MID TERM ASSIGNMENT major international trade policy ANALYSIS OF VIETNAM’S COMPETITIVE ADVANTAGE

FOREIGN TRADE UNIVERSITY
HO CHI MINH CITY CAMPUS
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MID-TERM ASSIGNMENT
Major: International Trade Policy
ANALYSIS OF VIETNAM’S COMPETITIVE

ADVANTAGE
Class:

K57CLC3

Student name:

Nguyễn Thị Dịu Hiền
1801015291

Lecturer:

Dr. Trần Quốc Trung

Ho Chi Minh City, April 2020

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Chapter 1: INTRODUCTION............................................................................................
Chapter 2: Analysis of Vietnam’s competitive advantage..................................................

2.1.Factor conditions:.......................................................

2.1.1.Basic endowments

2.1.2.Advanced endowm

2.2.Demand conditions:....................................................
2.2.1.Vietnam’s market

2.2.2.Demand sophistica

2.3.Firm Strategy, Structure and Rivalry:.........................
2.3.1. Firm strategy and structure by type of company:..........................................

2.3.2.Rivalry:................

2.4.Related and supporting industries:.............................

2.5.Chances for enterprises in Vietnam:...........................
2.5.1 Opportunities in US-China trade war:.........................................................
2.5.2. COVID 19 pandemic as an opportunity:......................................................

2.6.Role of the Government:............................................
Chapter 3: CONCLUSION..............................................................................................
REFERENCE...................................................................................................................

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Chapter 1: INTRODUCTION
In the context of the increasingly globalized world, free trade is promoted and trade
barriers are being eliminated. Therefore, the competitiveness of nations becomes more
important to the development of that country. However, international trade has both sides
of effect. On the bright side, it allows countries to specialize in the advantaged segments
and industries, which supports raising national productivity. On the other hand, it puts
every nation in a global competition, if one cannot satisfy the high demand of the
international market or adapt to the everchanging economic development, then the
standard of living in that nation is at risk. Therefore, globalization is seen as an
opportunity and also a challenge for nations, especially developing countries to innovate
and compete against each other. This paper will analyze the situation from one of the most
dynamic emerging markets in Southeast Asia - Vietnam.
Throughout 30 years of Doi Moi, Viet Nam’s economy has maintained an average
GDP growth rate of 6.6%, featuring among the world’s Top 50 economies (According to
World Bank), Vietnam has emerged as a modernized and dynamic economic environment
in Asia, actively participates in international trade, accelerating the competitive and
export-oriented industries. The question is what is Vietnam’s competitive advantage in
order to compete with other developing countries in the region and how can we exploit the
advantages for business growth. To tackle this problem, this paper applies Porter’s
Diamond model with six attributions: Factor conditions; Demand Conditions; Related and
Supporting Industries; Firm Strategy, Structure, and Rivalry.

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Chapter 2: Analysis of Vietnam’s competitive advantage
2.1.

Factor conditions:

2.1.1. Basic endowments:
Geographic location: Vietnam has a strategic location in central Asia with a long
coastline and bordered with the main manufacture of the world - China. However, the
location exposes to natural disasters.
Vietnam lies in the centre of Asia with a long coastline offer a major advantage for
economic development. The total area of Vietnam is over 330,900 square kilometers,
bordered by China to the north, Laos, and Cambodia to the west. Its coastline stretches
3,260 kilometers from East to South. With this character of geography, Vietnam has the
potential to develop agriculture, tourism, and seaport. In Southeast Asia, Vietnam is the
center of Indochina, lies between China and other ASEAN countries. Base on geography,
Vietnam has a clear benefit in promoting bilateral and multilateral cooperation in the
Mekong Delta region and ASEAN countries.
However, the coastal areas expose Vietnam to natural disasters. According to an expert in
Climate Conference in Copenhagen (2009), Vietnam is in the top five countries that is
most affected by global climate change. The impact of natural disaster will halt the socioeconomic development and challenge the capacity to cope with climate change.
Natural resources: Vietnam has rich natural resources, however, the irresponsible and
illegal exploitation imposes a serious risk for future development.
Vietnam is endowed with natural plenty of natural assets. Over 75 percent of Vietnam’s 33
million hectares of the geographic area is agricultural land. The country also possesses
plentiful water resources and a dense river network, offering opportunities to develop
waterway traffic, hydropower and agriculture. Large mineral reserves in Vietnam include:
coal; oil and gas; bauxite; and uranium. Vietnam has over six billion tons of coal reserves,
mainly in Quang Ninh, Tai Nguyen. Oil and gas reserves are estimated to be at three to
four billion barrels and 50 – 70 billion cubic meters respectively, mainly in the sediments
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of deltas and continental shelf. Bauxite reserves are projected to be about 6 billion tons
and could be over 8 billion tons while uranium reserves are estimated at about 200 – 300
thousand tons - According to the Ministry of Natural resources and Environment.
However, the wasteful exploitation of natural resources has pose threat to sustainable
development. The area of minerals and forest is rapidly declining. Thus, the irresponsible
way of exploiting causes destruction to the environment. Therefore, it is a motivation for
the country to innovate the technology in order to less depends on the natural resources.
Populations: Vietnam can leverage the young population and abundant workforce.
However, the quality of labour is less competitive comparing to other countries in the
region.
The population size of Vietnam recognized in 2018 is 95,5 millions - third largest
population in ASEAN (According to World Bank data on population). Vietnam is in the
period of golden age structure with 52% of people working age. Therefore, Vietnam
should focus on meeting the demand of high-skilled industries, including vocational and
technical training.
2.1.2. Advanced endowments:
Skilled labour:
According to the General Statistics Office, in the second quarter of 2019, the trained labor
force with diplomas and certificates accounted for 22.37%, workers with university or
higher degrees accounting for 10.82%, college accounting for 3.82%; intermediate
accounting for 4.65% and primary accounting for 3.08% of the total labor force. Although
the skilled labours have increased gradually, the number of trained workers is only one
third of South Korea, Taiwan, and Singapore, while in many countries, the percentage of
trained workers has reached over 50%. This figure is not commensurate with the number
of ASEAN's third largest population in Vietnam, just after Indonesia and the Philippines.

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Therefore, the main focus of education in Vietnam now should focus on improving the
technical skills of labour for higher productivity. The workforce also needs an innovating
mindset and digital vision to adapt to the dynamic digital market in ASEAN countries.
Infrastructure:
According to WEF Global Competitiveness Report 2019, Vietnam ranked 77th on overall
physical infrastructure. Water, energy, transport and digital infrastructure are key sectors
that are priorities of Vietnam.
Regards transport and connectivity, in recent years, the Government has investments in the
North-South highway system, the ongoing operated Ho Chi Minh City - Long Thanh - Dau
Giay is an important project helping the freight transport, other highways is under
construction such as Quang Tri - Da Nang and North - South Highway; with railway,
across the countries, there are 29 projects is in pipeline, the Metro train line from Suoi
Tien - Ben Thanh is in finishing period; in airport infrastructure, Long Thanh International
airport is expected to finished by 2025. The significant projects in transport sector will
solve the dense traffic in urban areas, shorten the transportation time of freight and have a
critical meaning for the success of tourism industry.
In terms of utility infrastructure, sustain availability of clean water, is a concern in the
Mekong Basin, insufficient of water supply hinders the development of areas in the
Mekong Delta. The rapid growth and urbanization is opportunities to the economy,
however, Vietnam has to ensure the utility infrastructure to keep pace with it.
2.2.

Demand conditions:

In the context of globalization, the role of the domestic market seems less important,
however, according to Porter’s model, domestic consumers can affect to the way
producers perceive, interpret and respond to the buyer’s needs. Therefore, characteristics
of home demand is critical to the export-oriented industries.

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2.2.1. Vietnam’s market size:
In this paper, the GDP per capita and the retail sector are applied to reflect the
market size of Vietnam.
Figure 1 - GDP per capita of Vietnam, Cambodia, Thailand, Malaysia

Sources: World Bank index

According to the graph, GDP per capita of Vietnam in 2018 is 2.566,60 USD,
although this number is much lower than other countries in Southeast Asia like Thailand
and Malaysia, Vietnam’s indicator is showing stable growth of the income. The number
reflects the growing in middle class, which is an opportunity for market expansion.

Figure 2 - Retail revenue and growth rate in Vietnam (2013 - 2020)

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Sources: General Statistics Office data

Since 2013, retail sectors witness steady and fast growth in revenue. In 2018, Retail
sales in 2018, the highest ever recorded, total retail revenue is expected to reach USD 180
billion by 2020, which would represent an increase of 26.6% from 2018. With the inflow

of investments into the sector, it is expected further growth in the near future. With the
rapid growth, Vietnam is one of the most dynamic markets for retailing in Asia.
2.2.2. Demand sophistication:
As the market size of Vietnam is growing rapidly, there are more players entering,
including both domestic and foreign firms. Therefore, consumers now have plenty of
choices with better orientation. The upshot of these trends is that competition for local
markets is likely to become more challenging, as Vietnamese producers are facing foreign
firms in an increasingly open market. Meeting that challenge therefore calls for constant
innovation to maintain or gain market share.

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2.3.

Firm Strategy, Structure and Rivalry:

2.3.1. Firm strategy and structure by type of company:
National context create the tendencies in how company is organized, created and
managed. For example, Italy successful company in Italy is small and medium company
which are privately owned. By contrast, successful companies in Germany is strictly
hierarchical managed. It also applies for the type of companies in Vietnam.
Private owned companies:
Non-state companies in Vietnam mainly focus on short-term and service-oriented such as
retail, hospitalities, restaurants, etc. The strategy of non-state enterprise mostly produces
standardized, labor-intensive, low-middle quality products. The footwear industry can best
exemplify these characteristics of Vietnam’s private companies. In the footwear industry,
the latter tend to be located either at the beginning of the value chain (pre-production

activities such as R&D, design, core inputs) or at its end (post-production activities such
as marketing, advertising, logistics and sales). These tasks
tend to be more knowledge-intensive and are therefore generally conducted in highincome countries such as Italy, UK, and Germany. The lower value-added tasks, in
contrast, tend to be concentrated on downstream assembly activities and tend to be
outsourcing for countries with abundant labor but with low skills as Vietnam.
This strategy of manufacturing footwear has demonstrated the inefficiency in the footwear
industry with solely assembly and export products. The position in the top three footwear
exporters is not adequate for the value-added that Vietnamese manufacturers have
captured. On the upshot, the inefficiency also poses an opportunity for Vietnam’s
enterprise to develop its own brand name, sales and marketing channel to have high valueadded to our products. An example of a successful brand of footwear in Vietnam is Bitis,
by having an innovative marketing campaign - influencer marketing, and trending design,
Bitis has succeeded in positioning its brand in the domestic footwear market.
Therefore, we can conclude that despite the competitive advantage that we inherited in
factor endowments, the economy could still be inefficient if it only produces low value9

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added goods. In order to create comparative advantage, the only way is to upgrading
technology and skills of the current workforce.
State-owned company:
In Vietnam, state enterprises concentrate on capital-intensive activities such as
transportation and utilities. As SOEs cover most of critical sectors of the development,
their purpose is to improve the socio-economy development and ensure national security
in energy and food. The structure of SOEs is mainly hierarchical, however, SOEs have
relatively weak governance and transparency, nepotism is common, higher positions are
appointed by the relationship not by adequate qualifications. Because of the misallocation
and inefficient system of SOEs, the Vietnamese government has a plan to restructure its
economy through privatizing SOEs by equitizing and divesting state capital in more than
400 enterprises by 2020. This will open many opportunities for private investors,

especially FDI attractions. For example, as large agriculture and forestry corporations are
beginning their divestment projects, investors may consider investing in these sectors
considering Vietnam’s comparative advantage in this industry in terms of market scale and
growth, low labor cost, and stable political environment. Regards transport and utility
infrastructure, increasing funds will contribute to major projects such as airport, highway,
solar energy plants, and ensure clean water supply for urbanization.
2.3.2. Rivalry:
The presence of strong local rivals is a final and powerful stimulus to the
persistence of the competitive advantage of a nation. One of the most dynamic and rapid
growth in Vietnam’s market is retail sector. Vietnam's retail market in 2018 was relatively
active with many mergers and acquisitions as well as strong growth in the size of domestic
and foreign enterprises. The most prominent feature of the retail market is competition. It
is the competition between traditional and modern channels, competition between
domestic and foreign businesses, competition between direct sales and online sales. The
intense competition creates pressures for every company to keep upgrading the
technology, design, unique function and lower the cost. Vietnam’s enterprise 10

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Thegioididong aims to open over 1000 new Bachhoaxanh stores across the countries.
Meanwhile, By 2022, the Central Group (Thailand) aims to open 500 new stores to reach
around 750 in Viet Nam. This plan is backed by the acquisition of Viet Nam’s Big C
supermarkets from Casino Group (France) and 49% of Nguyen Kim electronics
supermarket; Aeon (Japan) stated that Viet Nam is a key investment destination in
Southeast Asia with plans to open 30 shopping centre.
The competition is intense and enormous, it should be seen as a motives for
domestic enterprise to invest in necessary logistics and infrastructure, for brand-building
activities in the form of marketing and advertising in order to gain the advantage over
foreign players.

2.4.

Related and supporting industries:
The presence of the nation related and supporting industries that are internationally

competitive is important to the nation. For Vietnam, supporting industry is an industry of
manufacturing components, spare parts, intermediate products,etc. acting as an input and
assembly of them to become the final product. Supporting industry has its own
characteristics and plays an important role in the process of industrialization and
modernization of the country. Therefore, the development of supporting industry plays an
important role in determining economic restructuring, improving productivity, labor skills,
competitiveness of products and the quality of Vietnam's economy. One of a successful
model of supporting enterprise in Vietnam is THACO, currently, THACO has a complex
of production and mechanical processing with an area of 19 hectares, of which the factory
area is 11.5 hectares, 350 mechanical engineers and skilled technical workers alone. 1,300
people. The Group has produced from supplying lines, materials, material testing,
embryonic processing, precision mechanical processing, surface treatment of raw
materials and has begun processing components for businesses other than automobiles
such as Doosan Vina, General Electric, Makitech (Japan), Agata (Japan), Three Star
(Japan) and a number of domestic enterprises located in the area. Chu Lai. In 2018,
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Thaco has processed a turnover of 400 billion. Supporting companies in electronics
accounts for over 80% of the value of the electronics industry, including the components
industry, material industry, mold industry, mechanical processing,etc. In particular,
semiconductor chip industry accounts for over 70%. This development is due to the fact

that we attract a number of major electronics manufacturers, such as Samsung, Canon, etc.
Currently, there are 200 Vietnamese enterprises being suppliers to Samsung, showing that
many components have been manufactured by Vietnam. Besides, there are many
businesses that can do high-tech details, for example, Viettel and Vin group have produced
mobile phones.
Thank to the FTAs that have been signed, domestic supporting industries can
import the machines for production with 0% import tariffs. In order to take advantage of
economic of scales, enterprises needs capital support from Government, however, the
capital disbursement for enterprises is in low pace and high-required that enterprise cannot
reach, for example 4P electronics company (Hung Yen) - a famous brand in the field of
electronics support industry in Vietnam, is a supplier for LG and level 2 for Samsung had
to sell a production line to a foreign corporation because of its unbearable financial
pressure.
2.5.

Chances for enterprises in Vietnam:

2.5.1 Opportunities in US-China trade war:
As the escalating tension between US and China, the cost to product goods in
China rises, therefore, companies are looking for an alternative nation to place their
factories. Among the considered countries, Vietnam is well-positioned to be the next
manufacturing centre, especially in electronics sector. Figure 3 demonstrates the abilities
of high tech production of Vietnam compared to other countries in the region.

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Sources: Intracen data

Vietnam is shifting to manufacture high-tech technology, in 2019, high-tech export
value is around 64 US$bn (According to Intracen 2019 data), increase by 8% as compared
to 2018. Additionally, Viet Nam is close to the manufacturing centre of southern China,
which will be valued by foreign investors who may still want to maintain connection with
China’s supply chains. According to Ministry of Planning and Investment of Vietnam, “the
number of delegations coming to work in 2019 to explore investment opportunities
increased sharply, up about 30% over the same period last year”.

2.5.2. COVID 19 pandemic as an opportunity:
It cannot be denied that Covid 19 pandemic has halted the economy worldwide
including Vietnam. According to the recently released Asian Development Outlook 2020
of ADB, Vietnam's economic growth will decline sharply to 4.8% by 2020. However, the
pandemic is opportunities that has competitive advantage in producing instant food,
freezed food. Masan is an example of a well-prepared company when facing with
coronavirus. Shortly before the Lunar New Year 2020, upon receiving information about
the evolution of the COVID-19 disease, Masan Group said it had developed a
comprehensive and detailed scenario to cope with the disease at VinMart retail chain and
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VinMart+ - sub companies of Masan corporation. Covid 19 is also a driven for companies
to accelerate digitized process. Many physical supermarkets such as Co.op mart and
Vinmart are making more investment in online website and building their logistics
infrastructure to serve consumers in the new platform.
2.6.

Role of the Government:

Throughout 30 years of Doi Moi, Vietnam is now 1 of the most opened economy of

Southeast Asia. The role of the Government is critical in negotiation for FTAs and FDI
attraction to create favorable conditions for economic development.
In terms of FTAs, in shortly 2 years (2018 and 2019), there are 3 important FTAs
that had been signed, they’re Comprehensive and Progressive Trans-Pacific Partnership
(CPTPP); EU - VIETNAM (EVFTA); ASEAN - Hong Kong (AHKFTA). The FTAs
demonstrate Vietnam’s commitment to international trade and encouragement for foreign
enterprises to invest. Thanks to FTAs, the exported products from Vietnam can access to
large market with reduction in tariff and scale the production line with imported machines
with 0% tariff.
In terms of investment incentives, strategic industries in Vietnam such as high
technology, software, new energy, waste recycling and education are provided by Lower
tax rates for the whole duration of the investment term; exemption from and reduction of
tax rates; Import duty exemption for fixed assets; and reduction/exemption of land rental.
The Government has advocated and implemented drastic actions through
resolutions on improving the business environment and supporting enterprise
development.
Chapter 3: CONCLUSION
Vietnam’s dynamic growth since Doi Moi has made a tremendous impact to the
livelihoods of millions of Vietnamese people. The country has experienced a widely
integration of globalization, which creates both challenges and opportunities for national
enterprise. With more competitors entering the domestic market and the high-required
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from the large export market, Vietnam’s enterprises are pressed to continuously upgrading
the company’s system to create satisfying products for the customers. Thus, the role of

leadership in the country is critical to maintaining sustainable growth, reducing risks from
deep integration, and supporting the domestic enterprise in terms of orientation and
finance.

REFERENCE
Deloitte, 2019. Doing Business In Vietnam 2019. [online] Available at:
< [Accessed 26 April 2020].
General Statistics Office Of Vietnam. 2019. Press Release On Labor And Employment
Situation In The First Quarter Of 2019. [online] Available at:
< />[Accessed 26 April 2020].
Intracen. 2020. International Trade Statistics 2018-2019. [online] Available at:
< [Accessed 13
April 2020].
Ministry Of Planning And Investment, 2018. 30 Years Of Fdi Mobilization In Vietnam.
[online] Available at: < />%B7%20yeu%20Hoi%20nghi%2030%20nam%20-%20English.pdf> [Accessed
26 April 2020].
PwC, 2019. Doing Business In Vietnam. [online] Available at:
< />[Accessed 27 April 2020].
WEF Global Competitiveness Report 2019. [online] .
< />15

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Deloitte, 2019. Retail Sector In Vietnam 2019. [online] Available at:
< [Accessed 27 April 2020].

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