Hanoi (VNS/VNA) - Non-equity modes(NEMs) trade is spreading in Vietnam and exposing the country to bothopportunities and challenges, one expert believed.

Shunji Karikomi from Waseda University in Japanwas speaking at a seminar in Hanoi this week, themed “Non-equity modes (NEMs)in Vietnam, promoting new forms of trade between Japan and ASEAN,” co-organisedby the Vietnam Trade Promotion Agency (Vietrade) and the ASEAN-Japan Centre(AJC).

Non-equity modes trade is a new form of tradecarried out by transnational corporations (TNCs) when conducting internationalbusiness, according to Karikomi.

“It is especially common for TNCs to enlarge inforeign direct investment when manufacturing overseas. However, even if TNCs donot engage in equity participation (investment), NEMs of internationalproduction are still carried out,” he told the seminar.

With the recent economic growth, NEM trade waswidely promoted and ultilised in Vietnam in several forms such as internationalsubcontracting in manufacturing industries, contract farming in agriculture andfishery, international franchising in fast food and retail stores, variationsof build-own-operate transfer arrangements and other concessions ininfrastructure projects and management contracts in international hotel chains,said Vu Ba Phu, Director of Vietrade.

Karikomi said one of the salient features ofNEMs was that TNCs do not directly own the business activities of local firmsbut have indirect control of activities.

Non-procession by TNCs provided many potentialopportunities for local companies. Using NEMs operations, Vietnamese firms cantake part in global value chains, he said.

Diffusion of technology can promotetechnological enhancement and, through it, can promote the involvement of localfirms in global value chains, he added.

Local firms can also expand their businesses byusing the brands of TNCs. They do not have to consider brand value andmanagement.

However, NEM contracts are not guaranteed forlong periods. A TNC can use a NEM partner as a test case before full-scaleentry, but it can also easily terminate the contract and withdraw if localfirms in other countries are more competitive, as the sunk costs are minimal.In such cases, technology, market access, job creation and stable income do notcontinue over the long term, he said.

TNC’s technical and managerial support may belimited because of the non-capital relationship. TNCs offer only low-skilledwork to NEM partners so workers’ skills improve very slowly. Local NEM firmsface not only opportunities but also challenges.

“The issues are various, business continuity,characteristic NEM issues, capacity building, initiative and localembeddedness. If local NEM firms can strategically use TNC’s know-how andtechnological skills by linking with them, they can build capacities to dealwith these challenges,” he said.-VNS/VNA