Vietnam-US economic relations have come a long way since 1995 when the normalisation of diplomatic relations opened up new trade opportunities for both markets.
Jeff McLean Managing Director, UPS Vietnam
A decade later, the US had become Vietnam’s biggest export market, with total exports valued at nearly $38 billion, almost 200 times the value in 1995. Trade ties between the US and Vietnam will be further strengthened by the Trans-Pacific Partnership, an agreement which, if ratified, will provide important policy foundations for global production networks and e-commerce trade. However, in order for Vietnam to benefit from such developments, local businesses must be ready to link into international supply chains. With this in mind, local businesses are identifying opportunities to collaborate and learn from their American counterparts.
PREPARING SMES FOR INTERNATIONAL COMPETITION
Vietnam can benefit greatly from the TPP, and it is not hard to see why. The country has already emerged as a hi-tech manufacturing powerhouse in Asia, and the removal of trade barriers is likely to open up more opportunities. But local businesses will need to recognise that today’s preferred SME suppliers are no longer competing on price, but on responsiveness, lead time, on-time delivery, and the ability to collaborate with lead firms to manage supply chain risk and disruption.
Hence, businesses need to ensure that they are prepared for the realities of getting products to customers on the other side of the Pacific Ocean, which encompasses complex customs regulations. Working with a logistics partner with in-house trade management expertise can help create competitive advantages. For instance, when the US raised their de minimis limit from $200 to $800, it became easier for SMEs around the world to grow their businesses as it reduced duties and taxes, and simplified the shipping process for goods to the US. With this knowledge, we proactively reached out to our customers who could benefit from this development and offered solutions that would help them grow their business.
DEEP MARKET REACH WITH E-COMMERCE
E-commerce has been a buzzword among businesses for a few years, but it continues to be important as it is a platform that offers several benefits to operators, such as low overheads compared to traditional “bricks-and-mortar” retailing, as well as the ability to connect easily to consumers and business clients in other markets. With this in mind, many Vietnamese businesses would do well to consider using the medium to gain access to the US e-commerce market, which was worth $341.7 billion in 2015 alone.
However, e-commerce is not limited to B2C (Business to Consumer) businesses only. In our recently commissioned Industrial Buying Dynamics survey, we found that 66 per cent of B2B (Business to Business) purchasers in the US said that they purchase online most frequently, up from 57 per cent in 2013. Therefore, manufacturers and distributors alike have to start thinking about how to compete as this trend is set to grow globally. To be competitive, businesses should provide detailed product descriptions to aid customers in their decision-making process, as well as provide answers to customers’ product or order-related questions.
REAL-TIME INTERNATIONAL COLLABORATION
Currently, Vietnam’s exports are dominated by relatively low-value-added manufactured goods, taking a similar trajectory to China’s industrial revolution. Having built its current economic foundation on low-cost manufacturing, it is now time for Vietnam to move up the manufacturing value chain to avoid the middle-income trap. Vietnam is now well-positioned to move into more IP-oriented manufacturing, particularly in hi-tech products such as computing components. Notably, this industry vertically contributed nearly $28 billion to the economy in 2013.
One way Vietnamese businesses can build up their capabilities is to work with American businesses and be involved from the product designing process all the way through to distribution and marketing. This can be made possible through digital platforms that enable online meetings and discussions to be held. According to the World Bank’s Digital Dividends 2016 report, 86 per cent of manufacturing and service firms in Vietnam had access to the internet in 2011 – a figure likely to increase in the coming years, especially with the government’s approval of a plan to provide fixed line, high-speed broadband to 40 per cent of all households nationwide by 2020.
Imagine if a Vietnamese company collaborates real-time with a Silicon Valley tech company on production of a new chipset. They would get to learn about pitfalls in product design, how to source materials, and what it takes to market a product.
A BRIGHT FUTURE
The Vietnam-US relationship has become more significant over the years. Moving forward, strong private sector partnerships and government support will be crucial to ensuring this prosperity is continued on into the future. Given the importance of cross-border trade to Vietnam’s future, a healthy logistics sector will play a central role in this growth. Since 1994, we’ve been proudly helping businesses on both sides of the Pacific to connect and harness the Vietnam-US relationship, and moving forward, we look forward to continuing this on an even greater scale.