Supporting industries a barrier to attracting FDI

Recently, the domestic supporting industry sector has continuously recorded improved levels of production organization, increased productivity and efficiency, reduced costs to help improve competitiveness to become a direct supplier to manufacturers, assemblers of complete products and multinational corporations; and participated in regional, global production networks and value chains.

Vietnam still imports high value components and spare parts to meet the domestic production and assembly demand

In the context of foreign corporations entering Vietnam on a large scale, many supporting industry enterprises seem not to have really caught up with this new wave. The participation rate in the supply chain of the electronics, information technology, telecommunications, specialized electronics industries, etc. is only about 15 percent; and of domestic high-tech industries only at about 10 percent.

Pham Tuan Anh, Deputy Director of the Vietnam Industry Agency under the Ministry of Industry and Trade, said that the connection between FDI enterprises and domestic enterprises is still loose, limiting the spillover effects between the FDI sector and the domestic economic sector. In addition, the competitiveness, management organization as well as the technological level of most Vietnamese enterprises remain low and have not met strict requirements and standards of multinational corporations or leading upstream enterprises.

“Most supporting industry enterprises are small- and medium-sized, and their products cannot compete with imported goods in terms of price, quality and delivery progress. The products of high technology content are still mainly provided by FDI enterprises. To meet the domestic production and assembly demand Vietnam still imports high value components and spare parts,” Pham Tuan Anh said.

In recent years, Hanoi’s supporting industry enterprises have continuously increased in quantity, scale, quality and areas of operation, mainly in three groups of industries: Manufacturing of components and spare parts; products for the textile and footwear industry; and products for high-tech industry, focusing on manufacturing industries.

However, according to Nguyen Van, Vice President of the Hanoi Supporting Industry Business Association (HANSIBA), domestic supporting industry products in general and those of Hanoi in particular are still simple, with medium and low technology content, therefore, resulting in the low value in the products’ value structure.

“This factor leads to a very low localization rate. As a result, the import value of components and accessories for assembly and manufacturing for export may amount to tens of billions of US dollars. The value of imported components of the electronics and automobile industries alone now ranges from US$35 to 50 billion,” - said Nguyen Van.

Sharing about the current situation of the Vietnamese supporting industry, Keisuke Tokunaga, Director of Toyota Vietnam Business Strategy, said that the advantage of the supporting industry is high-quality human resources with low labor costs. However, the disadvantage that makes it undeveloped yet is due to low output, lack of high-quality raw materials, which depend on imports. Particularly, domestic enterprises are still lacking experience, production management capacity as well as facing many difficulties in meeting requirements on quality, costs and delivery.

“Toyota always wants to expand its network, develop and improve the capacity of suppliers. Therefore, Toyota is one of the enterprises with the largest number of domestic suppliers in Vietnam: 13 out of a total of 59 suppliers. Toyota always strives to follow the Government’s direction with the goal of not only being a business partner, but also support domestic suppliers step-by-step so that they can participate in the global automobile supply chain,” Keisuke Tokunaga affirmed.

According to the Ministry of Industry and Trade, the implementation of policies and laws to develop the supporting industry, mechanical industry, especially in serving the processing of agro-forestry-fishery products, and developing agriculture and rural areas still has many limitations. The dissemination of preferential policies to the business community remains ineffective and has not been done regularly on a large scale. Furthermore, the understanding of a part of enterprises about the State’s policies and regulations is also still limited.