VietNamNet Bridge – Local electronics companies will have to face new difficulties once foreign invested enterprises (FIEs) are allowed to import goods directly to sell domestically.
As of July 1, 2007, FIEs in Vietnam have the right to import goods directly for domestic distribution.
According to Tran Quang Hung, Secretary General of the Vietnam Electronics Businesses Association, direct imports will help FIEs cut expenses for intermediaries (in the past, they had to import through a third party under authorised contracts); therefore, the selling prices of the imports will be lower – thus more competitive.
Meanwhile, local electronics companies cannot lower their selling prices any more, as the currently applied prices are the floor prices. In general, locally made products will find it hard to compete with imported ones in terms of price and quality.
Nguyen Thinh, Director of the Hanoi Informatics Development Support Company, said that when the tax rate on AFTA-sourced imported electronics was reduced to 5%, many enterprises asked for permission to import products under the form of complete built units (CBU). However, enterprises just imported small quantities so no big impacts on the market have been seen.
However, when more FIEs are allowed to import CBU products, there will be many changes in the market. Imported genuine products and good post-sales services directly from the producers, as well as promotional programmes will help create healthy competition in the electronics market.
The biggest concern of 100% domestic owned enterprises is that they will have to counter big-scale promotional programmes to be launched by FIEs, which have more experience and money for these.
Meanwhile, prices will not be a big problem for local electronics companies. Pham Thanh Tri, Director of VVC Electronics Company, said that CBU products had been imported into Vietnam since the AFTA-applied tax rate was reduced to 5% one year ago, which had led to the considerable price decreases of these products.
Non-AFTA products will also not be seen as fearsome rivals for locally made products as they will be expensive after tax (40% import tax and 10% VAT). An LCD 32 inch TV, for example, has the import price of $500, and the selling price of $770 (after calculating tax and expenses), while a similar TV made by VVC is priced at VND9mil ($562).
In fact, local electronics companies have been suffering many difficulties recently. Sales have been slow. Enterprises cannot attract more customers as they are not financially capable enough to launch promotional programmes. Many enterprises have to expand their business scopes by jumping into other fields, including real estate, finance to earn their living and cover losses.
The Deputy Director of an electronics company said that it was unsurprising to see many domestic owned companies narrow their production or shut down their workshops. The domestic market proves to be quite small, which makes production costs high; imports will bring more profit.
Analysts have predicted that at the end of 2007 there will be a new wave of promotional programmes launched by FIEs. These programmes will help boost sales and polish the images of FIEs, while these will, once again, make domestic owned enterprises miserable.
Tran Thuy - Viet Nam Net
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