The upcoming Trans-Pacific Partnership (TPP) in likely to provide the Vietnamese companies much more than a direct opportunity to export to the US. The benefits will accrue from the lower tax rates, unhampered access to capital as well as advanced technology, with which the companies can build their own material supply base.
Dang Duc Dung, former vice president of the Hanoi Young Business Association, said this at a meeting introducing business and investment opportunities in the US.
The TPP, which is still on the round table, is not a conventional trade agreement. “Its effectiveness spreads to an extremely wide area of the world, which accounts for nearly 40 per cent ($28 trillion) of the global gross domestic product and 30 per cent of the global trade,” said Dung.
More than broadening of market choices, the Vietnamese companies will benefit from the lower taxes offered by other member countries. This will help improve companies’ profit margin. The companies will also have direct access to customer feedback, which “is one important element that Vietnamese companies often ignore or underestimate,” Dung added.
He pointed out information technology (IT) as a typical array that Vietnamese firms have the competitiveness edge. Vietnam, with its large human resource pool in IT and technical sector, is also applying the Silicon Valley model to incubate young tech startups. Several of them have got funding from the US-based accelerator 500 Startups.
However, there is a barrier of law understanding among the Vietnamese business community. Nguyen Huu An, director for Vietnam Office of the US-based law firm Sterling Harwood & Associates, warned that America is a strictly regulated market. “Therefore, understanding the US (market and laws) will certainly help companies avoid risks in business.”
An also emphasised that as long as Vietnamese businesses comply with the US law, doing business in the largest economy of the world is really easy.
However, the biggest barrier is the scale of operation. Being honest about the status of Vietnamese enterprises, the current vice chairman of the aforementioned Hanoi association, Tran Anh Vuong, shared his view: “Vietnam is the weakest economy in the TPP. The hindrance to growth in the process of integration is not about technical issues negotiated by governments, it is about the small scale of business.”
Garment industry – the biggest beneficiary
While IT is the emerging sector, garment and textile companies will benefit directly and the most from the TPP, according to An.
Vuong Cong Van, chairman of a small garment company specialising in producing uniforms for workers called Thien Bang, stated: “We have studied about the TPP and we are positive that our company will do good when export products to the US.”
With tax rate expected to come to zero from the average 17 per cent, and the US being the largest export market for the sector (the US market accounts for over 40 per cent of Vietnam’s total garment and textile export), growth prospects for these firms are huge.
From the investment angle, the advantage might help garment companies become target of multiple investors. Shares of garment and textile companies combined jumped 34 per cent last year, way ahead of the VN-Index which grew at 8.15 per cent.