Vietnam businesses sanguine of international trade prospects

ASEAN is one of the most bullish regions for trade and commercial activity. This is despite having the highest proportion of corporates who expect protectionism to rise.

The HSBC Navigator report shows that the majority of ASEAN firms (86%) are positive about their company’s prospects in foreign trade – more than any other trade bloc and higher than the global average of 77%.

Three quarters of ASEAN businesses believe that governments are becoming more protectionist in their key export markets, coming in much higher than the global average of 63%.

Commenting on the report, HSBC Vietnam CEO Pham Hong Hai said, “ASEAN corporates are bullish on their commercial prospects while staying alert to rising protectionism. On the positive side, we can see the trade tension may prompt an acceleration production to lower-cost ASEAN countries. Countries with existing production capacity like the Philippines and Vietnam will benefit from this trend and from trade persion.”

Consumer confidence, commodity prices and global economic growth are the top factors for their positive outlook. On a global level, respondents are upbeat about their prospects, incentivized by customer demand and favourable economic conditions, the report said.

However, many Vietnamese businesses are amending their strategies for fear that protectionist policies will have a negative impact on international trade.

The majority of Vietnamese respondents are positive about partnerships established with key trading partners, with 69% believing ASEAN membership will help their business in the next three years.

HSBC Navigator highlights that China and US have so far been the focus of protectionist trade policies, but that there may be an indirect impact on the ASEAN bloc given the region’s high level of exports to both countries.

At the same time, the report finds that tariffs also open up opportunities for ASEAN markets in areas like electronics, textiles and automobile.

ASEAN countries like Thailand and Malaysia already have existing production networks in electronics, especially in hard disk drive (HDD) assembly. Thailand exports about the same amount of finished storage units to the US as China does, which would make it relatively easy to shift assembly there, especially since Chinese shipment of HDDs to the US are now subject to at least 10% of US tariff.

Other members of the regional bloc like Singapore, the Philippines and Vietnam also produce a variety of electronic components, while Vietnam and Indonesia have become increasingly competitive in light manufacturing and textile exports.

In textiles, Malaysia, Thailand, Indonesia, Philippines and Vietnam’s exports of apparel and textile products nearly triple from US$24.4 billion in 2001 to US$71.8 billion in 2014. In 2016, its textile exports hit US$42 billion.

“Vietnam has strong commercial ties with both China and the US. While some local industries, like textiles and garments, may benefit through a demand shift from China, other industries, like machinery and steel, may see a tapering,” Hai said.

With increased production on the cards for ASEAN’s supply chains, technology will be a key element in managing any ramp up in capacity. It seems that this is a focus for many ASEAN corporates.

According to HSBC Navigator, 37% of survey respondents in ASEAN are focused on increasing the use of digital and technology within their business (versus 28% globally). Moreover, increasing use of technology is the top change planned to supply chains in the next 3 years amongst ASEAN respondents (34%) which is higher than the global average (27%).

The HSBC Navigator surveyed 8,500 enterprises in 34 markets based on business sentiment and expectations on trade activities and business growth from 8,650 decision-makers.