Judging by the country’s imposing track record – China is the only Asian economy that has grown faster since 2000 – it is compelling to label Vietnam the ‘next big thing’ in the contested logistics game.
Next to Colombia, Indonesia, Egypt, Turkey and South Africa, it is part of the CIVETS1 group, an ensemble of auspicious economies that are expected to succeed the BRIC region, and all signs point to future growth.
Touted as a ‘hot market’ by investors around the globe, it can boast a strong economy, fast-growing population, relatively stable political environment and the potential to produce an outsized return in the future – the ideal breeding ground for a dynamic commercial road transport industry.
But, the pressure is now on Vietnam to make the next move and deliver on the promises made. According to the World Bank’s Vietnam Development Report 2012, the key challenge will be the transition to becoming an industrialised and modern economy.
To meet that ambitious target by 2020, the Vietnamese government has issued a Socio-Economic Development Strategy last year, identifying four key priorities to fuel change – stabilising the economy, building world-class infrastructure, creating a skilled labour force, and strengthening market-based institutions.
The World Bank’s report, however, does see a blockade or two along the way. “[Vietnam] has experienced bouts of macroeconomic turbulence in recent years – double-digit inflation, depreciating currency, capital flight, and loss of international reserves – eroding investor confidence. Rapid growth has revealed new structural problems. The quality and sustainability of growth remain a source of concern, given the resource-intensive pattern of growth, high levels of environmental degradation, lack of diversification and value addition in exports, and the declining contribution of productivity to growth.”
The development of the local transport equipment industry may therefore be hindered as well, as power generation has not kept pace with demand, logistical costs and real estate prices have climbed, and skill shortages are becoming more widespread. In fact, consulting firm McKinsey says that to make the transition to a productivity-driven growth trajectory, Vietnam now needs to boost labour productivity growth by more than 50 per cent. Otherwise the power economy is likely to run out of steam.
Though challenging, these roadblocks can be overcome. The World Bank argues that the root causes of the current problems lie in the country's incomplete transition to a market economy; and that a restructuring of state-owned enterprises (SOEs), improving the effectiveness of public expenditure and stabilising the financial sector may help creating a foundation to sustain rapid growth for Vietnam in the decade to come.
As a result, Vietnam has remained a charismatic marketplace, carried by a youthful population and an ever-present spirit of optimism. The question is now how the local trailer industry will set itself up to not fall behind in a time of structural change – especially in regard to increasing productivity.
According to the World Bank, Vietnam’s successful growth story has been driven primarily by rapid factor accumulation – that is to say physical and human capital – with productivity growth playing a secondary role. The McKinsey Global Institute (MGI) estimates that, taken together, an expanding labour pool and the structural shift away from agriculture contributed two-thirds of Vietnam’s GDP growth from 2005 to 2010. The other third came from improving productivity within sectors. But the first two drivers are now waning in their power to drive further growth, and experts say a surge in productivity within manufacturing and services will need to compensate; a surge that will most likely affect the trailer manufacturing market as well.
Fortunately for Vietnam’s transport equipment scene, current economic data is encouraging. London-based Business Monitor International (BMI) recently reported that, “Vietnam's freight transport sector appears to be going from strength to strength, following the recession-dominated 2009, with growth in the medium term expected to be very healthy across the board.”
Leading the way in terms of average annual growth will be the road sub-sector, BMI reported, which is set to average 7.14 per cent year-on-year growth over the company’s forecast period, to 2016.
On the other hand, as the macroeconomic picture across the globe is still looking bleak for the rest of the year. Even manufacturing giant China is struggling maintaining its supremacy in the region. “Clearly, the Chinese players will continue to be the driving force in the region for the indefinite future, but their individual share and positioning will depend on their respective strengths and weaknesses, and to a large extent will be dictated by any changing industry patterns within the massive Chinese market itself,” Roman Mathyssek, Director & Head of Global Truck Research and Advisory at IHS Automotive, told Global Trailer.
As a result, the local trailer industry will be facing increasing demand for efficient transport solutions that can support the country on the way to become a modern economy – and recent legislation may just play into its hands.
In February 2011, Circular No. 03/2011/TT-BGTVT, published by the Ministry of Transport, amended previous regulations on the maximum load capacities of truck and trailer combinations.
According to Hanoi-based business forum, Trailer, Truck & Container Market, under the new legislation, truck/semi-trailer combinations with a total of six or more axles can now carry up to 48 tonnes. Previously, this category was not even listed. The common five-axle combination can now cart 44 instead of 40 tonnes, while four and three-axle configurations remain limited to 34 and 26 tonnes, respectively.
Industry insiders now wonder whether Vietnam will be able to capitalise on organic growth and changing legislation, given that other internal matters such as improving the effectiveness of public expenditure – especially in regard to infrastructure improvement – have not yet been resolved.
These protracted weaknesses within Vietnam's supply chain and infrastructure are still leading to high costs of production and transport and don’t give the community much reason to turn Vietnam into a full-fledged manufacturing hub, as it happened with other countries in the region such as Malaysia and Thailand.
For instance, BMI cautions that the country's existing infrastructure would be “sadly lacking” and in need of a considerable financial injection; while a Hanoi newspaper recently pointed out that qualified staff is just as rare as modern roads. “Despite having quality workforce that possess dynamism and understanding of the local consumer culture, Vietnamese firms still lack managerial skills, techniques and professional project implementation plans.” Hence, those that view Vietnam primarily as a low-cost economy with an abundance of workers may need to adjust their thinking as wages are prone to rise at one point.
While some say that strengthening productivity and growth enablers could be a viable way to enhance competitiveness, others argue that with most other economies set to suffer far worse than Vietnam, including key export partners, the freight sector will take a hit in any case – regardless of internal progress.
Whatever the answer, Vietnam will certainly have to cope with a highly uncertain global environment in the near term. The economy faces a state of heightened risk because of macroeconomic pressures, including inflation that has built up as a by-product of the government’s efforts to maintain robust growth despite the global economic crisis. In early 2009, Vietnam’s global trade and foreign direct investment declined dramatically, and while exports have recovered, the future of these two sources of economic activity is quite uncertain.
To counteract that effect, attracting foreign investment and creating globalised brand value must remain high on the agenda. In a recent survey conducted by the Wharton School of the University of Pennsylvania and global communications firm Fleishman-Hillard, a majority of corporate executives, investors and business leaders indicated that they would be interested in doing business with multinational companies in the CIVETS countries – if the framework met global standards.
“Respondents said they were most attracted to CIVETS because of low labour and production costs and the countries' growing domestic markets. When asked to identify weaknesses, the survey participants cited political instability, corruption, a lack of transparency and infrastructure, and home-grown companies without much of a reputation or brand identification.”
While the CIVETS label does not have any economical effect per se, it could at least help Vietnam – and the local transport equipment industry – overcome that ‘personality issue’ and create a second wave of growth and prosperity while the belt tightening goes on around the world.
.jpg)
.jpg)
.png){kind=logo}
