Rankings, challenges and sollutions for enhancing Vietnam’s national competitiveness

The thesis applies the concept of competitiveness from both

productivity-based view and cost-based view. Accordingly, national

competitiveness is regarded as a set of factors contributing to social

productivity; and the growth in productivity in turn determines the level

of growth and prosperity of a nation.

The thesis combines different approaches of competitiveness to

build a separate analytical framework on Vietnam’s national

competitiveness. Specifically: (i) Develop a pyramid-shaped analytical

framework on competitiveness; (ii) Relying on a productivity-based view

of competitiveness associated with development stages; (iii) consistent

with the requirements of reform towards a market economy; views,

priorities and reform efforts of the Party and the Government; (iv) Adapt

to the impact of the international context of technology transition, new

business models and Free Trade Agreements

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the GII is referred quite widely. Although these indexes are intended to help countries identify strengths and limitations of innovation, they do not present causes and specific policy implications. 1.1.3. Studies of ministerial/ provincial competitiveness Most of the studies related to ministerial/provincial competitiveness are domestic documents. Currently, there are many different gradings of ministerial/provincial competitiveness. For example: The Provincial Competitiveness Index (PCI) by VCCI; the Provincial Governance and Public Administration Performance Index (PAPI); the Public Administration Reform Index (PAR-Index). 1.1.4. Studies of industrial/ enterprise competitiveness a. Foreign studies: International studies of industrial competitiveness that are referenced widely include the Travel and Tourism Competitiveness Index (TTCI) by the WEF; the Logistics Performance Index (LPI) by the WB; etc. b. Domestic studies: There are various domestic studies of industrial competitiveness. Some studies assess competitiveness in the sectors of industry, agriculture, and services, but some others assess competitiveness in a specific industry such as electronics, garment, fisheries, etc. These studies include UNIDO (2011); IPP and CIEM (2013); Pham M Duc et al. (2013); Nguyen D. Cung et al. (2011); etc. 1.1.5. Research gaps Although there are many domestic and foreign studies of the Vietnam’s national competitiveness and of its factors, there is still a lack of research and systematic analysis of competitiveness theories, real 7 situation and challenges of Vietnam’s national competitiveness, especially in the context of rapid technology changes, emergence of new business models and economic integration. The above studies proposed solutions that are associated with specific issues in line with the scope of those studies, but have not yet mentioned the causes of the bottlenecks hindering Vietnam’s national competitiveness. In addition, the policy implications identified from the rankings are oriented solutions, but not concrete, feasible solutions. With the limitations from the previous studies, this thesis is to solve the issues of Vietnam’s national competitiveness that have not been studied. Specifically: (i) Review the theoretical views of competitiveness; (ii) Develop an approach of assessing Vietnam’s national competitiveness (that is a combination of various theoretical frameworks; based on international practices and adjusted to be relevant to the reality, development stage and reform orientations of Vietnam as well as capture the changes of international context); (iii) Identify challenges for Vietnam’s national competitiveness through analyzing the ranked indicators and assessing the practical situation; and identify causes of the challenges; (iv) Proposing solutions to overcome bottlenecks hindering Vietnam’s national competitiveness. 1.2. Research orientation of the thesis 1.2.1. Research objectives The thesis aims to develop an analytical framework of Vietnam’s national competitiveness, to identify challenges and their causes; then propose solutions to enhance the national competitiveness. Specifically: (1) Define the concept and the analyzing framework of Vietnam’s national competitiveness; (2) Identify the position of Vietnam through analyzing the global rankings; (3) Identify the factors hindering the 8 national competitiveness, basing on assessing the indicators with low or dropped grades and through assessing practical situation; (4) Analyze the causes of challenges with a focus on the subjective causes; and (5) Analyze the new international context affecting Vietnam’s national competitiveness (the fourth industrial revolution (IR 4.0) and Free Trade Agreements) and propose solutions for enhancing competitiveness. 1.2.2. Research object, scope and method of the thesis a. Research objects: are the theoretical issues of competitiveness, related indicators and practical situation of Vietnam’s national competitiveness. b. Scope of research: Contents of research: The thesis studies national competitiveness from the theories of competitiveness, determines the position of Vietnam in the global competitiveness map and identifies its challenges from analyzing the global rankings and assessing practical situation in Vietnam. The specific contents include: (1) Overview of Vietnam’s national competitiveness with a focus on analyzing GCI; (2) Business environment; (3) Institutional reform; (4) The quality of human resources; and (5) Innovation. Timing scope: The thesis evaluates the real situation of Vietnam’s national competitiveness from 2011 up to now, with more emphasis from 2014. Recommendations are for the short-term (2020-2025) and for the long-term to 2030 and the following years. Space cope: The thesis evaluates the real situation of Vietnam’s competitiveness at national level; compares it with those of ASEAN countries. c. Research method: The thesis applies various research methods (including synthesis, analysis, statistics, comparison, interpolation, extrapolation, etc.). 9 CHAPTER 2. THEORETICAL REVIEW AND METHODOLOGY OF COMPETITIVENESS 2.1. Concept of competitiveness 2.1.1. Definition of competitiveness from the cost/ market share- based view The cost/market share-based view looks at competitiveness as a location’s unit cost level, driving companies’ ability to compete successfully on global markets. This is zero-sum view of competitiveness that one country’s improvement is another country’s loss. This definition is motivated by a concern about a nation’s “external balance”, i.e. its ability to sell its products and services, defend international market share, and thus generate the inflows needed to pay for imports. This view has been criticized on a number of studies. The largely zero-sum view of competition among firms misses important aspects of the way nations relate to each other. Therefore, Krugman (1994) viewed competitiveness as a potentially dangerous concept; It can be used to motivate policies that lower costs and thus raise exports but in doing so entrench zero-sum competition among locations and lower prosperity. 2.1.2. Definition of competitiveness from the productivity-based view Overcoming the limitations of the cost/market share view of competitiveness, the definition of competitiveness from the productivity- based view was discussed and has an increasing consensus. Accordingly, competitiveness is seen as a nation’s productivity level, driving the standard of living for citizen in that nation sustainable. Scott (1985) argues that national competitiveness is the ability of a country to produce and distribute goods and services in competitive international market, and in that way increase the standard of living. This definition was confirmed and emphasized more deeply in Porter (1990, 2000), where he regards competitiveness as factors that create wealth and increase economic 10 efficiency. This view also has the consensus by ECLAC (1990), Dollar and Wolff (1993). 2.2. Theoretical backgound and the evolution of competitiveness definitions The thesis studies the evolution of definitions of competitiveness through reviewing the economic doctrines presenting the ideas of classical theory, neoclassical theory, Keynesian theory, development economics theories, new growth theory and new trade theory. The classical economic theories suggest the definition of competitiveness: (i) Every nation plays a certain role in the division of the work force based on the comparative advantage. If the technology and productivity are the same for each nation, the trade would be pointless; (ii) Even if a state is more productive than the other in producing a certain good, it could register a decline of this industry in the terms of free trade. The neoclassical economic theories provide the implications of competitiveness that: (i) Every nation has its own role in the labour division, based on the relative proportions of the production factors. If the proportion is the same, then the trade would be useless; (ii) The equalisation of factor prices implies a certain degree of convergence of incomes derived from capital and labour; (iii) In the conditions of perfect competition, the competitiveness concept is not sustainable on long term. The concept of competitiveness from the Keynesian theory are recognized as follows: (i) The state may interfere successfully whenever; (ii) The imperfect markets allow the existence of regional disparities; (iii) The regional convergence may be acquired through economic policies; (iv) The intensity of capital leads to economic and productivity growth. The development economics theories suggest some features relevant to the concept of competitiveness. Specifically: (i) The central regions that have a productive advantage will maintain their positions 11 ahead of the peripheric regions; (ii) The economic policies should consider the state of development of every region; (iii) The economic policies should promote the “multiplication effects” of FDI. From the endogenous growth theories, competitiveness is regarded as follow: (i) The technological and human capital improvements represent the engines of growth; (ii) Free trade is a determinant of growth and technological development; (iii) The R&D are very important. The new theories of trade suggest features of competitiveness, including: (i) The labour specialisation is necessary; (ii) The investments intensify the economies of scale. In addition, the concept of competitiveness can be defined from the institutional theories. Accordingly, institutions contribute to productivity by facilitating businesses and directing companies’ efforts toward productive activities. 2.3. The concept of competitiveness in policy related works and studies 2.3.1. Applying the competitivenss concept from productivity based view Good examples of work concerned with the competitiveness concept from productivity-based view are the Global Competitiveness Report published by the WEF; the competitiveness reports of some nations (i.e. Latvia Competitiveness Report 2013, Vietnam Competitiveness Report 2010, Singapore Competitiveness report, etc.). 2.3.2. Applying the competitivenss concept from cost based view Good examples of works/studies more concerned with the concept of competitiveness from the cost-based view are Doing Business by WB, the sectoral studies by consultants (i.e. Sirkin et al. 2014) and the reports of the Productivity Commissions in Australia and New Zealand. Remarks: The concept of competitiveness is a controversial issue. Each of the concepts has validity with respect to the issue for which it 12 has been created, therefore assessing competitiveness of a nation can be applied both concepts (productivity-based view and cost-based view). 2.4. Approaches of competitiveness by international organizations 2.4.1. National competitiveness a. The WEF’s approach of global competitiveness index The WEF published the Global Competitiveness Index (GCI) on the basis on adapting Porter’s theory of competitiveness from productivity- based view. Accordingly, the WEF studied and benchmarked many factors underpinning national competitiveness, consisting of: (1) Natural endowments, (2) Macro-level competitiveness and (3) Micro-level competitiveness; and taking the stages of development into account by attributing higher relative weights to those pillars that are more relevant for an economy given its particular stage of development. b. The WEF’s approach of global competitiveness index 4.0 In the midst of rapid technological change, since 2017, the WEF has introduced the new Global Competitiveness Index 4.0 (GCI 4.0). The GCI 4.0 reflects the growing complexity of policy prioritization by weighting pillars equally rather than according to a country’s current stage of development. In essence, the index offers each economy a level playing field to define its path to growth. c. IMD’s approach of World Competitiveness Yearbook IMD publishes annually the World Competitiveness Yearbook (WCY). According to IMD, an economy's competitiveness goes beyond measures of GDP by country and productivity because there are political, social and cultural factors that affect competitiveness. For this reason, IMD groups hundreds of criteria into four fundamental dimensions or factors of competitiveness, namely: economic performance, government efficiency, business efficiency, and infrastructure. 13 d. European Commission’s Regional competitiveness index European Commission introduces the Regional competitiveness index (EU RCI) to measure factors of competitiveness of EU’s members. The RCI is the region's capability to create an attracting and sustainable environment for businesses and people to live and work (Dijkstra et al. 2011). This approach is to balance the goals of business success and citizen welfare. The RCI follows the framework adopted by the WEF for its GCI. The RCI is composed of 11 pillars classified into three groups: Basic, Efficiency and Innovation. e. Approaches to competitiveness of some nations In the world, a number of countries have also developed their own approach to annually assess their competitiveness (such as Ireland). Some other countries (i.e. Mexico, Brazil, etc.) base on the available approach (mainly the productivity based view) to analyze and evaluate the factors of their competitiveness. 2.4.2. Industrial/ business competitiveness At business level, competitiveness is regarded as the ability to provide products and services more efficiently and effectively than related competitors. At industrial level, there are many different views on competitiveness. Lall (2001) determined that industrial competitiveness means achieving relative efficiency with sustainable growth. Martin, Westgren and Van Duren (1991), Fischer and Schornberg (2007) supposed that industrial competitiveness is the ability to profit and maintain sustainable market share. A recent approach regards productivity as the source of industrial competitiveness (Porter 1990). 2.4.3. Competitiveness identified from specific factors (indicators) a. The World Bank’s Doing Business: measures and ranks 10 indicators of doing business according to business cycle. 14 b. The WB’s Worldwide Governance Indicator: measures and ranks governance efficiency of nations. c. Index of Economic Freedom developed by the Heritage Foundation and the Wall Street Journal: assesses the government intervention in business activities. d. The Property Rights Alliance’s International property rights index: measures the degree of property rights protection. 2.5. Selected concept and approach to Vietnam’s national competitiveness The thesis applies the concept of competitiveness from both productivity-based view and cost-based view. Accordingly, national competitiveness is regarded as a set of factors contributing to social productivity; and the growth in productivity in turn determines the level of growth and prosperity of a nation. The thesis combines different approaches of competitiveness to build a separate analytical framework on Vietnam’s national competitiveness. Specifically: (i) Develop a pyramid-shaped analytical framework on competitiveness; (ii) Relying on a productivity-based view of competitiveness associated with development stages; (iii) consistent with the requirements of reform towards a market economy; views, priorities and reform efforts of the Party and the Government; (iv) Adapt to the impact of the international context of technology transition, new business models and Free Trade Agreements. CHAPER 3. REAL SITUATION OF VIETNAM’S NATIONAL COMPETITIVENESS 3.1. Overview of Vietnam’s national competitiveness 3.1.1. Some achievements Since the early 2000s, the Government has paid attention to enhance national competitiveness. Since 2014, the Government has 15 officially chosen to improve Vietnam’s competitiveness according to international practices; recognized the ranking results on competitiveness published by prestigious international organizations to identify problems and to do reform. The Government's efforts are mainly focused on enabling business environment and on institutional reform. Thanks to that, the score (the quality) of Vietnam’s competitiveness has been raised. In the period of 2012-2017, although the GCI grades for Vietnam change unsustainably, but its scores have continuously improved. The GCI rank for Vietnam in 2017 (55th) exceeded 20 levels compared to 2012 (75th). Since 2015, Vietnam's business doing scores have continuously improved; its rank in 2019 (69th) increased by 21 places compared to 2015 (90th). Vietnam's GII rank has also improved continuously (its position in 2019 increased by 29 places compared to 2014). 3.1.2. Improvements of competitiveness indicators and the impacts on productivity a. Impact on productivity: Productivity (GDP/number of labors) increased in terms of both value and growth rate. b. Improving quality of growth: Total Factor Productivity (TFP) contributes increasingly to GDP growth. The efficiency of inputs and the improvement of business environment contribute to the growth of TFP. c. Attracting more resources: This is reflected in the increase of the number of newly registered enterprises and increased registered capital; the number of enterprises returning to operation; etc. d. Improving trade balance: The trade balance has improved considerably, from a deficit of 9.8 billion USD (in 2011) to a surplus of 6.8 billion USD (in 2018). e. Improving capital efficiency: A decrease in ICOR represents an increase in the efficiency of investment capital. 16 f. Some other positive impacts: The Purchasing Managers' Index (PMI) for Vietnam always presents an expansion, showing an optimistic business psychology. 3.2. Identifying challenges for Vietnam’s competitiveness 3.2.1. Identifying challenges from the WEF’s Global competitiveness index The WEF’s GCI for the period 2006 to present shows five (05) problems that constraint Vietnam’s competitiveness. Namely: (1) Institution: Challenges are reflected in the indicators of Judicial independence, Burden of regulations, Corruption, Property rights; (2) Skills: Challenges are reflected in the indicators of Quality of vocational training, Skillset of graduates, Critical thinking in teaching; (3) Product market: Challenges are reflected in the indicators of non- tariff barrier (specialized inspection procedures); (4) Business dynamism: Challenges are reflected in the indicators of starting a business, Insolvency; (5) Innovation capability: Challenges are reflected in the indicators of R&D expenditures, Patent applications; etc. 3.2.2. Identifying challenges of business environment Business environment is an important pillar of national competitiveness. In Vietnam, although the business environment has improved, its rank is still slower than other countries in the region. a. Starting a business: The regulations for starting a business in Vietnam have not yet created favorable conditions for businesses. The reasons include: (i) inadequate regulations on business registration; (ii) there are gaps between regulations and implementation; (iii) lack of coordination among agencies in implementation. b. Dealing with construction permit: This procedure is currently creating a major barrier, causing difficulties and frustrations for 17 businesses and people (the time lasts 166 days). The reasons are explained as follows: (i) The adjustments of legal documents make more difficulties; (ii) There is a gap between the regulations and the implementation; (iii) Attitude and responsibility of officers. c. Trading across border: This index of Vietnam stands at a low position and has continuously decreased in the last 4 years; lags behind ASEAN 4. High time and costs for customs clearance in Vietnam are mainly due to specialized inspection procedures, which negatively affects investment and business activities, and thus the economy’s productivity. The reasons are: (i) There are many unpredictable legal documents on specialized inspection; (ii) The principles according to international practices (such as risk management, post inspection, etc.) have not been paid attention by ministries; (iii) There is a fact of adding items to the list of goods in Group 2; (iv) Scope of items under inspection is too wide; and (v) The applications of online procedures are not substantial. 3.2.3. Identifying challenges of institution The theoretical schools and pactices show that a market economy institution brings more prosperity to the economy. The Index of Economic Freedom measures institutional quality that represents market efficiency. However, this index of Vietnam is ranked very low and considered “mostly unfree”. a. Property rights: According to the International property rights index 2018 published by the Property Rights Alliance, Vietnam was placed at 76th. Vietnam’s Physical Property Rights Subindex was placed at 82/125, of which its registering property with score and ranking were lower than all ASEAN countries ranked in the list. This is similar to the survey results conducted by the WB in Doing Business. It can be argued that property rights in Vietnam have not been protected. 18 The causes can be explained as follows: (i) The legal framework on property rights protection is not comprehensive; (ii) There are inadequacies in regulations and implementation of land use rights; (iii) Some regulations are not transparent, which leads to ineffective implementation or inconsistent interpretation; (iv) There are overlaps and inconsistencies between regulations; (v) The procedures of registering property are cumbersome, time consuming and costly. b. Enforcing contracts and Resolving insolvency: These are under the responsibility of the judiciary and have been slowly improved over the years. There are many shortcomings in regulations and the judicial administrative procedures are lacking a transparency. Therefore, over the past 5 years, the indicator of Enforcing contracts decreased by 15 places; Resolving insolvency decreased 29 places (standing at the bottom of the ranking). The reasons can be explained as follows: Regarding enforcing contract: (i) The dispute resolution procedures at court are complicated, unpredictable and difficult to implement. Simple proceedings for the settlement of small value cases disputes have not been implemented in practice; (ii) The mechanism for resolving disputes through arbitration is still difficult; (iii) Weak judicial administration; slow judicial reform; poor implementation; (iv) Low rate of successful judgment execution; (v) The limited capacity of judges, judicial officers, and lack of transparency in judicial status. Regarding Resolving insolvency: The shortcomings of the Law on Bankruptcy and related legal documents, the inconsistencies between the laws are the major bottlenecks in resolving insolvency. c. The situation of legal quality in Vietnam One of the challenges for Vietnam’s national competitiveness is the institutional barrier, especially the burden of regulations. This situation is explained by many reasons, for example: (i) Policies and laws 19 are unstable, untransparent and unfair, and unpredictable; (ii) Limited capacity in drafting legal documents; (iii) Policy advocacy for the interests of a small group or part of society; and (iv) There are many shortcomings in the way of making and implementing laws. d. The situation of corruption and informal costs in Vietnam In general, international organizations have pointed out that corruption is one of the bottlenecks for Vietnam’s national competitiveness. This assessment is also consistent with VCCI's survey on PCI, where informal costs tended to decrease in the last two years, but remain high. This is due to poor regulatory quality and implementation. e. Barrier of business conditions: In fact, business conditions are still creating a heavy barrier, leading to risks and increasing costs for investment and doing business. They create room for corruption and hinder innovation. 3.2.4. Challenges of human resource Industry Revolution 4.0 (IR4.0) poses req

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