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Vietnam Prepares for Asian Economic Integration

FILE - Workers prepare a Starbucks coffee shop for its opening in Vietnam's southern commercial hub of Ho Chi Minh City, July 30, 2013.
FILE - Workers prepare a Starbucks coffee shop for its opening in Vietnam's southern commercial hub of Ho Chi Minh City, July 30, 2013.

ASEAN nations will band together to form AEC, allowing free movement of products, capital, and labor.

Last year college student Nam Anh had the chance to visit Thailand. At the border with Laos he was struck by how much the landscape reminded him of his native Vietnam. The rivers, houses on stilts, and craft villages could have been in the Mekong Delta.

These countries are more alike than people realize, Anh said, but he hopes that will become more obvious with the new ASEAN Economic Community, meant to bring the Association of Southeast Asian Nations closer.

Anh is preparing for the AEC by studying the Thai language and culture so that eventually he can work for a Thai company.

“It’s so important because we are in the same community, we are Asian, we have one identity,” Anh said. “Every person in our country should get to know our neighbors because it will make us love our community more and more.”

Supporters of the AEC hope more citizens across the region will think like Anh and embrace the European Union-style project. The idea is to give Southeast Asia strength in numbers. Alone, Vietnam might not be able to compete with behemoths like China and Brazil. But with 10 nations banding together, allowing the free movement of products, capital, and labor, ASEAN will have the world’s fifth largest economy by 2020, according to the Boston Consulting Group (BCG). It is currently in seventh place.

Risks for Smaller Companies

But discussions of the economic community have not all been encouraging. Those pushing for integration criticize governments for protecting their local industries, while small and medium businesses dread the influx of bigger competitors.

For these businesses, AEC advocates have a message: worry, but don’t fear.

“As entrepreneurs you should always worry because there are always changes happening,” BCG chairman Hans-Paul Burkner said Thursday at a CEO forum in Ho Chi Minh City. “But you should not be afraid because what we find all across the emerging market world is, the local companies usually do quite well for a number of reasons.”

Burkner said local firms in each ASEAN country should play to their domestic strengths. That is, they understand their home markets, know how to source from good suppliers, and have experience navigating their respective governments.

In Vietnam, the challenge is for communist leaders to cease propping up state-owned enterprises. The country is also filled with small companies that, despite Burkner’s optimism, will not survive against more efficient neighbors.

“Businesses that operate on a small scale, don’t export, or use outdated technology, they can’t compete and will have to exit the market,” said Tran Viet Thai, deputy director of the Institute for Foreign Policy and Strategic Studies at the Diplomatic Academy of Vietnam.

Truckers, Farmers and Fishermen

Some of the sectors most at risk in Vietnam are those selling cars, sugar, or plastic, which can be produced more efficiently in places like Thailand. But others will benefit from the bigger ASEAN market, such as Vietnamese companies exporting seafood, agriculture, electronics, and wood products, according to Tran Dung, deputy head of the Vietnam Logistics Institute.

He expects logistics to be a bright spot for Vietnam eventually, despite current weaknesses. For instance, truck drivers moving products face backlogs because of shoddy roads, as well as rules that prevent them from entering some urban centers before 10 p.m. But Dung said his country could become a hub for maritime transport because of its long coastline and strategic position between Southeast and north Asia.

The AEC is forcing its 10 member states to compete for foreign investors. To that end, Vietnam attracts investment because it has lower wages and more stable governance than democratic Indonesia and the Philippines or Thailand. And with 90 million people, Vietnam has a bigger market than Cambodia and Laos, as well as a highly literate, young, and tech-savvy workforce.

At the same time, Vietnam suffers from low productivity and a skills shortage that forces incoming employers to spend resources training their new workers.

Still, Tran Viet Thai sees the AEC as the latest phase in Vietnam’s seemingly inexorable transition toward an internationally-oriented economy. It came out from under a U.S. trade embargo in the 1990s, joined the World Trade Organization in 2007, and now is signing one trade deal after another.

As Tran Viet Thai put it, “ASEAN is a step for Vietnam to integrate with the world overall.”