Context:

• While Bangladesh has become the second largest apparel exporter after China, Vietnam’s exports have grown by about 240% in the past eight years. This article explains how the two nations achieved this and what India should learn from them.

Two nations and their success stories

Reason for Vietnam’s success story

• An open trade policy, a less inexpensive workforce, and generous incentives to foreign firms contributed to Vietnam’s success.

Open trade policy

• Vietnam pursues an open trade policy mainly through Free Trade Agreements (FTAs) which ensure that its important trading partners like the U.S., the EU, China, Japan, South Korea and India do not charge import duties on products made in Vietnam. 

Domestic laws attractive for foreign firms

• • Vietnam has agreed to change its domestic laws to make the country attractive to investors. 
• Foreign firms can compete for local businesses. 
• For example, EU firms can open shops, enter the retail trade, and bid for both government and private sector tenders. 
• They can take part in electricity, real estate, hospital, defence, and railways projects. 

Export strategy

• Last year, Vietnam received investments exceeding $16 billion, as a result of which Vietnam’s exports rose from $83.5 billion in 2010 to $279 billion in 2019.

Reason for Bangladesh’s success 

• In Bangladesh, large export of apparels to the EU and the U.S. make the most of the country’s export story. 
• The EU allows the import of apparel and other products from least developed countries (LDCs) like Bangladesh duty-free. 
• Sadly, Bangladesh may not have this facility in four to seven years as its per capita income rises and it loses the LDC status. 
• Bangladesh is working smartly to diversify its export basket. India, as a good neighbour, accepts all Bangladesh products duty-free (except alcohol and tobacco).

Which elements of Vietnam and Bangladesh models should India emulate?

Support large firms 

• The key learning from Bangladesh is the need to support large firms for a quick turnover. 
• Large firms are better positioned to invest in brand building, meeting quality requirements, and marketing. Small firms begin as suppliers to large firms and eventually grow. 

Focus on specific sectors

• Vietnam has changed domestic rules to meet the needs of investors. Yet, most of Vietnam’s exports happen in five sectors. In contrast, India’s exports are more diversified. 
• To promote manufacturing and investment, India could set up sectoral industrial zones with pre-approved factory spaces. 

Conclusion 

• With reforms promoting innovation and lowering the cost of doing business, India is poised to attract the best investments and integrate further with the global economy.