Sunday, 24 Mar 2019

Vietnamese enterprises require higher capabilities to move up global value chain

Updated at Friday, 14 Sep 2018, 19:02
The Hanoitimes - Competitive advantage based on low labor cost will gradually be diminished in the coming year, stated Dinh Thi Quynh Van, CEO of PwC Vietnam.
Vietnamese enterprises have to focus on enhancing capabilities in terms of human resources, technology and corporate governance to move up the global value chain, according to Van as reported by the government portal.
Illustrative photo.
Illustrative photo.
Higher capabilities for sustainable development

Recent studies showed that Vietnam has been maintaining high growth rate compared to the region, for which the country can be considered a rising star of the ASEAN and the global economy, Van said at the Vietnam Business Summit 2018 in Hanoi on September 13.

However, Van warned that the competitive advantage of low labor cost will gradually be diminished in the coming year, mainly due to the presence of new technologies and a fast-changing international trading environment. 

Under the impact of the fourth industrial revolution, companies should consider transforming their business activities towards being smarter, more efficient and transparent. This should be how they become more resilient in the face of an uncertain economic outlook, Van added. 

Van pointed to the necessity for enterprises to have necessary technologies and qualified personnel to operate such technologies, as well as an appropriate corporate governance system.

As enterprises should take the role as pioneer, it is the government that should create necessary conditions for changes through new legal framework, skill training and digital infrastructure, she added. 

Enhancing regional cooperation through "soft" infrastructure

In a recent report, PwC analyzed a number of sectors that have huge potential for development, including financial services, consumer goods, infrastructure - transportation. 

Van believed by focusing on these sectors, Vietnam could enhance its status and capabilities in cooperating with countries in the region. 

In addition to the required transport infrastructures to facilitate cross-border connectivity such as railway, road, and seaport, the financial service sector will provide the "soft" infrastructure for higher level of trade and investment activities, Van explained. 

According to the report, ASEAN is now the third-largest consumer goods market globally, in terms of consumer expenditure's share of GDP at 26.3%, after the Middle East and Africa region and Eastern Europe. The leading consumer good markets in the region are the Philippines (42.1%) and Vietnam (37.5%). 

Vietnam's strong consumer confidence and rising household income levels have contributed to an overall increase in consumer spending. The median disposable income rose by 46% to an estimated US$3,822 per household in 2016, from US$2,613 in 2010. 

Meanwhile, total household spending is forecast to grow by 47% from US$122 billion in 2017 to US$179 billion in 2021. 

By using these advantages, consumer goods could contribute significantly to Vietnam's trade revenue with countries in the region, Van continued. 

Vietnam is projected to reach US$327 billion in GDP by 2022, recording growth of 6.2% annually between 2016 and 2022. While this is slightly lower than the average growth of 6.4% achieved over the last 20 years from 1997 to 2017, it is noticeably higher than projected growth for the ASEAN 5 group as a whole and Singapore.

Vietnam leads ASEAN in terms of growth of per capita spending by the middle 60% of the population from 2016 to 2021, with a compound annual growth rate (CAGR) of 10.1%. This growth rate puts it ahead of other major ASEAN markets such as Singapore and Malaysia.

Vietnam is expected to become the second largest labor market in ASEAN in 2018 with 55 million. 

However, in order to succeed, enterprises should understand Vietnam's business context, while identifying opportunities and challenges that go with growth, Van said. 

David Wijeratne, head of PwC's Growth Markets Center, said enterprises should have creative strategies to achieve success in face of challenges and high dynamism of ASEAN market. 

For example, enterprises should localize their supply chain, production and sale activities through the construction of regional center, aiming to serve ASEAN's consumers, Wijeratne said. 

The application of digital technology capabilities to enhance production quality, goods transportation and customers communication is also required, he concluded. 
Ngoc Mai
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