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Opportunities and challenges of 1. New context of economic and Vietnamese
Vietnamese agricultural enterprises enterprises development
beyond WTO membership 2. Opportunities and challenges facing Vietnam’s
ISG Plenary Meeting 2006 economy once Vietnam is a member of WTO
3. Effects of WTO entry on Vietnamese
Hanoi, October 25, 2006 agricultural enterprises
Pham Chi Lan
11/8/2006 1 11/8/2006 2
International Context:
• Globalization has become a reality
• Established knowledge economy
• Non-stop development of new technologies and
innovations
1. New Context of Economic and • Economic reform and re-structure are occurring
Vietnamese enterprises Development everywhere
• Many new FTA and RTA set up
• Global business network and value chain have
developed strongly
• Protectionism and modern technique barriers
• New strategies of enterprises from MNCs to SMEs
• We are living in the fast moving world
11/8/2006 3 11/8/2006 4
Major trends of enterprise movements in the
International developments affect directly on
world Vietnamese economy
- Many cases of merging and acquisitions (M&A) - China became a member of WTO, India has strongly developed
- New developments in the region, especially:
establish larger and stronger multi-national ASEAN + China, ASEAN + 3, EAS
companies (MNCs) those is the FDI biggest source - EU and NAFTA expansion
MNCs re-structure to consist of small enterprise - Increasing trend of FTA and RTA setting up
groups (having soul and speed of a small enterprise in a - Raising role of services, intellectual property, information
large one body) technology and out-sourcing in trade
- Trade liberalization in parallel with reinforcing protectionism and
- Development of small and medium-sized enterprises modern trade barriers
(SMEs) clusters increase efficiency and - International market has fluctuated continuously, this is hard for
competitiveness forecast
- Strong development of global business networks and
supply chains
11/8/2006 5 11/8/2006 6
1
How international context Domestic Context:
affects on Vietnamese economy
- Pressure on competition raises (in import, export and 1. Taking initiative in international integration: Vietnam is
on the new route of international economic integration,
FDI) which contains new opportunities, challenges and
- Common trend to press Vietnam to open door and boost commitments (AFTA, ASEAN +, ASEM, APEC, WTO,
liberalization faster and more comprehensively FTA…)
- Threat of regional trade that is shifting towards 2. Vietnam’s position and strength: new foundation which
unfavorable direction to Vietnam, Vietnam lags behind is higher and stronger but still the developing economy
new movements at the low-level
- Stricter integration conditions, tighter supervision, short 3. Economic institution and business environment: better
time for economy transition. but it is still a long way to finish changing the economy to
- Vietnam secures a golden chance, however, the country the market-oriented one
should have great capability and efforts to take full 4. Enterprise and entrepreneur force: (forces at the fore
advantage of that. front of international economic integration): crowded and
more matured but limited in competitive capability
11/8/2006 7 11/8/2006 8
Vietnam position in global and regional
economy
Vietnam in the global economy:
• GDP 2005: $53 billion of Vietnam/ $38.000 billion of global (0,14%)
• Export 2005: $33 billion of Vietnam / $10.000 billion of global (0,3%)
Vietnam in ASEAN:
2. Opportunities and challenges facing
• GDP 2005 (according to ASEAN): $47 billion of Vietnam / ASEAN
$849 billion of ASEAN (5,5%)
Vietnam’s economy upon becoming
(IA 270, TL167, M’a 132, S’po 115, RP 95 billion) WTO membership
• GDP 2005 per capita: $567 of Vietnam / $1500 of ASEAN
(S’po 26000, Brunei 17000, M’a 5100, TL 2500, IA 1200, RP 1000)
• Export 2004: $26,5 billion of Vietnam/ $525,6 billion of ASEAN (5%)
(S’po 179; M’a 126,5; TL 97,4; IA 71,6; RP 39,7 billion)
11/8/2006 9 11/8/2006 10
Economic opportunities and challenges
Opportunities: outdoor:
Indoor : - Open market to other countries: enjoy MFN and non-
- Complete market institution, improve business environment and discriminatory regime increase imports and exports
promote competition for development more efficiently
- Re-structure the economy in term of industries, products, markets, - Luring foreign investment, combine domestic and
labour and enterprise segments towards promoting comparative
advantage and creating new advantages foreign resources for development more efficiently
- Promote enterprises, create new jobs and increase income - Easier participating in international labour allocation,
- Develop scientific technology, hi-tech industry and access the attaining higher position in the global value chain
knowledge economy
- Develop and allocate country’s resources towards efficiency and - Warding off unfair legal sues; handling fairer
further sustainability international trade dispute
- Creating new position in participating global, regional
and bilateral negotiations in the future
11/8/2006 11 11/8/2006 12
2
Challenges:
Outdoor:
Indoor:
-To accept common laws and face with complicated
- Amend, adjust legal system and economic policies,
which will match the international commitments legal systems of other nations
- Uncompleted market-oriented institution; insufficient - To accept fierce competition on the markets at home
and obstructing business environment and abroad in all segments (goods, services and
- Low starting point, low productivity, backward labour forces...) at levels
economic structure, limited competitive capability of the -To cope with technique barriers raised by other
whole economy, products and enterprises and nations
insufficient infrastructure
- To suffer from pressures in the first years of being
-Low quality of labor force, limitation in state WTO membership due to non – market oriented
management capacity and corporate governance;
education and training system does not meet demand economy status
- Industries, products, enterprises and groups of citizen -To change global and regional economic environment,
may be lost in the new context and need preparing and fierce competition and fast changes require fast
supporting compatible capability
11/8/2006 13 11/8/2006 14
Vietnam comparative advantages
Social and labor concerns:
- Laws on labor • Geographical location at the centre of Eastern Asia
- Working standards, social responsibility of enterprises which is active, developed and fast integrated
- Salary and income scheme • Labour force is abundant, young, hard-working, adaptive
- Relationship between employers and employees and inquiring mind
- Policies on labour industry • Stable macro economy, politics and society
- Development of private sector and SMEs • Integrating global and regional economies, joining in key
economic coalitions
- Social security network
• Having potentials in expanding the domestic market
- Training and retraining
• Having potentials in promoting industries like agriculture,
- Migration and labour moving
industry, services and exports
- Supporting disadvantaged groups
• These advantages should be exploited and promoted to
become competitive ones
11/8/2006 15 11/8/2006 16
Macro economic issues need handling
after joining the WTO • Comprehensive implementation of
economic reform and important eco-social
• Complete market institution as soon as possible policies
- Institute policy and law networks based on the market- - State-owned enterprise reform
oriented institution in accordance with demands on - Banking, taxation, trade and public service
development and international commitments reforms
- Strongly implement reforming administrative and - Education and training reform
judicial systems at all levels, increase capability of state - Develop markets of property, labour, equity,
agencies and staff
technologies, services and goods
- Enforce laws conformity and supervision
- Develop infrastructures
- Create fair and stable business environment
- Compile support development policies for SMEs
- Compile institutions of competition, monopoly control
and dispute handling - Promote the efficient social security system
11/8/2006 17 11/8/2006 18
3
Structure transition of all economic
• Adjust development strategies sectors
- Study, re-assess the advantages and disadvantages of
Vietnamese economy and sectors in the international • Boost service sector
integration - Re-assess the advantages and disadvantages of
- Adjust existing general strategies of sectors and Vietnam’s service sector in international trade
regions, combining these strategies and plans - Adjust strategies and development plans for service
- Formulate new strategies: international integration and sector
trade strategies (use the most of advantages and - Promote service sector to secure the largest part in the
fulfillment of WTO commitments, promote new economic structure and boost service exports
negotiations)
- Liberalize service sector to all domestic enterprises
- Give priority to growth quality, productivity, creating (especially private ones) before opening to foreign
international competitive capability, labour force and investors, lift barrier and create competition for service
sustainable development development
- Adjust development strategies for all types of - Conduct training for service sector’s labour force
enterprises
11/8/2006 19 11/8/2006 20
• Develop industry properly • Shifting agricultural development
- Re-assess advantages and disadvantages of industry - Re-assess the advantages and disadvantages of
in Vietnam in international trade Vietnam’s agriculture in international trade
- Adjust general strategies of industries and regions - Adjust general strategies of the industry and regions
towards international cooperation and competition towards international development and competition
- Expand freedom in investment and business rights in requirement
the industry to domestic enterprises, private sector and - Stick agriculture and rural development to industry
FDI services, scientific technology and environment sectors
- Adjust state and state-owned enterprises investment - Divert agricultural development organisations towards
focusing on key and pivotal productions the proper form in accordance with its economic scale
- Re-allocate resources focusing on promoting products - Shift basically agricultural production towards
with competitive advantages and narrowing/stopping diversification and sustainable development focusing on
manufacturing products with less competitiveness product quality, standards, productivity and added value
- Attach much important to efficient requirement, quality, - Change agricultural business modes to the form that
technology quality, productivity and creating new position matches with domestic and foreign market requirement
in the global chain
11/8/2006 21 11/8/2006 22
Change of enterprise structure • Create new assignment and cooperation/competition
among three enterprise sources
• Re-arrangement of enterprise resources - State-owned enterprises: narrow the number of
- Conduct fiercely state-owned enterprise reform: hasten companies and operation scope; improve competitive
equitization programme, reduce state stake in equitised efficient and supervising capability in key sectors
enterprises; shift state-owned enterprise’s operation to dominated by state
be regulated by the Enterprise Law - Domestic private enterprises: maximize the number of
- Create favourable environment for domestic private enterprises, operation areas and scope, improve
sector to make it become major source in service, competitive capability, efficiency and its motive force in
agriculture and industry sectors and exports as well as economic development, exports and creating jobs and
counterbalances and partners of state-owned income increase
enterprises and FDI - FDI enterprises: fast expansion, cooperation and
- Attract FDI and financial investment, through FDI to competition with domestic ones, become a motive force
renew technologies, change industries and products in export competition and create new favour advantage
structure, expand export markets and promote domestic for Vietnam in global business network and regional
enterprises coalition
11/8/2006 23 11/8/2006 24
4
• Develop enterprise support system and linkage Re-defining product structure
- Concentrating on lifting early major barriers to enterprises
- Re-design policies and supportive tools for enterprises, which • Group of products with strong development capability:
match with development priorities and WTO regulations
under competition, able to attract more sources for
- Facilitate business development services, socialize public services,
improve infrastructure service, education and training, information further development: garment and textile, leather,
and technology... seafood, wooden furniture, minerals, agricultural
- Create favour for enterprise clusters in industries, regions and craft products, mechanical products; tourism services,
villages and even with other enterprises in the regions information technology, business support services,
- Promote roles of enterprise associations, especially representing transport, construction and mechanism
role for enterprises to protect their rights; support and promote trade • Group of products facing reduced production possibility:
- Take care of SMEs, promote large-scale and leading private usually alternative products for imports, low
enterprises competitiveness and enjoying state subsidies: steel,
paper, chemical fertiliser, automobile and motorbike,
alcohol and beer, cigarette, construction materials…;
domestic sale services, financial service and maritime…
• Other products: have limited growth capability
Need to further study widely on products and services
11/8/2006 25 11/8/2006 26
The position of Vietnam’s enterprises
in international economic integration
- Forces at the fore front of economic construction and
development, creating economic capacity for the
3. Effects of WTO entry on country, improve economic level to the higher
development one
Vietnam’s agro- enterprises - an important source in creating jobs, eradicating
poverty, ensuring social security and increasing income
- a force coping directly with challenges, using
opportunities, creating competitive and adaptive
capability of products, industries and labour forces
- Success of enterprises decide country’s destiny in the
future in the international economic integration
11/8/2006 27 11/8/2006 28
Number of Agro-enterprises Common features of Vietnam’s enterprises
• Mostly SMEs( 95 %), very big number of micro
• Vietnam has: enterprises and non-official ones
# 200.000 official private enterprises (30-35.000 new • A big gap between state-owned enterprises and FDI
ones established annually) (SOEs & FDI) and SMEs (domestic private sector)
# 3.000 state-owned enterprises (to be reduced) • Mostly are newly established, and limited business
> 5.000 FDI enterprises (to be increased ) experiences
> 2,6 million non-farming business households • Lack and weakness of investment capital, labour force,
equipment, technology, materials, administration and
> 9 million farmer households producing goods market access
• Small ratio of official number of enterprise per capita • Low productivity, low business efficiency
(1/400)
• High business cost, low profit rate
• Ratio of enterprises surviving after 3 years: 75%; after 5
years: 64% • Limited competitive capability and it is not easy to
improve
• will have great changes in the next 3-5 years
• Lack of development/competition strategies
• Lack of links into value chain and efficient business
11/8/2006 29 network
11/8/2006 30
5
Reasons of Vietnamese enterprises’ difficulties Restrictions to the
• Operation in unfavorable and unsafe legal corridor;
tough and unfair business environment with plenty of development of enterprises
barriers and small number of support tools WB, enterprise survey
• Difficult to access necessary resources: credit, land, Restrictions Eastern Asia Vietnam World
skilled labour force and information… Credit access 17.4 ** 37.4 30.1 **
• Limited, low quality and expensive infrastructure services Land access 9.9 ** 26.4 14.5 **
• Complicated and expensive administrative services Skilled labour and education 23.8 22.3 20.4 *
• Weak business support service network and enterprise Transportation 15.2 ** 21.6 12.4 **
support organizations
Stable macro economy 34.1 ** 16.8 40.2 **
• Enterprise associations have not yet developed to
represent for enterprise’s interests to protect, support Corruption 28.6 ** 12.8 36.8 **
and set up clusters Labour relationship 17.4 ** 10.9 17.3 **
• Unfair, improper and inefficient state policies and support Legal system 27.3 ** 5.5 21.6 **
tools for enterprises
Crime and thief 19.3 ** 4.0 25.7 **
License system 14.4 ** 1.4 15.9 **
11/8/2006 31 11/8/2006 32
Effects of WTO entry on the Vietnamese Effects of WTO entry on Vietnamese
enterprises enterprises
Opportunities: Difficulties / Challenges:
• Many export opportunities as the world market is • Fierce competition on markets including domestic one
expanded and competitive position is fairer
• Study and understand WTO regulations, regional
• Stable development of the domestic economy commitments and laws of trading partner’s countries
• Improved legal corridor and business environment which • Apply international and domestic standards
are more transparent, competitive and fairer.
• Keep cautious in selecting trading partners, markets and
• Easier access to credit resource, technologies, business mode
information, services, equipment and input materials...
• More state incentives, subsidies and protection will be
• Opportunity to compile new business strategies and set lifted
up clusters for development
• Fast moving market requires adaptive capability
• Disputes in international trade are solved fairer
• Many other obstacles that are hard to overcome
• Some industries, products and enterprises may be lost
11/8/2006 33 11/8/2006 34
Effects of WTO entry on • Prospect of expanding markets for enterprises’ products
Vietnamese agricultural enterprises and services to rural areas
• Access to necessary resources is easier
Opportunities: • In-put cost will decrease due to competition (domestic
• Concerns, legal environment and policies of agricultural sector are market & imports), socialization of some
better, more transparent and stable
services,increasing number of supplying sources
• The State will adjust agricultural development strategies and
scheme towards more market – oriented and sustainable • SOEs and state-owned farms reform create fair and
• New state measures, supportive tools of agriculture and rural free some sources (land and business rights…)
development will be fairer and more proper • Re-structure labour force in agriculture sector improve
• Supportive service sector, technology, industry will develop, farmers’ thought, business, productivity, working quality
infrastructure in rural areas will be improved and market access.
• Prospect of accessing better export markets due to the new position
of Vietnam in the WTO, at the Doha negotiation • Possibility to link four partners including farmers, state
• The domestic market develops, distribution network expands. These agencies, scientists and enterprises; sectors and regions
are favours for agricultural product consumption more efficiently and sustainably in the new competitive
pressure
• Better prospect of attracting FDI and international
cooperation in agriculture and rural development
11/8/2006 35 11/8/2006 36
6
Effects of WTO entry on • Agricultural producers and businesses and other relating
Vietnamese agricultural enterprises agencies are insufficient: small scale, dispersing, slow
change, non-synchronous, non-steady development,
Challenges: lack of investment in creating added values to products,
• Increase competition in the domestic and foreign agricultural product and not yet into a linkage chain.
markets in terms of quality, standards, price and services… • Vietnam’s agricultural products have limitations in
• Higher level of compulsory standards on quality, hygiene (domestic quality, standards, stability, sameness, hygiene, safety,
and international) for agricultural products in parallel with stricter environment, harvesting, preservation and low
supervision processing ratio do not match with the increasing
• Adjustment on legal system, policies, strategies, scheme and demands of urban markets and exports as well as lack of
infrastructure for agriculture and rural development takes time and
requires large investment. It is not easy to execute strong trade name
• Measures of agriculture supporting subsidies that do not comply with • Agricultural product distribution systems for both
WTO regulations will be removed, while the new system has not yet domestic markets and exports need to be improved in
been set up and competition pressures will come shortly and make terms of infrastructure, capital, organisation, professional
enterprises hard to cope with business manner and marketing …
• Vietnam’s agricultural enterprises have subjective and
objective obstacles that limit the competitive capability
and not easy to overcome
11/8/2006 37 11/8/2006 38
In general, for Vietnamese agriculture enterprises,
opportunities are great in the long term, which is not Factors determining enterprises’ competitiveness
easy to secure but challenges are real and not easy to - Good product and service quality
overcome due to: - Understanding and satisfying customers’ demand
- Agriculture reform and development need a strategic - Good product and service distribution system
view, combination between strategies and activities of - Decreased production cost of products and services
many sectors and state agencies at levels, management - Building up and developing enterprise’s brand name and prestige
system, people, technologies that Vietnam has not yet - Developing labour force, improving professional knowledge
got during the years to come - Good administration, especially finance and personnel matters
- Global agricultural products always bear risks, - Renewing technology, increasing productivity and improving
fluctuation, unfair and are protected strongly by big products quality
importers, and leave loss to developing nations. These is - Setting up good clusters and cooperation with relevant enterprises
hard to improve while the domestic market is small and
competition is serve.
- Agricultural product business bears high risk, low
profit while business of other relating sectors and
services is tougher than that of others due to the specific
feature of farmers and agro-products
11/8/2006 39 11/8/2006 40
What should Vietnam’s enterprises do to Renewal competition strategy of
gain success in international integration Vietnamese enterprises
- Study integration issues, improve knowledge, update • Have both feet on the ground, create win-win status
information (self-educated, hiring experts) • Find the way of development and promoting
- Formulate business and competition strategies for the advantages (rather than reduce disadvantages),
enterprise focusing on motive advantages (rather than static
- Apply measures to improve competitive capability ones)
(improve management, renew technology, reduce • Further improve, innovate, perform and diversify
production cost, develop distribution system, brand • Stick to movements of the sector and its positions in
name, human resource training,…) the sector
- Boost cooperation with other enterprises; join into • Adapt to changes (change in competitive
advantages)
alliances, networks and associations
11/8/2006 41 11/8/2006 42
7
Increase added value for enterprises Enterprises’ competitive strategy selection
Competitive capability in the value chain • 3 basic competitive strategy directions:
Activities creating added value: - Cost leadership
1 – Product research and development: high added value
2 – Manufacture, processing and assembling: low added value
- Differentiation
3 – Product distribution and marketing: high added value - Focus
Most Vietnamese enterprises focus on the second activities of
manufacture, processing and assembling, less interest in services • 3 competitive motives according to the International
disadvantages and low profit. Need to shift to either first or third Trade Centre, ITC:
activities, or develop services to create more added value
- Fast track
- Participate into globalization supplying chain
- Package service
11/8/2006 43 11/8/2006 44
What the state should do to support enterprises
in international economic integration • Improve service quality and decrease service cost managed by state
and offered by monopoly SOEs
• Conducting necessary and proper adjustment that match • Facilitate the development of business support service system,
especially for SMEs and enterprises at rural areas
with new context of development and international
• Promote development of enterprise associations and alliances
economic integration
• Take full advantages of resources at in the country and abroad,
• Complete legal system, create safe legal corridor and allocate and use these sources efficiently and equally.
fair competitive environment for all enterprises • Continue to follow wise foreign relation trace, use up and build more
• Conduct strongly administrative reform, improve skilled bilateral and multi-lateral cooperation channels catering for the
country’s development
staff with capability, serving virtue and consciousness
• Execute violently policies to fight against corruption, profligate,
• Focus on developing human resource, implement bureaucrat and deceitful shortcoming
strongly reform in education and training system.
• Continue to develop and improve infrastructure and
decrease cost of infrastructure especially cost for
external activities
11/8/2006 45 11/8/2006 46
Roads ahead
• “Roads lead to opportunities in the 21st century Main issues once Vietnam enters the WTO
are business talent, joint venture, cooperation, are “inside border” ones
alliance and global network. Opportunities are
available around the world,especially in Asia.” Must overcome ourselves
(John Naisbitt)
Must act now
• “In 21 century, the winners will be those stand
ahead of changing curved line, review
continuously their career, create new markets Thank you!
and new roads, re-innovate competitive rules,
challenges to present situation” (Charles Handy)
11/8/2006 47 11/8/2006 48
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