An Analysis and Application for High Economic Growth

High Tech Parks:

An Analysis and Application for High Economic Growth in Vietnam

Abstraction:

Having joined the WTO in 2007, Vietnam is signaling its purposes to go one of Southeast Asia taking economic powers. However, given its current overreliance on agribusiness and fabrication, this paper argues that it is impossible for Vietnam to make so in the close hereafter and under the same industrial capacities. In order to make high sustainable growing, Vietnam needs to put in its high tech industries. By developing High Tech Parks, Vietnam will bring forth incubation centres where foreign and domestic engineering companies can turn and introduce. Education concerns are the top precedences and reforms are needed to develop more skilled workers, necessary to pull more foreign investings. Recommendations are made on how the park should be structured and that authorities interventionist policies should be kept to a lower limit.

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1. Introduction

Centuries ago, one of the cardinal mileposts to human development occurred when people decided to congregate in fertile countries along river Bankss. Traveling from a mobile to agricultural society allowed many civilisations to make critical mass, spurring new inventions necessary for sustainable growing. These metropoliss shared many commonalties, amongst them a relatively higher-educated public and a function as the economic and cultural centre of the environing part. While favourable conditions for agribusiness is no longer a requirement for colony thanks to modern engineering and mass production, many of today ‘s most well-known metropolitan countries retain the same theoretical account of development as their urban predecessors. Today, the most celebrated hub of invention in the United States is Silicon Valley, located in Northern California. This part is home to many of the universe ‘s largest engineering companies including Apple, Google, Oracle, and Hewlett-Packard. The growing of Silicon Valley has transformed the San Francisco Bay Area into one of the most vivacious and densely-populated parts of the universe.

This paper will first briefly analyze the history of Silicon Valley. Factors such as nearby collegiate research establishments and early authorities investings doubtless played a major function in its success. After building a model of policies and necessary elements derived from the historical promotion of Silicon Valley, we will seek to use this theoretical account to Vietnam, one of the fastest-growing emerging markets in the universe today, and assess the feasibleness of retroflexing a similar high-technology hub in the part. Challenges such as differing political political orientations and questionable quality of the Vietnamese higher-education system will surely raise significant barriers. However, in order to keep the high growing rate it has enjoyed over the past decennary and avoid the in-between income trap that has befallen many of its Southeast Asiatic neighbours, Vietnam needs to transform itself from being chiefly a provider of inexpensive fabrication labour for foreign corporations to a state with illimitable advanced potency in engineering and other preeminent industries. Merely so will it see a similar watershed minute in economic development as the first sedentary husbandman did so many centuries ago.

2. Successful High Tech Areas

One of the earliest enterprises in High Tech Park development was undertaken in the United States more than 50 old ages ago, when a Science Park was created within the Stanford University campus. Historically, Science Parks in the U.S. were established by universities to complement academic plans and generate extra gross, leveraging their academic endeavor and research capablenesss, land resources, and promoting greater academic entrepreneurship. Besides Science Parks being established in the academe environment, IT clusters besides developed with organisations set uping common linkages amongst themselves. The Silicon Valley is an illustration of one of the extremely acclaimed high tech home grounds in the universe that has inspired the scene of High Tech Parks all across the universe.

As in most other sectors, authorities policies and intercessions have played a cardinal function in the development of the IT sector in single economic systems. The resettlement of taking defence contractor Lockheed to the Silicon Valley in the 1950ss, thereby conveying in important orders and taking to creative activity of a big figure of accessory engineering houses represents one of the earliest cases of authorities playing a important function in development of High Tech Parks. Furthermore, Silicon Valley ‘s close geographical location to premier universities such as Stanford and Berkeley has fueled its growing. Many future leaders of Silicon Valley were one time pupils who worked on startups parallel to their surveies in university. Professor Fred Terman encouraged his PhD pupils Bill Hewlett and David Packard to get down a new concern, and the remainder is history. The birth of Hewlett Packard is historically of import and besides shows the importance of great research universities on the ecosystem of the Valley and transitively, on other high technological countries.

Developing states are progressively looking towards the IT sector for speed uping their economic growing. Two states that have made important advancement in this sector are China and India. The importance of the IT sector can be brought out by analysing the sector ‘s part to GDP and exports, along with the rate of growing of the industry as compared to growing in GDP. The IT sector has over clip go a important subscriber to their economic systems. IT industry ‘s portion in the Indian GDP was 1.2 % in 2000 which increased to 4.8 % in 2006. In China, the sector ‘s part to the GDP was about 4 % for the period 1996-2000, which farther increased to 5-7 % for the period 2001-2005. The developing states have progressively relied on High Tech Parks as a preferable tool for publicity of IT industry. These states are frequently constrained by terrible substructure restrictions. It is easier to supply universe category substructure in choice countries. The developing states like India and China have concentrated state-of-the art physical, communicating and societal substructure in High Tech Parks to enable IT companies to run.

Unlike other industrial bunchs, High Tech Parks are non constrained by factors such as the handiness of natural resources, or natural stuffs. The cardinal resource demand is handiness of quality work force. One of the chief grounds for the success of China and India in the IT sector can be attributed to their extremely educated and skilled work force. It has been observed that High Tech Parks generate spillover effects, taking to a virtuous rhythm of local economic development. High Tech Park development helps bring forth drift to local development of industries such as existent estate, retail, and life style and diversion.

3. Vietnam – Advantages and Disadvantages

The Vietnamese economic system is estimated to hold grown at an mean rate of around 7 % from 1997 to 2008 ( Beginning: World Bank ) . Vietnam still remains an agricultural based economic system with the sector accounting for 21 % of its GDP and using about 57 % of its working population. Fabrication and the services sector accounted for 41 % and 38 % of the state ‘s GDP severally. Compared to other states in the part, Vietnam has been a late starting motor in developing its IT sector. Though the Vietnamese authorities introduced its first IT related policy in 1993, the focal point on developing the sector as a important subscriber to its economic development was made in 2000 when the Prime Minister approved the declaration on “ constitution and development of the Software Industry in the period 2000-2005 ” . The IT sector contributed USD $ 1.4 billion, or about 3 % of GDP, in 2005. While the portion of IT in Vietnam ‘s GDP is significantly lower than states like China and India where the IT sector contributes around 4 % -5 % of GDP, the Vietnamese IT sector has shown important growing since 2000.

Figure 1. Vietnamese IT Sector Share of GDP

However, there are many restrictions which serve as long-run inhibitors to Vietnamese technological growing.

3.1 Education

Vietnam ‘s instruction system is in crisis. While its primary and secondary registration ratios are good, there are serious concerns about quality. The reunified Vietnam since 1975 experienced a rush in population similar to the babe roar in the West, despite the economic adversity of the early 1980s. Even though population growing was subsequently kept under control by a series of fiscal and occupational deterrences against high-fertility households, the age pyramid rapidly expanded at the underside for several coevalss of kids. This peculiar phenomenon resulted in a immense demand for instruction when those kids reached school age. The population growing was coupled with a strong push for urbanisation in a typical emerging economic system. The urban population portion rises about two per centum points a twelvemonth, with most urban immigrant households concentrating on giving their kids a better opportunity. That creates tremendous demand force per unit area on the instruction substructure of big metropoliss. However predictable it was, that demand tendency has non been dealt with decently. The supply side remained stiff until late, partially due to unequal national instruction planning and partially due to rigorous bureaucratic ruddy tape forestalling the private sector from stepping in and make fulling the spread. The figure of public schools has non grown in Vietnam ‘s major metropoliss, while their capacity has merely improved a little fraction. Under strong force per unit area, educational enterprisers have easy been allowed into the image, foremost in joint ventures with public establishments and for a few old ages now as independent concerns. However, the high cost of licences, both in clip and in other affairs, have kept the private portion of the market comparatively low.

The high failure rates recorded in the most recent national high school graduation test reveals that many pupils are non geting the basic degree of cognition the Vietnamese authorities has determined that its citizens require. Vietnam ‘s universities are stagnant. Too few Vietnamese people have university grades, and the figure of new alumnuss is turning excessively easy. In 2000, the ratio of university educated workers to population in Vietnam was about 2 per centum, compared to 5 per centum in China and 8 per centum in India. The 2005 registration ratio of university pupils was 16 per centum in Vietnam compared to 17-19 per centum in China and Indonesia – and 43 per centum in Thailand. On top of this, the quality of Vietnamese universities and instruction are sub-standard. Professors and lectors at Vietnam ‘s best universities publish few articles in international, peer-reviewed diaries. Indeed, comparings even with Southeast Asia ‘s everyday universities can merely be described as embarrassing. Half of university alumnuss in a hot occupation market were reported to be without a occupation related to their chief country of survey merely one twelvemonth after graduation.

This presents a frustrating riddle to many who are bullish on the Vietnamese economic system. With a burgeoning literate young person population, Vietnam should, on paper, shortly become leaders in its several markets. However, uneconomical disbursement and opaque

Figure 2. Population Proportion 1990-2010

Beginning: Vietnamese Financial Review

direction has impeded any advancement on instruction reforms. If an equal degree of skilled workers is non available, foreign investors will be deterred from puting in Vietnam. More significantly, it is these same investors ( such as Intel ) who will be responsible for puting the foundation for Vietnam high tech growing.

In order to better the quality of higher instruction and scientific discipline, Vietnamese establishments must be able to offer attractive inducements to pull top-talent. Today, elite Chinese universities are viing in the planetary market for scientific endowment ; their internationally competitory wages and generous research support are get downing to entice taking Chinese scientists resident abroad from the US and elsewhere. Vietnam, by contrast, has yet to follow inducements that are attractive to immature, foreign educated scientists and bookmans from Vietnam. Indeed, there appears to be some reluctance to accept the demand to honor a choice cohort with particular inducements to which others are non entitled. The market for scientific endowment is international, and the best immature Vietnamese scientists have many calling options. It is improbable that more than a smattering will be willing to accept the professional conditions now bing in Vietnamese universities. Give its recent political struggles, few will besides happen entreaties to their nationalism sufficient inducement.

3.2 Government and Corporate Governance

There is a basic contradiction in Vietnamese economic policy: although the private and foreign invested sectors are the most dynamic, the province sector continues to have the king of beasts ‘s portion of investing and other privileges. The Vietnamese economic system appears progressively dominated by province owned “ economic pudding stones. ” While Party policy dictums have stated that the pudding stones should concentrate on strategic sectors, they are in fact spread outing quickly into a broad scope of sectors, including existent estate, fiscal services, touristry and even mobile phone distribution.

Two months ago, The Wall Street Journal reported the near-collapse of Vinashin, a major Vietnamese state-owned ship building house. With mounting debt of over $ 4.7 billion USD, the fiscal dirt exposed the gross misdirection of one of Vietnam ‘s flagship state-owned endeavors ( SOE ) and the breakability of the Southeast Asiatic state ‘s burgeoning economic system. In the past decennary, Vietnam has attracted many foreign investors who are drawn by the state ‘s inexpensive labour supply and political stableness. However, a 3rd of Vietnam ‘s economic system is still under the control of SOE ‘s, guaranting that of import industries like oil and transportation remain under domestic ordinance. The operational construction of these giants pose attractive fiscal inducements which tend to take to widespread corruptness and propagate inefficient economic growing.

Vinashin ( originally a shipbuilding-centric house ) invested in a assortment of domestic industries and fiscal vehicles, most of which it was non familiar with. The drift for this risk-taking is due to SOE ‘s unconventional inducements and criterions for success. Whereas private companies in the West topographic point the highest importance on the bottom line ( net incomes vs. losingss ) , Vietnamese SOE ‘s directors are rewarded for maximising gross, with net incomes being of secondary importance ( Whalley & A ; Zhang, 2006 ) . While being profitable is desirable, gross is a better index of success because it more clearly shows how big a market portion that specific SOE had over its industry. It is critically of import to keep this facade in order to pull the attending and services of power-hungry politicians.

Since these endeavors are state-owned, all hazards and losingss are later insured by the authorities. Therefore, from the position of SOE ‘s, capital is cost-free. This would bring on endeavors to take utmost hazards in order to accomplish maximal gross. Furthermore, directors of SOE ‘s are inclined to corrupt authorities functionaries for discriminatory interventions and/or partnerships in concern trades. The permeant corruptness, coupled with unrestraint risk-taking, aid explicate the dismaying death of Vinashin. While we have to stay sensitive to the intrinsic political political orientations of a communist authorities, it is clear that SOE ‘s are earnestly haltering future economic growing of Vietnam and forestalling it from fall ining the ranks of comfortable Asiatic economic systems like South Korea, Singapore, Taiwan, and Hong Kong.

Figure 3. Value-added by Sector

From Figure 3, we see that state-owned endeavors were least-efficient in adding value to the Vietnamese economic system over clip. In fact, the most robust sector was domestic private companies, which are required to run much more expeditiously in order to vie without the backup of the national authorities. SOE ‘s impose an economic cost because it crowds out private corporations in the recognition market, hence striping important financess and seed investings from private endeavors. Therefore, the market is less than optimum as it is being controlled by less-efficient corporate machines.

While Silicon Valley benefited from authorities investings, it is of import that the Vietnamese communist authorities does non enforce rigorous countenances on members of High Tech Parks. Most startups may be more efficient than SOEs but do non hold the hard currency to vie against government-sponsored pudding stones. While the authorities should ease the building and direction of substructure of Parks, it should take a hands-off attack on the direction of High Tech Parks and go forth it to more efficient private direction.

4. Policy Recommendations

While Vietnam still face many challenges to its economic system, it is relevant to see the building of High Tech Parks within its boundary lines as long-run investings. Although hapless in quality when compared internationally, Vietnam ‘s best universities are located in Hanoi and Ho Chi Minh City. This proves to be highly convenient as those metropoliss are the most equipt to back uping the substructure of High Tech Parks. Furthermore, merely like Silicon Valley 50 old ages ago, being located next to rational centres like universities are critically of import to the invention necessary to develop and bring forth commercially successful high tech companies. In face of Vietnam ‘s alone fortunes, the followers are some recommendations in respects to building successful High Tech Parks in Vietnam:

Promote private sector investing and set up coating schools to develop concluding twelvemonth alumnus pupils in needed accomplishments required for IT services. This will relieve some of the short-run jobs of the unequal supply of skilled workers. Furthermore, promoting private investings will bring forth more efficient consequences and present more competition to the market.

Establish a high-ranking multi-disciplinary commission to track the altering demands of the IT sector and future demand for accomplishments ; and urge alterations in the course of study for schools, colleges, and universities. More research-oriented universities are needed to promote more scientific promotions.

Locating the park in an country that permits it to leverage the bing urban and societal substructure of the two cardinal metropoliss, viz. , Hanoi and Ho Chi Minh City, as handiness of skilled human resources is expected to be a job in any other part.

Build state-of-art practical connectivity in footings of informations and voice substructure, including international connectivity. High-speed and map informations webs is cardinal to the operations of many IT companies and should be given cardinal precedence in substructure development.

High quality physical connectivity and substructure in footings of air ( both international and domestic ) , route and rail connectivity. Basic substructure such as sewerage, H2O, and electricity are required to pull renters off from already established office infinite such as downtown HCMC and Hanoi.

These recommendations by no agencies are across-the-board and some chiefly

concentrated on bettering the lacks in Vietnam as mentioned in this paper. The Vietnamese authorities can guarantee success by puting in instruction and substructure long-tem, and restrain from developing and pull offing the country itself. Merely facilitation is needed from the authorities while private participants should be given authorization to do determinations that are more efficient and less politically-motivated. High Tech Parks are of import because they will let companies from similar backgrounds to congregate, portion information, and the common linkages which will develop will speed up the advanced procedure and add value to the economic system. In order to vie with the Asia of tomorrow, Vietnam needs to prioritise its attending on these of import incubation hubs today.

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