Companies shouldn’t overlook risks of doing business in China

VOV.VN - Local companies in Vietnam should not lose sight of the high risks of doing business in China, despite the allure of succeeding in the globe’s largest consumer market, says the Vietnam Chamber of Commerce and Industry.

companies shouldn’t overlook risks of doing business in china  hinh 0
Since the Chinese economy is controlled by a small elite, one can hardly pretend that this is a standard business environment, said Vo Hung Dung, director of the Chamber branch office in the city of Can Tho.

Chinese investments in the form of outright purchases of Vietnamese companies, or alternatively, of controlling interests via the acquisition of shares of joint stock companies do little to benefit the Vietnam economy, said Mr Dung.

Purchases of real estate or high-profile assets may make the Vietnamese sellers happy with their newly acquired money from the sale proceeds, but they will have negligible impact on the development of the economy or the living conditions of people in the country.

The proof is in the pudding, noted Mr Dung, adding that one need look no further than the massive trade deficits with China to grasp the magnitude of the one-sidedness in commercial trade between the private sectors of the two countries over past decades.

Mr Dung said it is good that the government is exploring new markets in China for which Vietnamese products could be sold. There is no bigger attraction than finding a niche in the globe’s largest consumer market.

But trade can be a double-edged sword.

In more technical fields it happens that local Vietnamese companies must adapt to the demands of the Chinese market, for example to prefer simpler products, which in turn stifles creativity and innovation.

Achieving such a lower technological level certainly is not a path towards higher added value of products and consequently to higher earnings and salaries for workers, which is a fundamental goal of the economic policy of the government at present.

By taking over a Vietnamese company, the new Chinese owner obtains complete knowledge of how the business operates and the peculiarities of its customer base all of which is considered highly confidential or intellectual property.

Once armed with this knowledge, the Chinese acquire the know-how and can replace the production base of the local companies. Therefore, Vietnamese must be very cautious when dealing with Chinese, said Mr Dung.

He said Vietnamese manufacturers and processors would be devastated if its Chinese so called ‘stakeholder’ flooded promising foreign markets with copies of its products that were also less expensive.

If the collaboration between Chinese and Vietnamese companies failed, it isn’t hard to guess which one would survive and continue manufacturing product once considered proprietary to Vietnam.

Such concerns are far from groundless, similar cases have occurred many times in the past, he said.

Beijing has always given strong preference to its domestic producers and discriminated against foreign investors, unless they offer something that China has an ardent desire to possess.

In many fields, the Chinese market is the key to enormous earnings. But the risks are mammoth as well. Copyright infringement is the norm in Chinese society and Vietnamese companies are accorded no special treatment.

The conditions for capital outflow are far from standard, as well.

It may be unwise to stake too much on overplaying the Chinese commercial trade card and bow to the best interests of Beijing, Mr Dung concludes, but rather better to seek alternative economic agreements free of Chinese influence.

In all joint venture dealing with their Chinese counterparts, local companies risk losing their technological lead and comparative advantages.

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