Vietnamese Business Community in Integration Process: Opportunities and Challenges

According to survey results, most businesses were optimistic about the impacts of integration process on business operations and economic activities. Up to 63 percent of respondents believed that integration provided the opportunity for enterprises to develop and expand business operations; 61 percent said integration helped enterprises to find and expand markets. Specifically, 41 percent believed in the ability of attracting to foreign investors. After joining the WTO, 94 percent of respondents found that integration has generated positive effects on the economy. In general, integration has produced positive effects on both macroeconomic and microeconomic levels and those signs are getting clearer.

 

In fact, after Vietnam joined the WTO - the world’s largest trade club, 80 percent of respondents said revenues increased from 2007 to 2010 and only 9 percent said their revenues remained unchanged in the wake of integration. This result showed international economic integration is a screening process. Enterprises will be ousted by the market if they do not know how to seize opportunities arising from the integration process. The increase in investment capital was the first reason cited for the rise in revenues and development of enterprises. According to statistics, 54 percent of respondents had the opportunity to expand their investment activities while 40 percent admitted that their investment flows were stable at the back of integration. With respect to access to new sources of capital, nearly 40 percent of respondents said integration offered a great opportunity to access new capital sources. The second reason was the export growth. Of 3,550 enterprises surveyed, 1,996 are involved in exporting activities. Up to 66 percent of respondents have export turnovers increased exports since Vietnam joined the WTO and 576 respondents said their export revenues were very stable.

 

Le Van Loi, Director of the Institute of Information Technology for Business (ITB) under the VCCI, said: The very positive survey results reflected the true state of Vietnamese enterprises in the process of international economic integration. Deeper and broader international integration also offered lower tax rates for Vietnamese enterprises and provided access to new supplies. Obviously, the profit margin of Vietnamese enterprises increased on more outputs and less input costs. These were the biggest benefits for Vietnamese businesses.

 

Since Vietnam became the 150th WTO member, most enterprises have increased their workforces and expanded business operations. With a country with young population and abundant labour force like Vietnam, this is a good chance to create jobs and reduce unemployment rate. The business expansion also showed that enterprises had seized opportunities of international integration to benefit their business operations.

 

The survey results indicated that integration has positive impacts on corporate performance. However, integration is not a magic wand that can change everything completely on the bright side. Reward only comes to companies catching their opportunities and utilising their advantages. In reality, inadaptable companies will face adverse impacts and elimination from the market. Not a few of 3,550 respondents said that integration had not brought in opportunities but even dented their earnings. According to the VCCI report, 26 percent of respondents viewed the shortage of market information as the biggest difficult. To sell goods, enterprises essentially know the market demand, consumer tastes, competitors and market prospects. However, most respondents said they had not found out channels that could provide enough, timely information they needed as mentioned above. Without output markets, their efforts for better products, cost reduction will not make sense.

 

The second major barrier against Vietnamese enterprises is the accessibility to capital and technology. Since 2007, base interest rates are higher than GDP growth. This leads to high lending rates in Vietnam, which are much higher than in regional countries, and pushes up production costs. In addition, to access mainstream capital sources like banks and investment funds, borrowers must have collaterals or security assets. This really is a big challenge for Vietnamese enterprises because not all of them have handy assets for collateral, especially when most of Vietnamese enterprises have small and medium scales.

 

Besides, two vehicles that help businesses to save time and administrative costs are e-commerce and information technology are not properly invested by Vietnamese businesses; thus, they usually miss opportunities generated from the process of integration. But, the biggest barrier is very high inflation. Indeed, after Vietnam joined the WTO, inflation is usually at a two-digit growth and is higher than GDP growth. This is a heavy pressure for enterprises, especially exporters, because selling prices are usually unchanged after contracts have been signed but input prices are escalating as a result of excessive inflation.

 

Besides, changes in monetary and exchange rate policies pose a tremendous difficulty for Vietnamese enterprises in the international integration process. From 2007 till now, the State Bank of Vietnam (SBV) revised foreign exchange rates at least seven times. What’s more, the competition of international competitors is very strong while Vietnamese companies do not do banding and designing very well. Remarkably, some major export markets of Vietnam started to apply new stricter standards like the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) in the EU, or Lacey Act on timber exports in the United States. These are very daunting challenges for Vietnamese enterprises.