Vietnam's Service Market Facing Domination of Multinational Corporations

The service sector is making the lowest contribution to the economy, however, one of the requirements for Vietnam’s accession to the World Trade Organisation (WTO) is to open up the service market. Therefore, local enterprises in this sector are facing a risk of being dominated by multinational corporations.

In its 2001-2010 socio-economic development strategy, Vietnam has set a target of a growth rate of between seven and eight per cent per year for the service sector. Also, Vietnam will strive to bring the sector’s contribution to its gross domestic product (GDP) to between 42 and 43 per cent by 2010 with its labour force accounting for between 26 and 27 per cent. In 2003, the service sector accounted for 38 per cent of GDP, much lower than the average level of 50 per cent in other low income-earning countries. This is even further lower than the average level of 68 per cent in the world. Vietnam always suffers a deficit in service trade. The proportion of foreign direct investment (FDI) in the sector has seen a gradual decline, from 48.8 per cent in the 1988-1996 period to 33.9 per cent in the 1997-2000 period. Since 2001, FDI in the sector has recovered in both value and proportion in comparison with those in 2000 but still accounted for 20.5 per cent of total registered investment capital. This figure is much lower than that in the previous period.

Vietnam and the EU have officially signed a bilateral agreement on Vietnam’s accession to WTO. Accordingly, Vietnam will open its markets of such services as follows: transportation, express delivery, construction, distribution, environment, tourism, telecommunication, and other business services from the EU. Apart from these eight markets services Vietnam has pledged to open a bilateral trade agreement, Vietnam will open markets for three other services, including transportation, environment and culture. Accession to the WTO will open up markets for Vietnamese enterprises, but competition will become fiercer with China already being a major competitor in most services.

Economic experts say that Vietnamese enterprises should think about the case in which they may lose all their markets and have to depend on foreign companies. Many services don’t yet exist in Vietnam. These include some trade services, including market studies, marketing and online accounting. Such services should be given favourable conditions to develop or they will become controlled by foreign companies after services markets are opened.

Monopolies remain in the Vietnamese economy, so prices of some services, including telecommunications and port use charges in Vietnam remain very high. Therefore, experts say that Vietnam should open these service markets to the private sector, gradually opening up for foreign enterprises to eliminate State-owned enterprises’ monopoly.

FDI flow in the world has tended to concentrated in the service sector. As a recipient of FDI, Vietnam has opportunities to attract foreign investment into the sector. The opening of the service market for foreign investors will help diversify products and improve the quality of the services, thus helping increase Vietnam's economic growth rate and creating more added value as well as improving the competitiveness of Vietnam’s goods. The growth and development of services will in turn help Vietnam become more attractive and competitive in attracting FDI.

• Ngoc Anh