The Big Gap Between Foreign and Local Firms Behind Vietnam’s Export Boom: Unpacked

And this looks to be part of the answer. 

Exports to the United States averaged US$10.7 billion a month in the 12 months up to and including April. In the five months after, that number was US$13.9 billion.

This was also part of a bigger jump in total exports, which by the same measure went from an average of US$35 billion to an average US$42.5 billion a month.

However, this only tells part of the story, in that Vietnamese firms’ exports didn’t just fall as a percent of total exports, but also in dollar terms, too.

From May last year to April this year, locally-owned firms accounted for an average of US$10.5 billion worth of Vietnam’s exports a month. 

In May, however, that number fell to just US$8.7 billion, with an average of US$8.9 billion over the five months since.

Of course, the proximity of this dip to the US tariff announcement in April does seem conspicuous; however, it’s important to remember that correlation doesn’t necessarily mean causation.

With this in mind, it’s worth taking a second to consider where those declines have been recorded.

Firstly, machines and equipment saw the biggest fall in export revenue for domestic firms, averaging a decline of US$96.9 million a month since April.

This was followed by computers and electrical products, coffee, digital cameras, and rice, which averaged monthly declines of US$85.6 million, US$79.6 million, US$51.7 million, and US$49.7 million, respectively. 

Collectively, these five categories accounted for about 89 percent of the overall average monthly decline of US$406.3 million.

Of course, coffee is seasonal and often fluctuates with global markets. Moreover, total exports of coffee fell overall over the same period, so this doesn’t seem significantly out of the ordinary.

As for rice, retail price restrictions in the Philippines, Vietnam’s biggest rice export market, earlier in the year, and a total import ban on rice currently in place in the archipelago, are the likely culprits for the lion’s share of the fall in Vietnam’s rice exports.

It’s in computers and electrical products, digital cameras, and machines and equipment, however, that these sharp declines look out of place. This is particularly pertinent in the context that total exports of all three jumped significantly over the same period — growing on average 5.3 percent, 6.23 percent, and 20.9 percent, respectively.

This could be written off as changes in ownership structures, mergers and acquisitions with, or by, foreign firms, for example. Local firms registering their businesses offshore and operating as foreign-owned entities in Vietnam is not uncommon, too.

There were, however, average declines in 34 of the 46 product lines the customs department reports on, so while this might explain some, it’s difficult to see it explaining all. 

Suffice it to say, given the size of the drop, the very short time frame within which it has taken place, and the breadth of the categories of exports impacted, it looks much more like the result of broader environmental factors.

On that note, there is one obvious big change that has taken place, and that was the announcement by the Trump administration that it would raise import tariffs to close trade gaps and stymie trans-shipping.

But again, correlation does not necessarily mean causation.

That said, why this happened does not seem as important as what this might mean.

The broad strokes of Vietnam’s economic growth plan put forward at the start of the year were to increase the role of domestic private enterprises in the economy through low interest rates and private credit.

Whereas the latter has largely been fulfilled, realising the former, looking at this particular set of data, may be more complicated than seems to have been hoped.

It also means an increased dependence on foreign firms at a time when global trade conditions are far from certain. 

Notably, it’s a common response for the government to draw on nationalist sentiment to compel business leaders to pitch in and help out in times of crisis. This works well for local firms, foreign firms, however, don’t tend to have that same kind of connection to the country.

To extrapolate on that further, it’s also worth thinking about, if not Vietnam, where do the allegiances of key decision makers at these export firms lie? And what might this mean for the country, geopolitically speaking?

A question particularly important as trade conflict between the United States and China, Vietnam’s two biggest trading partners, heats up.

That is to say, this emerging new paradigm, where Vietnamese firms lay claim to a lesser share of Vietnam’s exports, adds an interesting new layer to Vietnam’s current economic dynamic that could be a sign of bigger challenges to come.