Non-equity modes - new model of trade cooperation
Shunji Karikomi from Waseda University in Japan was 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-organised by the Vietnam Trade Promotion Agency (Vietrade) and the ASEAN-Japan Centre (AJC).
Employees manufacture car parts at the Sumi-Hanel Company at the Sai Dong B Industrial Zone in Hanoi. |
Non-equity modes trade is a new form of trade carried out by transnational corporations (TNCs) when conducting international business, according to Karikomi.
With the recent economic growth, NEM trade was widely promoted and
Karikomi said one of the salient features of NEMs was that TNCs do not directly own the business activities of local firms but have indirect control of activities.
Non-procession by TNCs provided many potential opportunities for local companies. Using NEMs operations, Vietnamese firms can take part in global value chains, he said.
Diffusion of technology can promote technological enhancement and, through it, can promote the involvement of local firms in global value chains, he added.
Local firms can also expand their businesses by using the brands of TNCs. They do not have to consider brand value and management.
However, NEM contracts are not guaranteed for long periods. A TNC can use a NEM partner as a test case before full-scale entry, but it can also easily terminate the contract and withdraw if local firms in other countries are more competitive, as the sunk costs are minimal. In such cases, technology, market access, job creation
TNC’s technical and managerial support may be limited because of the non-capital relationship. TNCs offer only low-skilled work to NEM partners so workers’ skills improve very slowly. Local NEM firms face not only opportunities but also challenges.
Source: VNS/VNA
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