue and consumption market for long-term benefits of all businesses in ASEAN. During this process, they are willing to cooperate and ready to compete to survive.

 

VCCI is taking part in the ASEAN Business Consultation Council (ASEAN BAC) following the Government’s assignment. ASEAN BAC functions as a bridge officially linking Vietnam’s business community to ASEAN bloc, thus setting up a dialogue mechanism and providing recommendations for the governments of Vietnam and other ASEAN member countries. In ASEAN BAC, Vietnam already took its turn in the role as chairman in 2010.

 

Since 2007, ASEAN BAC in coordination with ASEAN member countries organised ASEAN Business Summit (ASEAN-BIS) annually on the sidelines of the ASEAN Summit. ASEAN-BIS creates a regional forum to promote public-private partnership and work out practical measures and put forth ASEAN initiatives. In 2010, in the role of chairman of ASEAN BAC, Vietnam successfully held ASEAN BIS 2010, aimed at strengthening business and investment cooperation among ASEAN member countries, as well as ASEAN’s partners, namely Australia, China, Japan, the Republic of Korea, India and Russia.

In the framework of the ASEAN Business and Investment Summit, ASEAN BAC held a ceremony to present ASEAN Business Awards to outstanding enterprises in recognition of their contributions to the region’s development and prosperity. As regional awards, ABA attracted the registration of many ASEAN businesses, including those from Vietnam. Over the past years, Vietnamese enterprises have registered in the hope of winning this prestigious award. However, few local businesses were granted the award due to their disadvantages in comparison to businesses from such countries as Singapore, Thailand and Malaysia.

In addition, ASEAN BAC also cooperated with leading universities and research institutes in the region to conduct research and surveys to evaluate the competition capacity of ASEAN’s businesses. These surveys were conducted in 2010, 2011-2012, 2013 and 2014 to collect opinions from the ASEAN business community on competition capacity and economic cooperation in ASEAN. They successfully reflected expectations of regional enterprises towards a more competitive business environment in ASEAN, as well as more appropriate policies and initiatives in order to boost regional economic integration. The results of these surveys were reported to ASEAN state leaders and ASEAN ministers in charge of economic affairs, and presented at annual ASEAN dialogue with ASEAN BAC.

 

VCCI also took part in the national steering committee on ASEAN one-stop shop policy and one-stop shop customs mechanism in the regional bloc which was already technically connected between Vietnam and other four ASEA member countries namely Singapore, Indonesia, Malaysia and Thailand in September 2015. These countries were expected to officially launch information exchange by the end of 2015. VCCI is also connecting itself to ASEAN National one-stop shop mechanism – one-stop shop policy to coordinate with customs agencies to create the best possible conditions for regional businesses, thus facilitating import-export activities. Once all 10 ASEAN member countries are connected in the ASEAN One-way mechanism, the region will become a common venue for regional trade transactions in the easiest and most convenient manner.

 

In March 2015, the 1^st ASEAN Businesswomen Forum took place in Hanoi under the chairmanship of Vietnam’s Women Entrepreneurs Council (VWEC). VCCI acted as chairman of the ASEAN Women Entrepreneurship Network (AWEN 2014-2016). This was the first of its kind for regional female entrepreneurs, and the first jointly-held event by AWEN, aimed at boosting the establishment of the ASEAN Economic Community by the end of 2015, as well as providing businesswomen with information on both opportunities and challenges so that they can timely seize new opportunities and overcome challenges ahead. This was also a good chance to honour outstanding ASEAN businesswomen who obtained great achievements and made considerable contributions to socio-economic development in their nation and the region as a whole.

 

Besides, since 2005, VCCI has also cooperated with partners from Singapore to organize the Vietnam – Singapore Business Forum. The forum created a firm foundation for Vietnamese and Singaporean businesses to get updated information on policies and cooperation opportunities, thus deepening bilateral, relations in various fields. In particular, the two countries agreed to lift their relationship to new height – strategic partnership in 2013. This has captured great attention from both countries’ businesses, as well as local authorities who vowed to ensure legitimate rights and benefits of Vietnamese and Singaporean enterprises and improve business climate in favour of foreign investors.

 

To promptly grasp new opportunities and cope with challenges and risks that may appear when AEC takes shape at the end of 2015, Vietnamese should pay due attention to following issues:

 

4.1 Building positive integration ideology: Broadening knowledge and being fully aware of integration process and considering economic integration programmes as economic commitments that include cooperation and competition at the same time. Businesses should regard ASEAN as an important market like the US and EU, because the ASEAN market helps businesses reduce costs and operate in an environment with great potential. Businesses should consider ASEAN and their home playing field and sharpen their competitiveness to survive in both regional and global markets. Businesses should also get better understanding about ASEAN market and ASEAN’s incentive policies so that they can draw up appropriate development strategy, facilitate exports and increase investment in ASEAN.

 

4.2 Improving and upholding core values of businesses to increase competitiveness: A business must be considered a chain of added value created by direct business operation and support activities. Business operation and production activities include making products, marketing, selling goods, delivering services and customer care. Support activities include personnel training, upgrading infrastructure, increasing leadership capacity, and broadening knowledge about law, culture and information technology (IT), aimed at creating added value and reducing production cost. Businesses’ capacity is a chain of added value of these activities. Core value of businesses is reflected through their capacity. Creating difference in core value can ensure competitive advantages for businesses to compete against their rivals and earn profit. To find out the difference, businesses must build a set of tools to analyse competitive components such as SWOT, competitors and market.

 

4.3 Strengthening linkage for further development: Current business trend looks towards service chains and sectoral linkage. Hence, businesses, especially those operating in banking industry and sectoral associations, should learn from each other about competition strategy and take part in value chain, consolidate their internal strength based on competitive advantages. When AEC is established, Vietnam is forecast to become an attractive destination for foreign investors who are eager to penetrate and take a firm foothold in the domestic market. To compete against foreign rivals, Vietnamese businesses (mostly SMEs) should build up linkage to create community strength. They should also increase dialogue exchange with government agencies and associations to get updated information on policies and voice their concern over difficulties and challenges to timely remove obstacles and adapt themselves to the reality. Moreover, local businesses should cooperate with partners from ASEAN member countries in product value chain to make use of common advantages in the regional bloc and sharpen competitive edge against expanded ASEAN partners.

 

4.4 The role of the government and consumers: In addition to improving the quality of negotiation and market expansion, the government and functional agencies should launch programmes and support activities to popularize knowledge for business community about AEC. It is essential to renew institution and build consistent legal framework in an open, transparent manner towards a more convenient business environment for investors. It is necessary to build a roadmap for development strategy and draw up zoning plans for key goods and spearhead sectors so as to make use of all advantages in terms of geographical position and human resources. Furthermore, it is also important to have development policies to protect the rights of businesses and prevent financial risks, particularly for SMEs, while developing domestic market and keeping an eye on ASEAN region.