Fair competition and sustainable economic development for SMEs

It is widely recognised that the decisive and tireless efforts to control the pandemic by the Vietnamese government and people have realised the uninterrupted economic growth of Vietnam.

A variety of policies for expansion of exports and further industrialisation are also thought to have played an important role in the recent rapid economic development.

The expansion of exports from $96.9 billion in 2011 to $281.5 billion in 2020 suggests that industrial policies have brought significant contributions to the continuous growth of the economy. On the other hand, it seems that a large part of intermediate inputs used to assemble exported products have been imported, not produced domestically.

For instance, an article in local media on May 17 described the localisation rate of the electronics industry at only 5-10 per cent. The number implies that economic effects brought by exports of capital intensive products such as electronic products would have been largely driven away to foreign economies. This situation would prove appropriateness of the industrial policy that the Vietnamese government has carried out to develop supporting industries in the country. Generally, the expansion of supporting industries would reduce the dependency of intermediate inputs on imports from foreign economies, and economic benefits by exports would spread to a larger part of the Vietnamese domestic economy, which would lead to realisation of sustainable economic development.

In order to expand supporting industries, business activities of small- and medium-sized enterprises (SMEs) would need to be promoted, and their entrepreneurship must flourish because SMEs, as seen in overseas economies, are the main players in the sector. The Vietnamese Enterprises White Book published in April 2020 by the General Statistics Office of Vietnam indicates that about 97.2 per cent of businesses were SMEs (including micro businesses) in Vietnam in 2018. It suggests that Vietnam has strong foundations of supporting industries. In addition, desires of foreign SMEs to expand their business in Vietnam look significantly positive even in the current global situation.

A result of a business survey conducted by Japan Finance Corporation in August and September 2020 shows that 48.1 per cent of Japanese SMEs with subsidiaries in Vietnam have willingness to expand their business in Vietnam; on the contrary, only 3.8 per cent signalled a reduction of business. The survey also notes that Vietnam has been chosen for seven consecutive years as the most promising economy for business expansion by Japanese SMEs with overseas subsidiaries.

The recent trend of foreign direct investment (FDI) would also explain the positive attitude of foreign SMEs towards the economy. As seen in data published by the Ministry of Planning and Investment and the Embassy of Japan in Vietnam (see graph), the FDI amount per case has been getting smaller, which would imply that investments originated from foreign SMEs and targeted to domestic ones have been increasing in terms of both amount and number of cases.

However if dominant companies, for example, abuse their superior bargaining position against SMEs, substantial disadvantages in trade would be brought to SMEs.

Moreover, the recent upward trend of FDI would be interfered with such abusive conduct. FDI that seems to be largely carried out through merger and acquisition (M&A) would be one of the most effective tools when Vietnamese SMEs need specific technologies or funds to develop their business. But, if abusive conduct is seen in the market, it would make investments in SMEs unattractive because potential of SMEs would not be demonstrated in such circumstances.

Thus, in a situation where the Vietnamese economy needs further development of the supporting industry, maintaining and promoting a fair and free business environment for them is crucial.

In Vietnam, like other jurisdictions, regulations against abuse of dominant market position and control of economic concentration have been implemented in accordance with the Law on Competition that will be legitimately enforced by the National Competition Commission (VCC) to be established under the Ministry of Trade and Industry (MoIT).

As the commission has not been established yet, the MoIT, responsible for state management on competition, has designated the Vietnam Competition and Consumer Authority (VCCA) to provisionally implement the competition legislation in Vietnam.

The VCCA, for the jump-start of full-scale law enforcement by the VCC, has made efforts to draft guidelines on regulations against abusive conduct and anti-competitive economic concentration, where the Japan International Cooperation Agency (JICA) has been supporting such efforts by implementing a project for improving competition policy and enhancing the effective enforcement of the competition law in cooperation with the Japan Fair Trade Commission.

These guidelines would indicate what kinds of conduct would be illegal anticompetitive activities and what factors would constitute violation of the Law on Competition, among others, which would help the authority investigate cases more efficiently and effectively to secure fair and free competition. Once released (when the VCC formally established), these guidelines are about to be important tools for large enterprises to understand the regulations and actively comply with provisions on abuse of dominant market position and control of economic concentration. The usefulness would be found for SMEs too. Once they understand what abusive conduct would be, they would be able to ask the authority to exclude such conduct in case they face such abuses. When SMEs want to expand their business with investments from other enterprises, the guidelines on economic concentration would be helpful for investors to conduct M&A abiding by the Law on Competition.

There would be no doubt that the current efforts of the VCCA will lead to effective law enforcement of the VCC to secure a fair and free business environment, which is essential to realise the sustainable economic development of Vietnam.

By Okumura Tsuyoshi - JICA expert at the Vietnam Competition and Consumer Authority, Ministry of Industry and Trade