Reaching Out to Global Markets

Trade has been the driving force of development for ages. A perfect example of this is China that was efficient in leveraging the opening of its economy for foreign companies to set up their manufacturing bases.

The multitude of manufacturing bases in China brought a boom in its economy, along with knowledge capacity development and rise in household incomes in the country. The same can be expected from developing economies such as India and Vietnam.

The rise in trading tariffs coupled with the US-China trade sanctions, along with rising labor costs in China is shifting some manufacturing from China to other developing economies such as Vietnam and India. The time is ripe for these two economies to leverage on this trend.

How can Vietnam and India rise up to the occasion and push reforms towards development of its trade and manufacturing prowess is one of the topics being discussed at the upcoming Horasis India Meeting, which will be held between 25 to 26 September, 2022 in Vietnam. The meeting will bring together 300 of the most senior members of Horasis to suggest ways in which both countries can increase its manufacturing capabilities.

Snippet of India’s Trade Scenario

India’s exports to the world was valued at US$394.81 billion in 2021, crossing its pre-COVID export value of 2019. Its biggest exporter is the US. In 2021, India exported goods valued at US$71.51 billion to the US. Petroleum products was the most exported product from India in 2021, valued at US$54.04 billion.

India has also brought in several reforms such as the “Make in India” initiative which was formally introduced in September 2014. The initiative came at an opportune time when the country was going through an economic crisis. The initiative’s aim was to strengthen its manufacturing sector by attracting investments from across the globe. “I want to tell the people of the whole world: Come, make in India. Come and manufacture in India. Go and sell in any country of the world, but manufacture here. We have skill, talent, discipline and the desire to do something. We want to give the world an opportunity that come make in India,” said Prime Minister of India, Narendra Modi while introducing the program.

Snippet of Vietnam’s Trade Scenario

Vietnam’s exports to the world was valued at US$406.75 billion in 2021, crossing its pre-COVID export value of 2019 by a significant margin. Its biggest exporter is also the US. In 2020, Vietnam exported goods valued at US$77.07 billion to the US. Telephones for cellular networks was the most exported product from Vietnam in 2021, valued at US$82.48 billion.

One in ten smartphones worldwide is produced in Vietnam. Vietnam’s trade has soared to unprecedented levels, thanks to trade favorable reforms brought in by the country. There’s a lot that can be learned from Vietnam’s experience for a developing economy such as India.

Vietnam has embraced trade liberalization with gusto and has not been shy of getting into free trade agreements with multiple countries. A signatory to 16 bilateral and multilateral free trade agreements, Vietnam is a member of the World Trade Organization, ASEAN, and has concluded bilateral trade agreements with the US, Japan, South Korea, the EU, and the Eurasian Customs Union. It is also part of some of the largest FTAs such as the RCEP (Regional Comprehensive Economic Partnership) and the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership).

Moreover, Vietnam boasts of a young and educated demographic that provides a pool of large and growing workforce. The median age in Vietnam is 32.5 years, with population exceeding 99 million. Vietnam is also part of the program led by UNESCO and the government of Malaysia in increasing the participation of girls in STEM (Science, Technology, Engineering and Mathematics) education for sustainable development and participatory citizenship.

Vietnam has also brought several reforms to ease the business climate in the country; making Vietnam a most-sought after destination for businesses to operate in. In lieu of the impacts of COVID-19, the government reduced corporate income tax by 30% for most companies in Vietnam in 2020.

Moving Forward

The work is not over yet. Much reforms coupled with fiscal stimulus is required for both Vietnam and India to ensure businesses manufacture in their country. To ensure that products manufactured meet standards of the world market, more preference should be laid on sustainable procurement and transparent sourcing measures.

Additionally, knowledge building in emerging technologies and cognitive skills should be invested upon. Both the US and China are known for its strengths in innovation and R&D. And closer home, a better example would be that of Singapore that has leveraged heavily on its knowledge economy.

Both India and Vietnam can take a leaf out of how these economies progressed to become a global manufacturing hub.

Featured Photo: A worker at a car assembly line in Vietnam.