Is globalization of the Vietnamese economy good or bad

Is sphericization of the Vietnamese economy good or drabVietnam has made a great progress in global integration since it began the inside Moi process, oddly when our country became the one hundred fiftyth member of WTO in 2007. The global integration has helped to change a poor country facing with starvation in the mid-eighties into a highly developing country now. However, Vietnam also has to face up with challenges affecting frugal stability such as global fiscal crisis, strong aspiration from foreign enterprises. In order to understand more than about globalization and its effects on the Vietnamese economy, I would like to write this idea to discuss the opportunities and challenges of this process upon the Vietnamese economy and what backside be done to overcome these challenges.I. Literature Review1. What is globalization?globalization has now amaze a popular term appearing regularly on television, radio and newspaper. It is a very broad term which is related to econo my, politics, culture, and environment. Carbaugh (2008) defines globalization as the process of greater interdependence among countries and their citizens. It consists of increased integration of product and resource markets across nations via shell out, immigration, and foreign investment that is, via multinational flows of goods and services, of people, and of investment such as equipment, factories, strains, and bonds. It also includes noneconomic elements such as culture and environment. Simply rate, globalization is political, technological, and cultural as well as economic (p.2). Within this paper, we only focus on the economic side of globalization.2. record of globalization in the lands economyCarbaugh (2008) mentions one-third flaps of globalization which constitute the so-called globalization nowadays. The first process was initialized by the global economic integration occurred from 1870 to 1914. It began with the decreases in tariff barriers and the development of new technologies railway, steam engines, and steam ships which dishonored out-migration damage. This wave was primary(prenominal)ly driven by European countries, American businesses and individuals. As a turn out, the ratio of merchandises over the worlds total income nearly doubled to 8 percentage and the United States became the richest country in the world. The first wave of globalization was ended by World War I, followed by the Great Depression of the 1930s, which pushed back the process.The coun cardinalance wave of globalization happened within the period 1945-1980 with the continual falling cost of transportation and the removal of guile barriers among developed countries. This period were create by a new kind of trade agglomeration economies-firms clustered together and were connected in a vertical linkage adjourns manufacturers located near the main assembly line to lower the cost of transport. However, most developing countries still could not move into in this process for many different reasons. As the result, per capita income in developed countries increased dramatically while another(prenominal) developing countries were left behind.The last wave of globalization began in 1980 and continues up to now. The pace of this global integration has become much faster and dramatic because of unprecedented advancements in technology, communications, science, transport and industry. The wave is featured by the dramatic increase in global trade not only from developed countries but also from developing countries, which has made the global gross interior(prenominal) product increase quickly. Developing countries such as China, India, Brazil have succeed in joining the world market, exporting the goods they have competitive advantage for the most part labor-intensive products. The communication technology developed very quickly. Another aspect of this wave is the increasing foreign outsourcing, which aims mainly at lowering the production cost by producing parts in developing courtiers. The period is also featured by bilateral and multifarious trade agreements and the establishment of the worlds well-favoredgest trade institution WTO (the world trade organization) to supervise and liberalize international trade.3. The globalization of the world economy-for betterthither is maybe no other issues which are more controversial than globalization. There are maybe no other international institutions which are more protested than WTO. However, theories and reality have proved globalizations indispensability.According to the law of competitive advantage by David Ricardo, because of trade, films, regions, countries will gain benefits if they specialize in producing things they do well at a lower cost and use the earnings from these activities to by goods for which they are high-cost producers. Carbaugh (2008, p.14) globalisation encourages innovation and efficient production in each countrys economy. Because of competitiv eness from foreign enterprises, domestic producers have a strong incentive to improve the quality of their products. Carbaugh (2008, p.14)Globalization also helps reduce the price of goods. For example, in the case of the US, because of global competition, the prices of such items as TV serves, c kettle of fishhing, toys have reduced dramatically. Meanwhile, the prices of products untouched by globalization, such as hospital services, sports tickets, and car repair have a tendency to increase. Carbaugh (2008, p.14)Globalization through the form of international trade provides stability for production. For example, a company can buy parts and components worldwide to interpret its production. Moreover, it can export its products to other countries if the demand in the domestic economy is low. Carbaugh (2008, p.16)Globalization plays an important part in the economic growth of one country. For example, countries that open their economy to international trade tend to benefit from new technology and other sources of economic growth. (Carbaugh, 2008, p.16)Protestants of globalization very much mention job displacement, loss of countrys sovereignty, environmental damage, etc. as reasons for anti-globalization. Indeed, these problems can be properly addressed if each giving medication has determination and right strategies.4. The globalization of the Vietnamese economy- about important eventsTo Vietnam, since the country began the Doi Moi process in 1986, the economy has gradually integrated into global market. With the guideline Vietnam is prepared to be a relay station and reliable partner of all countries in the world community, striving for peace, independence and development. Vietnam has gradually joined international organizations and economic institutions as well as cooperated with other countries for mutual development. Vietnam re-joined the World Bank (WB), International Monetary Fund (IMF) and Asian Development Bank (ADB) in 1992 and 1993. The year 1995 saw many significant extraneous economic events. Vietnam joined the ASEAN and committed to implement the ASEAN Free Trade Area (AFTA), signed a Cooperative Agreement with the European Union (EU) and normalized relations with the US and applied for WTO membership. In 1998 Vietnam officially became a member of the Asia Pacific Economic Cooperation (APEC). (Ho)In order to enhance trade among Vietnam and other countries, many bilateral and multilateral trade agreements have been signed. On July 13th 2000, the Viet Nam-United States Bilateral Trade Agreement was officially signed. Our country has signed over 80 bilateral trade agreements 40 bilateral investment agreements and 40 agreements on avoidance of double taxation.Most significantly, after eleven historic period of negotiation, in 2007 Vietnam became the official member of the world trade organization (WTO)-the worlds biggest trade organization. Since then, Vietnam has entered the largest trade play ground where every country i s equal in both opportunities and challenges. So it can be summarized that Vietnam has taken part in the international integration for over the bypast twenty years and fully joined in the globalization process for three years date from 2007.II. Benefits and opportunities of globalization to the Vietnamese economyIntegration deeply into the world market has brought many tangible benefits and opportunities to the Vietnamese economy.1. Increasing export revenuesAs a result of integrating into the regional and global market, export revenues have increased continually since 1990, speeded up sine 1995 when Vietnam joined ASEAN and grew exquisitely since Vietnam joined WTO in 2007. The growth in export revenues is illustrated in the following tableTotalOf whichBalance(*)ExportsImportsMill.USD19905156.42404.02752.4-348.419914425.22087.12338.1-251.019925121.52580.72540.839.919936909.12985.23923.9-938.719949880.14054.35825.8-1771.5199513604.35448.98155.4-2706.5199618399.47255.811143.6-3887 .8199720777.39185.011592.3-2407.3199820859.99360.311499.6-2139.3199923283.511541.411742.1-200.7200030119.214482.715636.5-1153.8200131247.115029.216217.9-1188.7200236451.716706.119745.6-3039.5200345405.120149.325255.8-5106.5200458453.826485.031968.8-5483.8200569208.232447.136761.1-4314.0200684717.339826.244891.1-5064.92007111326.148561.462764.7-14203.3Prel. 2008143398.962685.180713.8-18028.7Table 1 Export and import of goodsSource General statistics office of Vietnam (GSO)The countrys export turnover in 2007 reached US$48 billion, 21.3 percent higher(prenominal) than 2006s figure, surpassing the 3.1 percent target set by the government. Vietnams key export items having high export turnovers were sea victualss, rice, coffee, vegetables, rubber, cashew nuts, and pepper. (GSO)The second year of WTO membership saw a sharp increase in the countrys export turnover. Export turnover in 2008 reached US$62 billion, 29.5 percent higher than that in 2007. (GSO)In 2009 the export turnovers were e stimated to be US$56.6 billion, reflecting a drop of 9.7 percent from 2008.However, it was due to price drops during the economic crisis.Vietnamese commodities have been exported widely to 150 countries and territories, with many sectors benefiting from WTO membership including labor-intensive industries like clothing, footwear and electronics. (SGGP)An example of quick development in export after joining WTO is textile and garment industry. Vietnam has become one of the ten largest exporters of textiles and garments in the world after earning US$7.7 billion from exporting these commodities in 2007. The US market made up 56 percent of this total turnover, followed by the EU (US$1.45 1.65 billion) and Japan (US$700 million.) (GSO)Unit200520062007Prel. 2008Crude oilThous.tons17966.616442.015062.013752.3Coal17987.829308.032072.019354.7Electronic parts (Including TV parts), computer and their partsMill.USD1427.41807.82165.22638.4Articles of plastic357.7452.3709.5921.2electric wire and cable518.2705.7882.31001.3Rucksacks, bag, pockets, wallets(*)470.9502.1627.1833.0Footwear3038.83595.93999.54767.8Textile, sewing products4772.45854.87732.09120.4Rattan, bamboo and rush products157.3214.1246.7255.6Pottery and glassware255.3274.4334.9344.0Embroidery products78.498.1111.8Fresh and processed vegetables fruit235.5259.1305.6407.0PepperThous. tons109.9114.883.090.3Coffee912.7980.91232.11059.5 preventive554.1703.6715.6658.3Rice5254.84642.04580.04741.9Shelled cashew nut109.0127.7154.7165.3TeaThous. tons91.7105.4115.7104.5Wood and wooden products1561.41943.12384.62829.3Fishery productsMill. USD2732.53358.03763.44510.1Of whichFrozen shrimps1265.71262.81387.6Frozen fish608.81083.41379.1Frozen cuttle fish73.992.560.8(*) information from year 2004 include hats and umbrellas.Table 2 Some main goods for exportationSource General statistics office of Vietnam (GSO)2. Rapid increase in foreign study investment (FDI)As a WTO member, Vietnam has become an attractive destination for f oreign investors. Registered FDI surged to US$71 billion in 2008, compared with only $12 billion in 2006. Although FDI commitments dropped last year to $21.4 billion as a result of the global financial crisis, the figure was still at the same level as pre-crisis 2007. (Thanh Nien news)During the three years of WTO membership, total registered FDI into Vietnam reached more than $114 billion, 4.5 times higher than the target set for the 2006-2010 period. Of this, $29.5 billion was disbursed in the quintuple years. (Thanh Nien news)The data for FDI into Vietnam over the past 20 years are summarized in the following tableNumber of projectsRegistered capital (Mill. USD) (*)Implementation capital(Mill. USD)Total10981163607.257045.5198837341.7198967525.51990107735.019911521291.5328.819921962208.5574.919932743037.41017.519943724188.42040.619954156937.22556.0199637210164.12714.019973495590.73115.019982855099.92367.419993272565.42334.920003912838.92413.520015553142.82450.520028082998.82591.0 20037913191.22650.020048114547.62852.520059706839.83308.8200698712004.04100.12007154421347.88030.0Prel. 2008117164011.011600.0(*)Including supplementary capital to licensed projects in previous years.Table 3 Foreign direct investment projects licensed in period 1988 2008Source General statistics office of Vietnam (GSO)3. Increase in enterprises awareness, edition and performanceJoining WTO means that Vietnam has entered a large play ground where Vietnamese enterprises have to compete with many giant players-big foreign corporations with strong financial power and experience. Moreover, the reduction of tariffs and non-tariffs measures, the open of servicing market have made the domestic market more competitive. All these factors have forced domestic enterprises (both state-owned and mystic ones) to restructure and self-improve. Being aware of these challenges, Vietnamese enterprises have invested money to standardize their operation and products. Thousands of Vietnamese enterprise s in different fields such as textile, transport, service, telecommunication, food production have met international standards ISO 9000, ISO 14000. Furthermore, besides traditional markets such as the US, Japan, they have reached new markets such as Europe, the Middle East, and Africa. More effort is put on employee training and attraction high quality employees. Some big Vietnamese enterprises which have strong competitiveness are Co.opmart, Hoang Anh Gia Lai group, Sai Gon tourist, VNPT. This is also a hazard for state-owned enterprises pending on the Government protection and subsidies restructure their operation. Otherwise they will be defeated even in the domestic market. So under the competition pressure, the Vietnams enterprises will become more effective and competitive.4. More favorable legal system for trading activitiesGlobal economic integration and accession to the WTO have given up Vietnam a chance to refine its policy and legal system to be more transparent, sustain able and predictable to be in line with WTO regulations and to attract more foreign investors. For example, according to Law on Foreign Investment, there are flexible regulations of establishment Enterprises with foreign investment are permitted to change the form of investment, and divide, merge or merge with other enterprises. Existing joint ventures are allowed to transform into wholly-owned foreign capital enterprises under certain conditions. In addition, there is no responsibleness to form a joint venture with a local partner. Foreign investors are entitled to make their own choice from three forms of investment set forth by the Law on Foreign Investment. There is also the reduction of the administrative burden The duration for investment licensing was cut from 60 operative days to 45 working days for projects under the category of appraisal and issuance of investment licences, and to 30 working days for projects under the category of accommodation for investment licencesF urthermore, under the Governments Project 30 to enhance administrative reform, about 5,700 administrative papers at all levels have been under consideration. Duplicate or unnecessary documents will be abolished. The Prime Minister has proposed a 30 percent reduction of all legal documents. To enhance administrative procedures Vietnamese government are developing e-commerce and e-government to create effective links between institution agencies, businesses and people. (Vov news)Moreover, as a WTO member, Vietnam is treated as a full WTO membership. Vietnamese enterprises have a healthy environment for development in foreign markets. If there are trade disputes, they can be treated under WTOs Dispute solution Mechanism. Vietnamese enterprises will be judged by the WTO international court, which means we have more advantages to protect our rights. (Ho) For example, the lawsuit is no longer imposed by domestic laws as the previous catfish war case- Vietnams tra and basa dumping disput es, and we can implement some legal retaliating tools within WTO regulations. Vietnam will have equal status with other countries in the global trade policy-making process and an opportunity to participate in building a more equal and logical international trade cooperative framework. Le (2008)III. Challenges of globalization to the Vietnamese economyGlobalization is an indispensable process. As a result, 153 countries have become official members of WTO and up to now no countries would like to exit this organization. This illustrates clearly the benefits of globalization. Globalization by its nature does not make a country worse. However, the opportunities created by globalization are always tended to(p) with challenges. If a country cannot overcome these challenges, it will meet a lot of difficulties. Vietnam is not the exception. Our challenges are not only from the outsiders but also from the domestic economy. deuce-ace major groups of challenges are described as follows1. Low competitiveness of nation, enterprises and productsVietnamese enterprises are mainly medium and small-sized. According to Le (2008), none of Vietnams state-owned enterprises was on the harken of 1000 world biggest corporations, neither its commercial trademarks in the list of 1000 most prestigious global trademarks. If we want to gain strong competitiveness in international market, we must have many strong enterprises like Sony, Toyota of Japan, or Hyundai, Samsung of South Korea.According to World Economic Forums report for the year 2009-2010, in term of global competitiveness index, Vietnam ranked 75th out of 133 countries in the year 2009-2010, dropping 5 places compared to 2008-2009s index. From the report and practical situation, we can come up with some drawbacks in our economy which lead to poor nations competitiveness.Firstly, the most problematic factor of doing business which accounts for 16.1 percent in the World Economic Forums report is the inadequate supply of infra structure. According to Thomas Siebert, chairman of the American Chamber of Commerce (AmCham), the lack of high-quality infrastructure and logistical services is both a pressing concern and an impediment, especially to potential American investors. Indeed, this important issue has been brought up in every meeting between AmCham and the Vietnamese authorities since May 2006. Various problems include the handgrip in constructing bridges, inter-provincial roads and overland infrastructure. The Japan Bank for International Cooperation (JBIC) said that 80% of Japanese companies considered roads as the first factor that needs improvement, followed by power supply (60%) and ports (40%). Dr Le Dang Doanh once compared a gap in infrastructure among Vietnam and other economies in the region by a typical example, it takes ten minutes to do logistics for a container in a Singapore port but seven days in a Vietnamese port.Secondly, difficulty in accessing financing ranks second in problematic f actors of doing business in Vietnam. According to Dr Le (2008), Vietnams financial depth ratio, a measurement of money supply recounting to the size of the economy the ratio of M2 over GDP was about 84% GDP, with around 6 million bank accounts over the population of 84 million, the stock market just accounted for 6% GDP and still in the pilot stage and incomplete. Not to mention technology, Basel standards for the banking industry, number of commercial banks services offered, ratio of bad debts, we can see clearly how big the gap is for Vietnam to fill.Thirdly, poor system of higher education and training, which ranks 92/133, is a big challenge. Inadequately trained faculty, unable teaching methods, and lack of access to modern technologies severely limit students learning. Government sponsored educational reform has not kept pace with the need to transmit from an agricultural economy to an industrial economy. We are now facing with the dilemma of too much common labor force bu t inadequately educated men which ranks 3 in the problematic factors of doing business in Vietnam. Moreover, the quality of management schools is too low (111/133), which results in incompetent staff at different levels, from of import to grassroots, from State agencies to businesses.Table 4 The competitiveness index for Vietnam 2009-2010Source World Economic ForumTable 5 The competitiveness index in specific for Vietnam 2009-2010Source World Economic Forum2. Issues relating to macro policies and administrative procedureAccording to the World Economic Forums report, although the country improves in most of the categories of the Index, Vietnam is down five positions to 75th, the considerable worsening of its macroeconomic situation-dropping from 70th to 112th place-weighs heavily on its economy and competitiveness. A widening trade deficit, an overheating economy, and a global rise in commodity prices caused inflation to shoot up to 23 percent in 2008.This in turn triggered a cri sis of confidence, big swings in interest rates, and a sharp fall of the dong, the local currency. Although this issue was over and the government has performed better when dealing with the global financial crisis, it is an important lesson that because the Vietnamese economy has integrated deeply into the global economy, the exchange rates, inflation, balance of payment and budget deficit will develop unpredictably. I share the same point of view with what Prime Minister Nguyen burning Dung said when having a meeting with the banking sector what is right today may not right tomorrow. If we follow the rightness today too long, we may make mistake in tomorrows situation. Hence, it is essential for the government to pay close attention to the world economy, better the forecast ability and have flexible counsellor so that Vietnam can reap the benefits of the efforts and successes achieved in other areas.One of the main reasons for Vietnams 75th position is the variable Burden of gover nment regulation (106/133) which constitutes a big disadvantage. In fact, the current administrative system is a serious obstacle to development. Although the government is trying to reduce unnecessary administrative procedure such as one door, the current result is not as much as expected. According to the former Prime Minister Phan Van Khai, Vietnamese public administration has been laden with the following problems red-tape, ineffectiveness, inefficiency, cumbersomeness, corruption, and an unskilled and under-qualified public service. The administration is clearly not keeping itself abreast of economic level.3. Difficulties in agricultural sectorAgriculture1is the main sector in the economy, accounting for 20 percent of GDP and 66 percent of the national population. However, it is confronting with vigorous competition in the global market. Over the past three years, there was no sudden change in the export of agricultural products. Although the export revenue increased compared t o the year 2006, the growth rate was lower than the general growth rate of export of the country as a whole, except for coffee. (Center for Information and Documentation).The table below illustrates the growth rate of agricultural export20032004200520062007Prel. 2008Mill.USDTOTAL20149.326485.032447.139826.248561.462685.1By economic sectorDomestic economic sector9988.111997.313893.416764.920785.728155.9Foreign invested sector(*)10161.214487.718553.723061.327775.734529.2By commodity groupHeavy industrial products and minerals6485.19641.911701.414428.616000.019200.0Light industrial and handicraft goods8597.310870.813293.416389.621598.028575.0Agricultural products2672.03383.64467.45352.47200.010400.0Forest products195.3180.6252.5297.6Aquatic products2199.62408.12732.53358.03763.44510.1Structure (%)TOTAL100.0100.0100.0100.0100.0100.0By economic sectorDomestic economic sector49.645.342.842.142.844.9Foreign invested sector(*)50.454.757.257.957.255.1By commodity groupHeavy industrial produc ts and minerals32.236.436.136.232.930.6Light industrial and handicraft goods42.741.041.041.244.545.6Agricultural products13.312.813.713.414.816.6Forest products1.00.70.80.8Aquatic products10.89.18.48.47.87.2(*) Included crude oil.Table 6 Exports of goods by economic sector and by commodity groupSource General statistics office of Vietnam (GSO)This is due to a combination of many timidnesses. Farmers lack knowledge and professional skills. mathematical product technology is small and backward, which increases the production costs compared to those of other countries and makes the quality of the products low. Agricultural enterprises are often of small size and disperse. As a result, they have weak financial capacity to improve production technology and labor productivity.Moreover, there are no shared strategies on developing in foreign markets, no strong and famous trade mark. For example, although Vietnam is currently the worlds second largest rice exporter Vietnamese rice still d oes not have an established trademark on the international market.Another problem is the slow and inaccurate market forecast about the worlds demand and price forecast by functional agencies, causing a lot of damages to agricultural enterprises and farmers. For example, in 2008, wrong forecasts about food security and the worlds rice price led to Vietnams not exporting rice when the worlds price was