SME opportunities in a larger world

SMEs keeping their ear to the ground can stand to benefit a lot from the APEC Summit in November

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Recently, Nguyen Chi Hung, director of locally-owned Let’s Hope Vietnam Co., Ltd. in the northern province of Hung Yen, refused an invitation to a press conference in Hanoi to highlight local enterprises’ activities in the Asia-Pacific Economic Cooperation (APEC) 2017 hosted by Vietnam.

“Actually, I do not much understand APEC and how it can benefit enterprises like mine. What we need the most now is to see a better business climate in Vietnam,” Hung told VIR.

Instead of coming to the press conference, he decided to visit the local Department of Natural Resources and Environment for the fourth time to clarify agricultural land-use procedures.

His firm operates in the transport, construction, trading, and services sectors, and wants to expand its investment portfolio to the production of safe vegetables for export.

“However, I am currently suffering difficulties in access to land and complicated administrative procedures. We want to lease 30 hectares for high-tech agricultural development,” Hung said.

The Vietnam Chamber of Commerce and Industry (VCCI), which organised the press conference, earlier invited over 30 local small- and medium-sized enterprises (SMEs), including Let’s Hope Vietnam. However, only a few enterprises turned up.

While VIR contacted them, they claimed to have vague understanding of the APEC.

Golden opportunities

VCCI chairman Vu Tien Loc said that the APEC 2017 is “a golden opportunity” for domestic SMEs to promote trade and investment and that one of the summit’s major priorities is strengthening micro-enterprises and SMEs’ competitiveness and innovative capacity.

“CEOs from thousands of global firms will come to Vietnam to attend APEC 2017 events. Vietnamese enterprises will be able to directly meet with them to seek co-operation,” Loc told VIR.

In 2006 when Vietnam hosted the APEC Summit for the first time, global CEOs and Vietnamese firms signed a host of business and investment deals valued at $2 billion in total.

According to Hoang Van Dung, chairman of the APEC 2017 Business Advisory Council, the APEC is a leading economic forum and drives growth, trade, and investment in the region. The forum, including the world’s largest economies like the US, Japan, and China, represents 50 per cent of the global GDP and 50 per cent of global trade.

Moreover, under the APEC’s Bogor Goals, by 2020, all APEC member economies will liberalise trade and investment by reducing trade barriers and promoting the free flow of goods, services, and capital within the APEC.

The latest statistics showed that by 2014 many product lines have witnessed low import tariffs, such as petroleum (2.5 per cent), non-electrical machinery (3 per cent), chemicals (3 per cent), mineral and metals (4 per cent), manufactured products (5 per cent), and textiles (6 per cent).

The number of zero-tariff product lines in the APEC increased from 27.3 per cent in 1996 to 45.4 per cent in 2014. Besides, the percentage of zero-tariff imports also increased substantially from 29.2 per cent in 1996 to 60 per cent in 2014.

APEC economies contribute 70 per cent of investment and tourism growth in Vietnam and create 25 per cent of the GDP, 35 per cent of industrial output, and 70 per cent of export value.

“Vietnamese firms can also participate, contribute, and raise issues at the APEC Business Summit, the APEC Economic Leader’s Meeting, ABAC, and public-private dialogues between APEC working groups and businesses,” Dung said.

According to Loc, micro-enterprises and SMEs playing an important role in driving the growth of many APEC economies, including Vietnam.

Statistics from the Vietnam Association for Small- and Medium-Sized Enterprises show that currently SMEs account for over 97 per cent of Vietnam’s total enterprise count of about 500,000. They employ 51 per cent of the country’s total labourers, create 40 per cent of the GDP, and contribute 30 per cent of the state coffers.

“However, the awareness of local SMEs of APEC remains very limited, and so are their links to the global supply chain,” Loc said. “It is likely that they know about APEC opportunities, but they cannot seize them due to various difficulties.”

According to him, this low awareness does not only exist in regards to the APEC, but also to many free trade agreements (FTAs) that Vietnam has and will ink with foreign partners.

“They still think that FTAs are something very big. That is why they are not interested in them,” Loc said.

Currently, only 21 per cent of SMEs are linked to the global supply chain, while the rate is 30 per cent in Thailand, and 46 per cent in Malaysia. The majority of SMEs in Vietnam operate in the services sector, and only 20 per cent operate in the manufacturing sector. Some 85 per cent have an annual revenue of less than VND2 billion ($91,000).

Nguyen Van Binh, director of garment maker Hai Binh Co., Ltd. in the northern province of Nam Dinh, said what worries him the most is securing sufficient capital to ensure production and pay bank loans, which accrue very high interest at 10 per cent.

“The APEC may give us many opportunities, but they are very far from us. We want to focus on the local market,” Binh told VIR.

In another case, Le Hoang Oanh, vice president of locally-owned Avina Logistics JSC, told VIR that many local logistics firms like hers can see opportunities from the APEC and want to work with global firms but are discouraged by limited resources.

“We can only co-operate with local firms and ship their goods within Vietnam. Foreign firms often have their nations’ logistics firms transport their goods overseas,” Oanh said.

In need of support

At a recent Hanoi-based international conference on capability development for SMEs’ innovation management within the APEC, Bargus Rachman, director of the Business and Marketing Department under the Indonesian Ministry of Cooperatives and Small and Medium Enterprises, told VIR that Indonesia offers assistance to SMEs in the country’s constitution. Furthermore, Indonesia enacted a law on supporting SMEs as early as 1992, which was later amended in 2008.

Notably, this nation has created an effective mechanism named Small Business Framework “Asia to the World,” the members of which include government members, researchers, and representatives of enterprises, co-operatives, and financial institutions.

“Thanks to the mechanism’s support, 50 per cent of Indonesian SMEs (over 370,000) are now able to conduct transactions with customers online,” Rachman said.

Meanwhile in Vietnam, the National Assembly has passed the Law on Supporting SMEs. After this law takes effect on January 1, 2018, it is expected that SMEs will receive significant support in terms of capital, land, business information, and innovation.

Hoang Van Dung, chairman of the APEC 2017 Business Advisory Council, said that as APEC economies are boosting support for their SMEs, the Vietnamese government must follow suit.

“APEC offers not only opportunities, but challenges as well. Without support, Vietnamese SMEs may suffer from harsh competition from other APEC enterprises,” Dung said. “Local enterprises must also improve their capabilities by restructuring business and boosting productivity and competitiveness if they want to go global.”

Nguyen Chi Hung of Let’s Hope Vietnam Co., Ltd. said he named his firm this because he believed that one day the firm can grow strong enough to go global.

“We are craving for support from the government. We have many promising business plans and hope that they can come true,” Hung said.