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| Vietnamese enterprises can both learn and work to stand firm and compete in the market. (Illustration photo - Source: CT) |
Seize the opportunity
US President Joe Biden's visit to Vietnam on September 10-11 marked a new development in the relationship between the two countries. Vietnam's economy is likely to benefit from projects of US businesses and global corporations, especially in the fields of technology and traditional exports such as garments, seafood, electronic components, etc. However, the current structure of Vietnam's economy depends heavily on foreign-invested enterprises (FDI), of which the export proportion of the FDI sector in 2021 reached 76.3%.
Tires are one of Vietnam's key export products with an export turnover of more than 2.2 billion USD in 2022, up 22.7% compared to 2021, accounting for 52.5% of total rubber product export turnover. Vietnam has exported tires to more than 140 markets, of which the US is still the main market, accounting for nearly 60%. Vietnam ranks 3rd among countries supplying light truck tires to the US market. However, the leading tire manufacturers still lack Vietnamese companies, mainly FDI enterprises such as Sailun, Kenda, Bridgestone, Kumho and Yokohama.
The export proportion of Vietnamese enterprises in this field is quite modest. In 2022, Danang Rubber JSC exported a total of VND2,264 billion (USD92.8 million) to the American market. The total export revenue of Southern Rubber Industry JSC reached VND2,383 billion (USD97.7 million). Meanwhile, Sao Vang Rubber JSC had the most modest business results with domestic and export revenue reaching only VND915 billion (USD37.5 million).
In the context of Vietnam and the US having just upgraded their relationship to a Comprehensive Strategic Partnership, Vietnamese enterprises have more opportunities to export to the US market. To take advantage of these opportunities, the Vietnamese business community not only needs to prepare to meet the standards and legal regulations of the US market, but also needs to be more proactive in connecting and understanding the needs of US enterprises through agencies and organizations with the function of promoting bilateral economic relations such as the Vietnam Federation of Commerce and Industry (VCCI) and the US-ASEAN Business Council (US-ABC).
Meanwhile, Vietnam is considered by experts to be a potential market in the golden age of population. World Economics forecasts that by 2030, Vietnam's Gross Domestic Product (GDP) by purchasing power parity (PPP) will increase to 2,848 billion USD, an increase of 85.5% compared to 2022.
For Vietnam, GDP by PPP in 2022 is 1,535 billion USD, ranking 23rd in the world, larger than some economies such as Australia, the Netherlands, Belgium, Switzerland, Sweden, Ireland... In ASEAN alone, in 2022, Vietnam's GDP by PPP ranked 3rd, behind Indonesia (4,811 billion USD) and Thailand (1,835 billion USD). By 2030, it is estimated that Vietnam's ranking will increase from 23rd (2022) to 15th (2030), surpassing a series of economies such as Spain, Saudi Arabia, Canada, Egypt... and surpassing Thailand to become the 2nd largest economy in Southeast Asia.
The Ministry of Industry and Trade assessed that the Vietnamese retail industry currently has a market size of 142 billion USD, forecast to increase to 350 billion USD by 2025, contributing 59% of GDP. Many foreign corporations such as Central Retai (Thailand), Aeon (Japan), Lotte Mall (Korea) ... have entered Vietnam with a series of newly built supermarkets to anticipate the growth trend and the growth rate of people's spending in the coming time. In this field, Vietnamese enterprises have been able to compete fairly with foreign enterprises when Masan Group covers the market with more than 131 Winmart supermarkets and nearly 3,000 Winmart+ stores. However, many other potential areas in the domestic market are still left open.
With a population of over 95 million in 2020 and over 100 million in 2030, Vietnam will be a potential textile and garment consumer market for businesses. In addition, the increase in per capita income, along with the increase in the middle class, promises to increase spending on garments faster. Statistics show that spending on garments and footwear accounts for 3-4% of the total spending of a person in 1 month.
Improve capacity right at "home"
Although the market is not small in scale, currently, domestic enterprises have not yet mastered the domestic market, partly due to competition with imported goods or processed goods of unknown origin, and partly due to a lack of investment in market exploration. The total domestic and export revenue of the Vietnam Textile and Garment Group in 2022 only reached 17,612 billion (722 million USD) - a rather modest figure compared to the estimated scale of the domestic garment and footwear consumer market by the Ministry of Industry and Trade (about 7 billion USD).
In addition to the above problems, the Vietnamese textile industry also lacks linkages between stages, especially between spinning and weaving and garment making. Vietnam's textile industry has a trade surplus for yarn and garments, but a large deficit for fabrics. The yarn produced is not used domestically for weaving but mainly for export. Meanwhile, domestically produced fabrics only meet less than 50% of domestic demand, forcing Vietnam to import over 10 billion USD worth of fabrics of all kinds each year.
Vietnam's garment industry depends heavily on imported fabrics and designs, making it difficult for domestic products to compete with foreign fashion brands such as Uniqlo and Zara. The Ministry of Industry and Trade assessed that the supporting industry in the garment industry has not yet developed because it has not attracted the attention of domestic and foreign enterprises, leading to a shortage of domestic raw materials.
The fact that many Vietnamese enterprises compete in the domestic market not only helps diversify products to suit consumers, but also reduces the "foreign currency loss" and increases the competitiveness of enterprises in the international market. In the context that Vietnam has nearly 700 state-owned enterprises, contributing more than 29% of the country's GDP, the responsibility of investing in expanding production and business activities, upgrading production technology lines to complete the closed supply chain and increase the profit/product ratio tends to weigh heavily on the shoulders of these enterprises. Although private enterprises are more dynamic and have more effective management systems, they lack capital, government policy support and relationships in the market.
During the period 1999-2002, the flood of Chinese motorbikes in the Vietnamese market contributed to a significant drop in motorbike prices compared to the previous period. In the early days when Chinese motorbikes entered Vietnam, consumers noticed that their appearance was similar to Japanese motorbikes but the price was only half. At that time, the price of a 100ml Japanese motorbike was 2,100 USD, while the wholesale price of Lifan was only 700 USD and retailed for about 1,200 USD.
The strategy of price competition has caused difficulties for other foreign motorcycle manufacturers such as Honda (Japan), Yamaha (Japan), Piaggio (Italy), Suzuki and SYM (Taiwan-China). Most Chinese motorcycle manufacturers such as Loncin, Lifan, Zongshen… are joint venture brands with Japan. Although in the end, Chinese motorcycle manufacturers withdrew from the market because they could not compete in terms of product durability.
Because the Vietnamese market is relatively small compared to the Chinese market, it is difficult for Vietnam to apply China's policy of requiring FDI enterprises to form joint ventures with domestic enterprises and transfer technology. Although this policy has helped China maintain a GDP growth rate of approximately 9-10% per year for decades, it has limited the creativity of enterprises, leading to a gradual decline in their competitiveness over time. Vietnam can consider other development directions such as learning while doing... to be able to stand firm and compete in the market.
According to the results of the survey of consumers voting for high-quality Vietnamese goods in 2023 conducted by the Association of High-Quality Vietnamese Goods Enterprises, the Vietnamese consumer goods market is gradually developing in depth. The "home" market is a "fat piece of cake" that foreign enterprises crave. Therefore, Vietnamese enterprises need to make efforts to improve their competitiveness to maintain and dominate the domestic market.
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