2006 Asian Development Bank, September 2006

Viet Nam's integration into the global economy continues to be a priority for the country's leaders, who see it as a means to achieve economic growth, political stability, and poverty reduction. This integration will continue to increase competitive pressures on local firms, transform the business environment and put pressure on the Government's reform commitments. The Government has moved ahead with efforts to promote competition and development of the private sector through legislative means, including the Law on Foreign Investment and the new Enterprise Law which will come into effect in mid-2006.

Although Viet Nam is rapidly integrating into the global economy, analyses derived from public opinion surveys reveal that there is still insufficient integration of domestic companies into global value chains. Total factor productivity is growing very rapidly across the board, but growth is faster in foreign companies than in domestic ones, regardless of their ownership.

Global integration seems not to be significantly affecting the vast majority of Vietnamese businesses, raising an important question about the competitiveness of the Vietnamese economy as a whole.

Effective participation of Vietnamese bamboo producers in global value chains presents a promising opportunity to reduce poverty and promote economic development in the province of Thanh Hoa.

The report consludes that future actions aimed at promoting poor smallholders integration with the value chain should explore new models of collective action capable of achieving an effective cooperation between different local groups. Improved models of collective action could be based upon the creation of shareholding pre-processing enterprises jointly owned by local traders and bamboo producers' organizations (cooperatives and/or groups). The creation of shareholding enterprises is to be preferred to the entry of traders in existing producers' organizations, as this second option would add further complexity to the organizations' governance structure and increase the frequency of internal conflicts.

Shareholding enterprises offer a flexible mechanism to align the incentives of traders and producers, promoting a sustainable cooperation based on the strong complementarities between the two groups. Shareholding enterprises can promote the pooling of scarce local resources (skills, capital, marketing contacts), facilitating the profitable integration of small-scale producers groups with the bamboo value chain. At the same time, shareholding enterprises offer a means to unlock the idle social capital embedded in the deep relationships of mutual trust between local traders and producers. On the one hand, the formalization of existing trust relationships can help mobilize capitals currently locked in the informal credit system. On the other hand, formalization will favor the implementation of more effective risk-sharing mechanisms capable of reducing smallholders' vulnerability.

Pre-processing companies and local governments could provide services and indirect facilitations aimed at creating a supportive environment for shareholding enterprises jointly owned by local traders and producers' organizations.

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