an analysis of national competitiveness: the perspective...

Asia Pacific Management Review (2004) 9(20), 353-377

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An Analysis of National Competitiveness: The Perspective from Vietnam

Wen-jen Hsieh,∗ Nguyen Quoc Te, Dinh Phi Ho, Doan Thanh Hai,

Tran Kim Dung, Nguyen Huu Lam, Nguyen Trong Hoai,∗∗ and Min-Ching Hong∗∗∗

Abstract

This paper evaluates Vietnam's national competitiveness by combining collected hard data and surveyed soft data from five categories, including economic performance, technology development, human resource, management capability and productivity. Criteria are selected to fully define each category and quantified by using the collected data. The data are then standardized and combined to create a competitiveness index. The most well-known competitiveness indices fail to survey some of the less developed countries. The index reported here fills the gap left by other studies. Vietnam performs well in the category of economic performance but is less impressive in each of the four other categories. While these low scores are indicative of Vietnam's present level of development, recent trends of development, demonstrated by criteria such as gross capital formation, growth of exports and industrial productivity, suggest Vietnam will continue the present growth momentum. Vietnam's performance is quite admirable given its current development status, and Vietnam's future business and economic development prospects are found to be strong.

Keywords: Vietnam; National competitiveness

1. Introduction

Although the regional economy of Southeast Asia suffered from the financial crisis in 1997-98 and again in 2001, domestic private consumption and investment in Vietnam have continued to grow steadily. Vietnam borders the Gulf of Thailand, Gulf of Tonkin, and South China Sea, alongside China, Laos, and Cambodia. The country, of population 81 million, has experienced rapid growth since economic liberalization by the Doi Moi Congress in 1986. Vietnam’s average annual growth rate of gross domestic product (GDP) was as high as 7.4% for the period from 1992 to 2002 [22], so GDP has thereby more than doubled. Most striking is the rapid economic growth in Vietnam coupled with very stable macroeconomic conditions. Since the initiation of economic reforms in 1986, Vietnam has actively participated in regional and global economic activities. Vietnam became a member of the Association of South-

∗ Corresponding author. Department of Economics and Institute of Political Economy, National

Cheng Kung University, One University Road, Tainan [70101], Taiwan. Fax: +886-6-276-6491, Tel: +886-6-275-7575ext. 50260. E-mail: [email protected].

∗∗ University of Economics-HCMC, Vietnam. ∗∗∗ National Cheng Kung University, Taiwan.

Wen-jen Hsieh et al.

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East Asian Nations (ASEAN) in 1995 and formally became a member of the Asia-Pacific Economic Co-operation (APEC) Forum in 1998.

With entry into the World Trade Organization (WTO) and ASEAN Free Trade Agreement (AFTA) both expected by 2006, there is a growing need to accelerate the pace of economic reform. This requires an overhaul of tariff and non-tariff barriers. As the first step in its bid to join the WTO, Vietnam signed a three-year trade agreement with the European Union on quotas and tariff reductions for textiles and clothing in February 2003. Moreover, Vietnam established a wide-ranging bilateral trade agreement with the US, which came into force in December 2001. Many provisions of the agreement will affect Vietnam’s international trade and therefore have the potential to alter dramatically Vietnam’s investment and business climate. The foreign direct investment (FDI) inflow to Vietnam more than doubled in 2002.

Nevertheless, these positive trends mask some major difficulties in economic performance. Many domestic industries have reported large stockpiles of inventory and tough competition from more efficient foreign producers. Meanwhile, Vietnamese authorities have moved to implement the structural reforms needed to modernize the economy and to create more competitive, export-driven industries. Many international rating organizations, such as the Institute for Management Development (IMD), do not include Vietnam in their respective reports. Therefore, this study attempts to fill a need for a better general understanding of this emerging economy.

The paper is organized into five sections. Section 2 provides a literature review of the concept of national competitiveness. In Section 3, we describe Vietnam’s recent development using hard data. Section 4 discusses the methodology used in the study. We show our results and a national competitiveness index for Vietnam in Section 5. Finally, conclusions and future outlook are discussed.

2. Literature Review

National competitiveness has been a controversial concept since the idea first appeared with the formation of nation-states over four hundred years ago. The concept’s relation to economic development has been of special interest to researchers, and sharply contrasting levels of economic growth in different countries over the past half-century have renewed interest in analyzing why nations develop at such disparate rates. Research over the past ten to twenty years has produced several definitions and models of national competitiveness.

One of the leading competitiveness surveys is the World Economic Forum’s (WEF) Global Competitiveness Report (GCR) [16]. It defines compet-


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itiveness as “the set of institutions and economic policies supportive of high rates of economic growth in the medium term.” The GCR utilizes Harvard University professor Michael Porter’s national diamond model for measuring a nation’s competitive advantage [15]. The report is comprised of two indices that rank 102 countries by measuring a total of 160 variables, of both hard data and surveyed (soft data); the soft data are survey responses from business executives.

A second leading index is published by the Institute of Management Development (IMD) [11]. The World Competitive Yearbook (WCY) defines “Competitiveness of nations [as] how nations create and maintain an environment which sustains the competitiveness of its enterprises [8].” The index measures over 320 criteria to measure four constructs - economic performance, government efficiency, business efficiency, and infrastructure - and ranks fifty- nine countries. As in the WEF’s GCR, the WCY is comprised of both hard data and surveyed data, which is again obtained from business executive survey responses. Though providing very comprehensive indices describing the economic and business environments of the nations they survey, both the GCR and WCY have shortcomings. One of the two principal drawbacks is that both publications neglect underdeveloped countries and concentrate on more developed countries. The second drawback is tied to the first in that the complexity of the reports makes it difficult to regenerate the model for those countries not included in the reports [13]. Therefore, comparing the competitiveness of a surveyed country with one not included in the reports is impossible.

In this paper, we construct a scaled-down and more manageable model to measure Vietnam’s competitiveness based on five main categories: economic performance, technology development, human resource, management capability, and productivity. Several sub-categories are used to measure each category, and then indicators are selected to define these sub-categories. There are thirty- five indicators of hard data and forty-six of surveyed data. There are three main distinctions between this study and the two abovementioned indices. The different categories in the WCY index are equally weighted [19], while this model weights each category and sub-category based on the expert opinions. We believe this produces a better insight into the country’s current economic development phase. The surveyed data used in the GCR and WCY are limited to business professionals, while this research includes surveys from experts in academia, business, and government; this provides for a better understanding of the nation’s economic environment. Finally, using the model developed in this study, researchers can compare Vietnam with the other countries in ASEAN, many of which are not surveyed in either the WCY or GCR.


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3. Recent Developments in Vietnam

An important recent event in Vietnam was the April 2001 meeting of the Ninth Congress of the Communist Party of Vietnam (CPV). This meeting is of great significance in Vietnam, because within Vietnam’s one-party state political structure, the CPV controls all formal state apparatus, including the executive, legislature, and judiciary functions. Hence, the CPV also controls policy and oversees all political appointments [6]. It therefore provides a framework for discussing Vietnam’s problems and progress, as well as sets the party mission and strategy for the future.

Since this meeting in 2001, there has been some evidence of divisions within the Party. The more conservative “party bloc” is concerned about the perceived negative effects of economic growth such as corruption and drug trafficking, whereas the reform-leaning “government bloc” argues for the Party to separate itself from the government and for a greater private sector role in the economy. With the naming of the more moderate Nong Duc Manh to Party General Secretary during the Ninth Party Congress, the reformist group seems to have gained the upper hand, which has been reflected in the quickened pace of economic reform during 2002.

Given continued momentum in economic reforms and sustained political stability, Vietnam’s economic prospects are rather bright. However, some economic conditions may need to be adjusted to continue economic development. Using collected hard data, we discuss below the five categories of national competitiveness: economic performance, technology development, human resource, management capability and productivity.

3.1 Economic Performance

In 2001 and 2002, Vietnam’s real GDP growth was 6.81% and 7.0%, respectively, according to World Bank [22]. Vietnam remained one of Asia’s fastest growing economies. Domestic demand, led by consumption and investment, continued to be the main source of economic growth [2]. Measured by employment, Vietnam is an agrarian society with around 65% of the labor force working in agriculture, forestry and fisheries. Despite robust GDP growth of 4.2% annually over the past decade, the agricultural sector currently accounts for just 23% of GDP, down from 33.9% in 1992. The industrial sector grew by more than 10% annually for the same period of time [22]. The industrial and construction sectors were the main contributors to growth in 2001 and contributed around 39% GDP in 2002 [4]. Industry is relatively well diversified, and all sub-sectors of industry have expanded over the past decade.

Domestic tax collections continue to rise in line with nominal GDP, but


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revenue from taxes on trade is only growing slowly as Vietnam begins to implement tariff reductions in line with the accession to the AFTA, APEC, and other commitments. To deal with this problem, the government placed the Customs Department under control of the Ministry of Finance in mid-2002. However, the current system is considered to lack both transparency and efficiency. For further reform on the tax system, the National Assembly passed an Amended Law on the State Budget in December 2002 that divides res- ponsibilities between the central and sub-national levels of government, seeks to strengthen the role of local government, and requires greater transparency [4].

A bilateral trade agreement between Vietnam and the U.S. came into effect on December 11, 2001. Under the agreement, the U.S. grants “normal trade relations status (formerly most-favored nation status)” to Vietnam. The World Bank has estimated that a trade agreement with US could boost Vietnam’s exports by US$800 million a year. Although Vietnam sought to expand to other markets including Western Europe and the U.S. after the regional financial crisis in 1997-98, most of its significant trade is still with East Asia [17]. In the external sector, exports particularly of garments, footwear, and seafood products, are forecasted to increase by 9.1% in 2003 and by 8.4% in 2004. Vietnam’s exports to US will probably continue to grow due to the impetus created by the bilateral trade agreement (BTA). The government’s target for exports to the US in 2003 is $3.2 billion [2].

Vietnam’s recent push to open its economy however may also bring with it some disadvantages as exports are now close to half of GDP [24]. Imports rose slower than exports since 1996, reflecting in large measure the diminished inflow of foreign investment but also a more realistically valued Dong vis-à-vis US dollar and a variety of administrative measures, including temporary import bans and restricted access to foreign exchange and credit [4]. An economy more open to the global market may also lock Vietnam in unskilled labor intensive industries [18].

3.2 Technology Development

While Vietnam’s infrastructure is regarded as outdated and undeveloped, there has been progress toward improving it [9]. The growth of Vietnam’s mobile phone telecommunications market has been rapid and its telecommunications industry has been rated by the International Telecommunication Union (ITU) as the second-fastest-growing in the world after China. In 2002 there were 1.7 million mobile phone subscribers and nearly 4 million telephone mainlines; this is equivalent to around 2.1 and 4.9 per 100 people compared with only 0.2 and 2.0, respectively, in 1997. Full Internet services became


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available in mid-1998 in both Hanoi and Ho Chi Minh City. Despite being expensive, the number of Internet users has risen rapidly to around 1.9 million in 2002 [4].

Government spending on transportation projects was estimated to be US$713 million in 2000. Vietnam has 210,000 km of roads, a network that is twice as dense as that in Thailand or Malaysia. However, only 13.5% of the road network is considered to be in good condition, just 26% has two or more lanes, and 29% is tarred. Road use has been rising by about 8% a year in the past decade. The railway system comprises six single-track routes totaling 3,260 km. Rail use, in terms of passengers per km, has been rising by about 10% a year over the last five years.

Under a plan approved by the government in February 2003, Hanoi will be the site of a new information-technology centre to be completed by the end of 2003. Similar infrastructure networks, facilitated by an investment of about US$16.6 million, will eventually be built in Danang and Ho Chi Minh City as well. The government demonstrated its desire to encourage e-commerce in mid-2002 by the approval of a US$32 million plan for upgrading the country’s information technology (IT) systems. It would upgrade IT hardware and software and also create an extranet for the banking sector, a central bank intranet and a national check-clearing system, among other things [6].

3.3 Human Resource

In 2002, Vietnam’s population was estimated at 80.5 million, an increase of 1.3% from the prior year [22]. The population is 75% rural and is concentrated in the two main rice-growing deltas: the Red River in the north and the Mekong in the south. The urban population is growing rapidly, at a yearly rate of around 3.7% and now accounts for about 65% of the annual increase in the population. One of Vietnam’s great attractions for foreign investors has been its inexpensive and relatively high-quality labor force. The Vietnamese have a high literacy rate (94%) and respectable levels of education (80% have completed primary education). The low monthly minimum wage for unskilled labor, though on the rise, is still appealing to investors in labor-intensive industries.

Although access to higher levels of education has historically been limited, the introduction of near universal primary education has produced high literacy rates. The Vietnam Living Standards Survey 1997-98 found that 89% of the population aged ten years and older were literate, including 86% of females and 94% of males. Vietnam’s school enrollment rates suffered a decline in 1987-91, particularly at the secondary level, because of a budgetary squeeze. However, by 1999 the share of government current spending allocated to


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education had risen to over 16%, at which it has remained since [4]. Despite rising educational levels, 80% of the labor force is considered to be unskilled. Skilled workers are disproportionately concentrated in and around Hanoi and Ho Chi Minh City. In Ho Chi Minh City, 32% of workers are skilled, including 6% who have a college education, and in Hanoi 25% are skilled with 6.5% having a college education.

The labor force grew rapidly in 2002 at a rate of 2.9%, increasing by 1.2 million to reach 40.7 million. The formal unemployment rate is holding steady at about 6% in towns but close to 1% in rural areas, for a national average of 2.3% in 2003. The minimum wage in foreign-invested firms is D626,000 (about US$40) per month in the main cities but much lower in most local firms; the government sector minimum wage begins at D210,000 per month [4].

3.4 Management Capability

The government of Vietnam continues to pursue a “socialist-oriented market economy.” The state is heavily involved in many sectors, such as finance, telecommunications, energy and manufacturing. Private enterprise is permitted in some of these areas, particularly manufacturing, but in others, varying degrees of restriction still apply. A gradual program of partial privatization (“equitization”) of state-owned enterprises (SOEs) is continued through mergers and liquidations, which has reduced the total number of SOEs from 12,300 in 1990 to around 5,600 and accounted for 38% of GDP in 2002 [6].

Vietnam formulated a new Enterprise Law in 2000 which simplifies the business registration process [4]. More than 36,000 private small-medium enterprises (SMEs) registered in 1998 and 1999. This brings the total formation of enterprises to at least 70,000. These firms had a total registered capital equivalence of US$2 billion, or 6% of GDP, and estimates suggest that close to one million people, or about half as many that work in SOEs, are employed in these firms. Nearly 70% of the newly registered SMEs are new entities, implying significant new investment; the remaining 30% have transformed themselves from informal household enterprises into formal SMEs, which suggests that confidence in the formal system has improved. Meanwhile, the government announced a plan to privatize 2,500 of the country’s 5,600 SOEs. The climate for SOE reform has improved significantly, even if actual implementation of SOE reform lags significantly [24].

A gradual return of Asian investors, since the 1997 crisis, was marked in 2002. Taiwanese firms led the way with 185 projects worth US$260 million, followed by South Korea (142 projects, US$261 million) and Hong Kong (55


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projects, US$142 million). Many of these projects are of high quality and in export-oriented manufacturing. In 2002, while the number of projects rose to around 700, an increase of more than 30% from previous year, total FDI commitments came to only US$1.4 billion, a drop of more than 43% in value [4].

The regulatory framework for foreign investment remains restrictive in Vietnam. Investors are limited to certain industries for investment, in the structure of their investment vehicles, in their ability to finance their operations and in their capacity to respond to changes in economic circumstances. Nevertheless, some important progress in liberalizing this regime was started in 2002. A government decision made in May 2002 simplified procedures and relaxed regulations for investment in a wide variety of local joint-stock companies. This move opens more potentially lucrative activities to foreign investment and replaces the burdensome requirement of approval from the prime minister with a simple local registration procedure. The likely scrapping of the tax on profit remittances in 2004, as part of the imposition of a uniform business tax for domestic and foreign enterprises, constitutes another major reform. In light of the fast expansion of SMEs, emergence of foreign enterprises, and privatization of SOEs in Vietnam, the management capability of domestic and foreign firms is becoming more important than ever.

3.5 Productivity

Vietnam maintained rates of growth above world averages during the 1990s. The average annual growth in Vietnam’s agricultural, industrial, and service sectors were, respectively, 4.2%, 11.2%, and 6.6% for the period of 1992 to 2002 [22].

Vietnam is still predominantly an agricultural society. Over three-quarters of the population live in rural areas, and two-thirds of employment is in agriculture. Agricultural grew by an annual average rate of 4.1% in 1998-2002, which still contributes about 25% of non-oil exports and accounted for 24% of GDP in 2002. Between 1998 and 2002 industrial output grew at an annual average rate of around 13%, and industrial GDP grew by an estimated 9.2%, well above the 6.3% average growth rate of GDP during the same period. Industry has thus been the main driving force behind the economy’s recent rapid growth, and the non-state sector is becoming increasingly important. The output of privately owned and mixed non-state enterprises rose by more than 14% annually from 1998 to 2002, and they are now growing faster than either the state-owned industrial sector or the foreign-invested sector [4].

The government has realized the value of the Internet as a business tool to raise efficiency and help harmonize various services across the country. This


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enthusiasm for e-commerce is demonstrated by a US$16.6 million e-commerce development project to set up at least three information-technology centers approved in February 2003, and a range of pilot projects now underway in government and banking sectors. The improvement in productivity can be expected due to spillover effects from the developing IT and banking industries.

Vietnam’s overall performance in terms of the above discussed five categories is very impressive, especially for a less developed country (LDC) with 2002 GDP per capita of US$439 [1].

4. Structure of National Competitiveness

In this paper, national competitiveness (NC) is defined as a national economic and political environment that allows both domestic and foreign firms to maintain rapid economic growth. We delineate NC using five categories: economic performance, technology development, human resource, management capability and productivity. Each category is then described using sub-categories that more specifically define the significance of the category. Figure 1 displays the five categories and respective sub-categories. These sub- categories are fully measured using numerous indicators, which are quantified with both hard data and soft (surveyed) data. In building a NC index for Vietnam, Vietnam will ultimately be compared with nine ASEAN countries and Taiwan.

Hard data were collected from various sources, including the World Bank, Asian Development Bank, ASEAN Statistical Yearbook, etc. Surveyed data were collected from a pilot survey and a second survey, conducted primarily in Ho Chi Minh City, Vietnam in September 2002 and April 2003, respectively. This two-stage method ensures reliable and consistent results. The surveys had a total of forty-six questions and were distributed to business managers, government officials, and scholars from academia in Vietnam. Fifty respondents were chosen to answer questions for each of the five categories, totaling 250 surveys. Respondents were asked to reveal the extent of their agreement on a ten-point Likert scale, with “0” and “10” to denote strongly disagree and strongly agree, respectively.

We employed the following method to standardize the hard data so that they are compatible with the soft data. All hard data were standardized on a spectrum identifying the lowest value as “0” and highest value as “10.” The data transformation formula is

Score = 10* (country value – sample minimum) / (sample maximum – sample minimum),


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where the sample minimum and maximum values are the minimum and maximum values for nine ASEAN countries and Taiwan.

The index is set up so that higher scores stand for better performance. However, some research criteria have an inverse relationship with national competitiveness.1 In other words, higher values represent poorer performance and hence lower competitiveness. To correctly assess these indicators, we subtract their standardized scores from ten.

Figure 1 Structure of National Competitiveness

1 Criteria include unemployment rate, inflation rate, total debt outstanding and disbursed, and ratio

of total debt service to exports (for the category of economic performance), the illiteracy ratio, the pupil teacher ratios in all three levels of school, the levels of recruitment cost, training cost, and severance payment (for the category of human resources), and tax evasion and practice in bribing (for the category of management capability).

Domestic Economic Information Government Efficiency International Trade Finance

National Competitiveness

Technology Development

Productivity

Basic Infrastructure Information Technology Energy Status Research and Development (R&D) Technology Management Technology Environment Patents and Copyrights

Management Capability

Innovation Capability Financial Capability Corporate Responsibility Managers’ Competence Culture Intra-industrial Integration International Operation

Agriculture-Related Trade Mining Industry Manufacturing Industry Information Technology Industry Construction Industry Service Industries

Manpower Utilization Cost of Wages and Employee Benefit Turnover Labor Disputes or Industrial Disputes and Union Power

Economic Performance

Human Resource


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The composite index of national competitiveness is calculated as:

∑∑∑∑∑=====

++++=54321

155

144

133

122

111

n

jjj

n

jjj

n

jjj

n

j

jj

n

jjj PRmWMCmWHRmWTDmWEPmWNC

where NC is the national competitiveness of the specific country, Wi is the weight of the ith category (i = 1, 2, 3, 4, 5), mij is the weight of the jth sub-category (j = 1, 2, …, ni), EPj is the standardized score of the jth sub-category of economic

performance, TDj is the standardized score of the jth sub-category of technology

development, HRj is the standardized score of the jth sub-category of human

resource, MCj is the standardized score of the jth sub-category of management

capability, and PRj is the standardized score of the jth sub-category of productivity.

Wi and mij are the relative weights based on 250 valid questionnaires distributed to scholars, government officials and managers of domestic and foreign firms. Table 1 shows the surveyed results from each of the fifty respondents of the five categories who were asked to weight the relative importance of each category. The category average weights (Wi) are 21.49%, 19.99%, 21.92%, 19.63%, and 16.97%, respectively, for the five categories of economic performance, technology development, human resource, management capability and productivity. The sub-category weights (mij) are taken from the fifty individual category surveys and are discussed in detail in Section 5.

Table 1 Relative Category Weights for Vietnam

Weight（%） Category Economic

Performance Respondents

Technology Development Respondents

Human Resource

Respondents

Management Capability

Respondents

Productivity Respondents

Mean

Economic Performance 23.9 16.74 23.14 20.68 23.0 21.49

Technology Development 16.4 23.00 21.47 19.86 19.2 19.99

Human Resource 20.4 24.60 22.76 21.86 20.0 21.92

Management Capability 19.7 21.20 19.16 18.98 19.1 19.63

Productivity 19.6 14.46 13.47 18.62 18.7 16.97


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5. Empirical Study

This section examines the Vietnam’s competitiveness based on the five categories and highlights Vietnam’s strengths and weaknesses. Sub-sections 5.1 to 5.5 discuss in detail the results for the five categories. The tables in each sub-section list the standardized scores for the indicators that measure the different sub-categories of each category. The last two columns list the standardized scores for Vietnam and the mean scores (and the standard deviations) for nine ASEAN countries and Taiwan. We also list Vietnam’s sub-category mean scores in Tables 2 to 7.

5.1 Economic Performance

Survey respondents rank ordered the weights (m1j) for economic performance sub-categories in the following priority: domestic economic information (26.8%), international trade (26.3%), government efficiency (26.1%) and finance (20.7%). The surveyed results coincide with the general perception of the less developed financial sector in Vietnam. The capital markets are undeveloped, and the fledgling equities market is only just beginning to open to foreigners. Meanwhile, companies not using offshore finance must use the heavily controlled Vietnamese banking system [3]. Nevertheless, liquidity and lending conditions in the country are improving. The surveyed results are consistent with the findings from the pilot survey conducted in October 2002 [10].

Table 2 shows that Vietnam performs very well in the sub-category domestic economic information. Particularly notable are the criteria concerning gross capital formation, growth of GDP, and growth of industrial sector. From 1999 to 2001, Vietnam’s gross capital formation as a percentage of GDP has been 25-30%, which is higher than the domestic saving as a percentage of GDP; this implies net foreign saving inflows. As already noted in Section 3, Vietnam’s real GDP growth was approximately 7% for 2001 and 2002 and was expected to remain above 7% in 2003 [6]. Industrial production growth was the main ingredient in Vietnam’s rising GDP.

In terms of government efficiency, ratios of government revenue, expenditure and budget balance to GDP are adopted to evaluate the efficiency of a country’s bureaucratic system. While the hard data shows Vietnam’s performance has been average, three of four surveyed data scores are consistently low, implying that the expert respondents are generally not impressed with government efficiency. That being said, efforts to improve regulations, laws, and institutional framework are continuing. A recent effort to bring its accounting system into line with international standards by establishing a legal framework for accounting went into effect in the beginning of 2003.


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Table 2 Economic Performance Scores Economic Performance Standardized Scores (0~10)

Sub-categories Indicators Vietnam Mean ·Gross Domestic Product (GDP) 1.12 2.37 (3.13) ·Growth of GDP 5.70 3.70 (2.89) ·Unemployment rate 4.40 5.41 (3.09) ·GDP per capita 0.21 2.55 (3.57) ·Growth of GDP per capita 6.60 4.26 (2.98) ·Gross capital formation as a % of GDP 10.00 6.11 (3.29) ·Gross domestic savings as a % of GDP 4.81 4.24 (3.79) ·Growth of agricultural productivity 4.21 3.87 (2.82) ·Growth of industrial productivity 7.98 5.67 (3.20) ·Growth of service productivity 2.89 3.06 (2.93) ＊Resilience of the economy 7.32 5.87 (1.73)

Domestic Economic

Information

Mean 5.02 4.25 (0.66) ·Government revenue as a % of GDP 4.23 4.06 (2.86) ·Government expenditure as a % of GDP 2.05 2.49 (3.20) ·Gov. budget balance as a % of GDP 3.96 4.05 (3.73) ＊Degree of political stability 7.12 6.73 (1.69) ＊Effectiveness of government policy

implementation 5.88 5.69 (1.47)

＊Adequacy of legal framework in promoting the country's competitiveness 5.36 5.74 (1.59)

＊Degree of compliance with regard to the legal requirements for conducting business 5.32 5.61 (1.79)

＊Adaptiveness of government policies to changes in the economic environment 5.08 5.55 (1.58)

Government Efficiency

Mean 4.87 5.05 (1.58) ·Exports of goods and services 0.97 3.42 (4.05) ·Imports of goods and services 1.09 3.24 (4.01) ·Growth of exports of goods and services 7.30 3.38 (3.43) ·Growth of imports of goods and services 6.71 5.51 (3.56) ·Balance of trade 0.12 3.37 (3.85) ·Balance of current account 0.78 3.29 (4.01) ·Balance of trade/GDP 2.35 3.63 (2.84) ·Degree of openness 3.41 4.09 (3.39) ＊Adequacy of facilities provided by the government

that are necessary for companies to access foreign markets

4.24 5.63 (1.69)

International Trade

Mean 3.00 3.95 (1.96) ·Rate of inflation (implicit GDP deflator) 3.91 6.04 (3.70) ·Reserves including gold 0.21 2.65 (3.65) ·Total debt outstanding & disbursed 7.28 5.60 (4.28) ·Total debt service/exports 9.47 8.46 (3.43) ·FDI, net inflows in reporting country 7.85 5.03 (2.92) ＊Feasibility to access the local financial market 4.84 5.57 (1.93) ＊Soundness of central bank policy on the country’s

economic development 5.36 5.61 (1.94)

Finance

Mean 5.56 5.51 (1.33) Note: ·and＊, respectively, denote hard data and soft data.

Standard deviations are in parentheses.


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Vietnam’s current performance in international trade is lackluster, but the index scores envisage a much better future. The absolute measures of exports and imports, balance of trade, and balance of current account indicate very poor performance. Vietnam’s low overall performance indicates that Vietnam’s level of globalization is still behind that of other outward-oriented market economies in Southeast Asia. This, however, is offset by high scores for growth of exports and imports, which demonstrate Vietnam’s commitment to opening its economy and signing trade agreements [7]. Moreover, exports, particularly of garments, footwear, and seafood products, are forecasted to increase by 9.1% in 2003 and 8.4% in 2004. Vietnam’s exports to the U.S. will probably continue to grow due to the impetus created by the bilateral trade agreement (BTA). The government’s target for exports to the U.S. in 2003 is $3.2 billion [2]. Additionally, the one surveyed indicator’s low score further reflects dissatisfaction with the government’s performance.

Vietnam’s performance in the sub-category finance is noteworthy for its high scores in FDI and total debt criteria. Vietnam has been able to keep its debt at minimal levels. Additionally, Vietnam has been successful in capturing increasing amounts of FDI since it began economic reforms. The surveyed data indicate some concern with the condition of financial markets, such as the rigidity of the centrally controlled banking system.

In sum, Vietnam’s scores in economic performance are impressive consi- dering its level of development.

5.2 Technology Development

The relative importance (m2j) for the sub-categories of technology development in Vietnam are, in order of importance, research and development (18.4%), information technology (15.8%), basic infrastructure (15.8%), technology management (14.9%), technology environment (13.3%), patents and copyrights (11.8%) and energy status (10.0%).

The standardized scores in Table 3 reflect the reality of Vietnam’s level of technology development. Vietnam performs poorly for all hard data criteria, which indicates its low level of physical and information technology infrastructure. The number of main telephone lines, number of host connections to the Internet, number of computers, and number of cellular phone subscribers all have very low standardized scores. For comparison, in 2001 Vietnam had 38 main phone lines per 1,000 people, compared with 110 in East Asia; 15 mobile phones per 1,000 people, compared with 97 in East Asia; and 11.7 personal computers per 1,000 people, compared with 19.1 [23].


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Table 3 Technology Development Scores Technology Development Standardized Score (0~10)

Sub-categories Indicators Vietnam Mean ·Density of road network 0.39 1.80 (3.37) ·Density of railroad network 0.60 1.89 (3.66) Basic

Infrastructure Mean 0.49 1.73 (3.41) ·No. of computers per 1,000 people 0.16 2.18 (3.48) ·No. of host connections to internet per 1,000

people 0.00 3.42 (4.24)

·No. of people access to internet per 1,000 people 0.38 2.24 (3.61) ·No. of main telephone lines per 1,000 inhabitants 1.11 3.28 (3.55) ·No. of cellular/mobile telephone subscribers per

1,000 inhabitants 0.30 3.71 (4.15)

Information Technology

Mean 0.39 3.05 (3.83) ＊Technological cooperation between companies 3.04 4.85 (1.69) ＊Technological cooperation between universities

and companies 2.90 4.75 (1.87)

＊Technological cooperation between companies and government research 3.42 5.15 (1.92)

＊Technology transfer between universities and companies 3.17 4.65 (1.64)

＊Lack of sufficient financial resources does not constraint technological development 5.22 5.94 (1.08)

Technology Management

Mean 3.55 5.07 (1.46) ＊Basic research does enhance long-term

economic and technological development 4.00 5.79 (1.53)

＊Science and technology arouses the interest of youth 6.02 6.08 (1.21)

＊Patent and copyright protection is enforced in your country 2.15 4.16 (2.08)

Technology Environment

Mean 4.06 5.34 (1.54) Note: ·and＊, respectively, denote hard data and soft data.


The scores also illustrate a major gap between the more objective hard data and subjective surveyed data. The scores for the surveyed data of expert opinions are all much higher than the hard data. This phenomenon can most likely be explained by a better perception of local conditions in major cities compared with that in the countryside as well as the fact that the respondents (scholars, government officials, and business executives) have a higher level of education and access to better infrastructure and facilities. For example, in 2001 Vietnam had 38 main phone lines per 1,000 people in the country compared with 133 phone lines in the largest city [23].

Two developments in Vietnam will work toward improving this infrastructure shortfall. The first is the obligation to open up its telecommunications market to U.S. firms under the U.S.-Vietnam bilateral trade agreement, which came into effect in late 2001. The second was the official launching of


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Vietnam’s first privately owned Internet Service Provider (ISP) in June 2003.

There are also efforts underway to improve the country’s basic infrastructure; Japan has agreed to provide US$31 million to support a program to rebuild 45 bridges in 18 provinces in the central region. Although the reconstruction project will not commence until late 2004, locally-funded repair work has already commenced [21].

While this relatively poor performance is no surprise, there are two survey criteria that suggest strong potential for Vietnam’s technological development. The scores for sufficient financial resources and youth’s interest in science and technology indicate a promising future. Nevertheless, it is clear Vietnam requires much improvement with respect to technology development. Addition- ally, Vietnam has an Information Technology Master Plan for 2001-2005, which is currently under revision, and has targeted increases in IT usages [20].

5.3 Human Resource

The sub-categories of human resource are weighted (m3j) as manpower utilization (36.2%), wages and employee benefit (28.7%), labor disputes or industrial disputes and union power (19.9%), and turnover (15.3%). These weights indicate the importance given to improving education in Vietnam to build needed human capital.

Vietnam performed well on the criteria of elementary school enrollment ratio, secondary school enrollment, and illiteracy rate (see Table 4). This is a testament to the government’s efforts to provide primary education for Vietnam’s children. The lower scores for secondary and higher education signify Vietnam is still in the early stages of education improvement. The hard data support this; the elementary enrollment ratio stood at 114% in 2001, which indicates that a number of students are older people returning to school. This educational catch-up has had the effect of reducing the illiteracy ratio to 7.3%. The quality of education is measured by pupil-teacher ratios, and Vietnam has a mixed performance, scoring slightly low for elementary school pupil teacher ratio and high for secondary school pupil teacher ratio. These numbers suggest that education in Vietnam is improving greatly but the government must continue its efforts with policy and financial supports.

The high scores (indicating low costs) for recruitment and training costs are not surprising given expected low wage rates in Vietnam (per capita GDP of US$439, compared with the average of ASEAN at US$1,144). The low score on level of severance payment is somewhat contradictory, which may reflect a belief that the government severance payment regulation (Labor Code) is too restrictive and poses higher costs for business [6].


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Table 4 Human Resource Scores Human Resources Standardized Score (0~10)

Sub-categories Indicators Vietnam Mean ·lliteracy ratio 9.67 8.07 (3.46)·Elementary school enrollment ratio 10.00 7.13 (3.22)·Secondary school enrollment ratio 6.12 6.73 (3.54)·Higher education enrollment ratio 1.62 4.36 (3.94)·Elementary school pupil teacher ratio (Number of

students per teacher) 2.53 3.02 (3.58)

·Secondary school pupil teacher ratio (Number of students per teacher) 5.16 3.41 (3.30)

Manpower Utilization

Mean 5.85 5.80 (1.83)＊The benefit level of employee 3.00 5.50 (2.02)Wages and

Employee Benefit Mean 3.00 4.83 (2.51)

＊The level of recruitment cost 7.26 4.69 (1.98)＊The level of training cost 6.70 4.50 (1.60)＊The level of severance payment 2.86 4.65 (1.90)Turnover

Mean 5.6 4.61 (0.75)＊The enforcement degree of labor legislation 4.26 5.44 (1.67)＊The coverage level of labor legislation 4.26 5.37 (1.60)＊The union affect on wage rates 3.24 4.36 (2.16)＊The level of labor's existing power on foreign

companies 3.64 4.94 (2.16)

Labor Disputes or Industrial Disputes and Union Power

Mean 3.85 5.03 (1.82)Note: ·and＊, respectively, denote hard data and soft data.


As for the sub-category of labor disputes or industrial disputes and union power, the respondents again reflect dissatisfaction with the government’s performance. Additionally, they perceive some negative effects of unions on business environment.

Vietnam’s performance in human resource is mixed with both high and low scores. The standardized scores imply a more high-skilled workforce in the future as more children are given opportunities at getting an education. Add- itionally, low costs will most likely continue to draw investors as other countries in the region become more expensive. However, more is expected from the government in continuing to improve education and strengthening laws conducive to business development.

5.4 Management Capability

All criteria in the category of management capability, as shown in table 5, are based on the surveys distributed to fifty experts in Vietnam. The perceived relative weights (m4j) for the six sub-categories of management capability are international operation (18.7 %) , manager’s competence (18.3 %) , innovation


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Table 5 Management Capability Scores Management Capability Standardized Score (0~10)

Sub-categories Indicators Vietnam Mean Innovation Capability

＊The level of price/quality ratio of domestic products 4.84 6.10 (1.21)

＊Prestige to company managers 4.60 6.49 (1.12) ＊Capability of corporate boards 4.46 5.88 (1.38) ＊Capability to generate shareholder value 3.73 5.98 (1.47) ＊Social responsibility 5.76 6.21 (0.41)

Corporate Responsibility

Mean 4.64 6.14 (1.02) ＊Availability of competent senior managers 4.58 6.49 (1.42) ＊Competence of domestic managers 4.38 6.27 (1.29) ＊Labor relations 6.47 6.64 (0.85) ＊Enterprise identity recognized by the

employees 4.86 6.20 (0.80)

＊Employee training 5.04 6.37 (0.93)

Manager’s Competence

Mean 5.07 6.39 (0.87) ＊Customer satisfactions 5.60 6.51 (1.01) ＊Entrepreneurship 4.98 6.39 (1.17) ＊Risk taking orientation 5.66 6.24 (1.01) ＊Ethical practices 5.56 6.36 (0.76) ＊Tax evasion 3.94 4.22 (1.54) ＊Practice in bribing 3.04 4.73 (2.00)

Culture

Mean 4.80 5.74 (0.81) ＊Integration in supplier-manufacturer 5.24 6.43 (1.15) ＊Integration in manufacturer-channel 5.06 6.32 (1.14) ＊Vertical integration 4.84 6.24 (1.46)

Intra-industrial Integration

Mean 5.05 6.33 (1.24) ＊Experiences for managers in international

business operations 4.52 6.27 (1.33)

＊Management competence for managers in global operations 4.38 6.36 (1.42)

International Operation

Mean 4.45 6.32 (1.36) Note:＊denotes soft data.


capability (17.8 %), corporate responsibility (15.7 %), culture (14.8 %) and intra-industrial integration (14.6%). Due to the unavailability of data from four regional countries, only six sub-categories are included here (financial capability is not included). Additionally, the mean scores in Table 5 reflect the mean values for only six of the ten regional countries. These six countries are Brunei, Malaysia, the Philippines, Singapore, Taiwan, and Vietnam.

Given Vietnam’s level of economic development compared with the other countries surveyed, the relatively low scores listed in Table 5 are not especially poor, and there is reason for optimism. As discussed in Section 3.4, Taiwanese, Korean, Hong Kong, and Japanese companies are increasingly setting up operations in Vietnam. These investments are in higher quality manufacturing


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and export-oriented businesses. As Vietnamese managers learn the latest management techniques, the management quality will ultimately improve [14].

5.5 Productivity

The relative importance (m5j) for the sub-categories of productivity are productivity in service industries (25.0%), productivity in agriculture-related trade (22.5%), construction industry (18.7%), mining industry (17.5%) and manufacturing industry (16.3%). It may be surprising that productivity in the manufacturing industry gets the lowest weight; however, it may be that the respondents sense a need to further develop other high potential industries, such as e-commerce in the service industry and the expansion of trade for the well developed agricultural industry. All criteria in this category are collected hard data.

As illustrated in Table 6 Vietnam scores very low for most criteria within this category. In the indicators of average remunerations per employee of every sector (except manufacturing industry) and nation - wide, Vietnam ranks the lowest (as shown

Table 6 Productivity Scores Productivity Standardized Score (0~10)

Sub-categories Indicators Vietnam Mean ·Number of employees 4.15 3.32 (3.30) ·GDP/employee/year 0.05 3.01 (3.91) ·Average remuneration/employee/yr 0.00 3.29 (4.13) National Mean 1.40 2.80 (2.41) ·Percentage of GDP in the sector 3.94 3.35 (3.23) ·Average remuneration in the sector/employee/yr 0.77 2.63 (4.17) ·Gross capital formation by the sector 9.66 5.96 (4.30)

Agriculture- Related Trade

Mean 5.18 3.45 (1.72) ·Percentage of GDP in the sector 9.82 3.85 (4.41) ·Average remuneration in the sector/employee/yr 0.00 3.11 (4.03) ·Gross capital formation by the sector 0.74 2.81 (3.71)

Mining Industry

Mean 3.12 2.54 (2.35) ·Percentage of GDP in the sector 3.72 5.31 (2.93) ·Average remuneration in the sector/employee/yr 0.05 3.59 (4.03) ·Gross capital formation by the sector million) 0.28 3.42 (3.61)

Manufacturing Industry

Mean 1.64 3.52 (1.97) ·Percentage of GDP in the sector 8.89 5.34 (3.75) ·Average remuneration in the sector/employee/yr 0.00 2.75 (3.90) ·Gross capital formation by the sector 0.16 2.40 (3.96)

Construction Industry

Mean 2.83 3.53 (2.22) ·Percentage of GDP in the sector (%) 3.48 5.90 (3.16) ·Average remuneration in the sector/employee/yr 0.00 3.34 (4.17) ·Gross capital formation by the sector 0.12 3.22 (3.99)

Service Industry

Mean 1.09 3.76 (2.23) Note: ·denotes hard data.



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by the standardized scores of “0”) among ten countries. This is not surprising given that Vietnam’s economy is still a mostly agricultural and low-skill industry based economy. While these scores are good for comparison purposes, it is more important to look at the trends in Vietnam’s economy. In 1992, agriculture accounted for 33.9% of GDP, industry 27.3%, and manufacturing 15.4%. By 2002, agriculture fell to 23.0%, industry rose to 38.5%, and manufacturing was 20.6%. Moreover, from 1982 to 1992, agriculture grew by 3.1%, industry 5.0%, and manufacturing 1.9%. From 1992 to 2002, agriculture grew at 4.2%, industry 11.2%, and manufacturing 11.3% [22]. These numbers represent an economy that is obviously improving its productivity. FDI from neighboring countries will also aid Vietnam in improving productivity as newer technologies are introduced.

The government’s socioeconomic strategy envisages GDP growth of 7-7.5% per year, which would double GDP by 2010. Over this period industry would grow by about 10% a year, services by 7-8% a year, and agriculture by about 4% a year. The low gross capital formation in the non-agriculture sectors indicates low capital to labor ratios and hence low productivity and low wages. As capital invested in these sectors grows, productivity should rise and push up wages, which would help reduce the percentage of people in extreme poverty from 13% at present to 10% by 2005 [5].

5.6 The Comprehensive National Competitiveness Index

Table 7 combines all the sub-category mean scores from Tables 2-6 to generate an overall index. We multiply Vietnam’s scores of sub-categories by their respective weights (mij) to construct category indices for all five categories, and the mean scores (and the standard deviations) for nine ASEAN countries and Taiwan are listed as a comparison. The category indices are then multiplied by their respective weights (Wi), to obtain a comprehensive competitiveness index for Vietnam.

As a measure of the economic and business environment in Vietnam, the results suggest that Vietnam is at a lower level of competitiveness. Never- theless, Vietnam’s score in economic performance is striking given when Vietnam began its reform process and its current stage of development; its future performance should only improve given the level of FDI and growth of exports noted above.

The one category in which Vietnam performs poorly, technology development, is understandable. High technology and information technology infrastructure requires time to develop and build. Given the workforce skill level in Vietnam, such development would not have been effectively employed.


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Table 7 National Competitiveness Index

Standardized Score

Category Index

Competitiveness Index Category & Sub-category

Vietnam MeanWeight

Vietnam MeanWeight

Vietnam MeanDomestic Economic

Information 5.02 4.25 0.27

Government Efficiency 4.87 4.87 0.26International Trade 3.00 3.81 0.26

EP

Finance 5.56 5.47 0.21

4.57

4.55(1.07)

0.21

Basic Infrastructure 0.49 1.73 0.26Information Technology 0.39 3.05 0.26

Technology Management 3.55 5.07 0.25TD

Technology Environment 4.06 5.34 0.22

2.01

3.59(2.26)

0.20

Manpower Utilization 5.85 5.80 0.36Cost of Wages and Employee Benefit 3.00 4.83 0.32

Turnover 5.60 4.61 0.17HR Labor Disputes or

Industrial Disputes and Union Power

3.85 5.03 0.16

4.63

5.18(1.25)

0.22

Innovation Capability 4.84 6.10 0.18Corporate

Responsibility 4.64 6.14 0.16

Manager’s Competence 5.07 6.39 0.18Culture 4.80 5.74 0.15

Intra-industrial Integration 5.05 6.33 0.14

MC

International Operation 4.45 6.32 0.19

4.81

6.19(1.03)

0.20

Productivity in Agriculture-Related

Trade 4.79 3.98 0.23

Productivity in MiningIndustry 3.52 3.26 0.18

Productivity in Manufacturing Industry 1.35 4.05 0.16

Productivity in Construction Industry 3.02 3.50 0.19

PR

Productivity in Construction Industry 1.20 4.15 0.25

2.82

3.87(1.23)

0.17

3.82

4.77(1.17)

Note: Standard deviations are in parentheses. Source: Compiled from Tables 2-6.

Vietnam’ s government has emphasized macroeconomic stability and government-led development, both of which have proved successful but neither of which would lead to the rapid development of technology infrastructure [12]. As noted above, Vietnam is implementing plans for further developing this infrastructure.


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As for the final three categories, the lower relative scores are not un- expected. For human resource, most telling are the scores concerning education; as Vietnam’s people becomes more skilled, foreign firms will be more likely to move higher productivity activities into Vietnam. A resulting expected improvement in management capability from foreign investment will spillover into domestic SOEs and SMEs. This is a mutually reinforcing process; as domestic management becomes more skilled, more foreign firms will look to invest. Additional capital investment in non-farming sectors will cause a needed rise in productivity. The past decade has witnessed great progress in productivity growth, and continued increases are necessary for economic growth and improved standards of living.

6. Conclusions and Outlook

This paper constructs a modest, yet comprehensive, index for measuring national competitiveness. Researchers now have a means to compare Vietnam’s competitiveness with other ASEAN countries and Taiwan. It, therefore, fills the gap left by the major international competitiveness indices, which fail to survey many nations within ASEAN. We evaluated Vietnam’s national competitiveness based on hard data and surveyed soft data from five categories: economic performance, technology development, human resource, management capability and productivity. The data was standardized so as to realize a compete- tiveness index that accurately measures the current conditions in Vietnam’s economic and business environment.

Vietnam is found to perform rather well in view of its current stage of development. For the category of economic performance, Vietnam scores above the region’s average and scores especially high in criteria, such as gross capital formation, net FDI inflow, growth of exports, and growth of industrial productivity that lead to even better future growth. As expected, technology development is well behind the technological environment of the region, but government plans are in effect to continue improvement in this area. In human resource, Vietnam’s scores are highlighted by excellent conditions in education for younger children but in need of improvement in higher education. Unsurprisingly, the respondents in Vietnam found the country’s overall management capabilities below that of other ASEAN countries, but the large amount of foreign investment will assuredly bring with it the latest in management techniques. The current data for the productivity category shows Vietnam with below average performance; however, by looking at productivity trends over the past decade, it is clear that Vietnam has been successful in productivity growth, particularly in industry and manufacturing.

The clearest message to come out of the competitiveness index is the positive outlook for Vietnam’s continued economic development. The per-


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formance of the Vietnamese economy from 1997 through 2001 has been notable. It is projected that Vietnam’s GDP will grow by 6.9% and 7.1% in 2003 and 2004, respectively. It is predicted that growth will be underpinned by ongoing strong domestic demand driven by government policies and institutional reform and by expansionary fiscal policy [2]. In terms of government policies, confidence in the private sector was boosted by the adoption of a detailed reform program in 2001. New private businesses are currently being established at a rate of 1,600 per month [21]. Moreover, the government’s September 2001 plan to privatize 2,500 of the country’s 5,600 state-owned enterprises continues to be implemented. Although the reform is proceeding slower than expected, the climate for SOE reform has improved significantly. The government maintained its expansionary fiscal stance in 2003.

However, there are still many obstacles the government must overcome. The opaqueness and inefficiency of public administration may fetter the economy in various ways. Additionally, the government must deal with its growing corruption problem. The public administration has to answer to the needs of a growing private sector and respond to a population that is beginning to expect greater participation, transparency, and accountability from its public officials. For this reason, the government aims to build a professional, modern, and efficient public administration system through its Public Administration Reform Master Program (2001-2010). This should be a significant aid in transitioning from a centrally planned to a socialist-oriented market economy.

Perhaps the greatest potential brake on Vietnam’s current economic growth trajectory is the fragile state of the global economic backdrop and relatively anemic cross-border capital flows. It is, therefore, even more important to maintain a favorable investment climate by building and sustaining political and social stability and a liberal, comprehensive legal framework. This is not only a necessary condition for attracting FDI but is also essential for effectively managing and maximizing the benefits of business activity in the country.

After more than a decade of economic transformation, Vietnam’s performance on overall national competitiveness has been impressive. In light of the government’s commitments on further integration into regional trade blocks and the international arena, one can expect Vietnam’s legal and institutional structure will be brought in line with international standards. In general, the outlook of Vietnam’s future development is optimistic.

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