Engineering firms fail to take off

Can you explain why Viet Nam has invested much to develop its mechanical industry, but still has to spend about US$18 billion each year importing machines and equipment?

Under Government Decision 186 ,Viet Nam targets to develop eight key groups of mechanical products to serve industries of manufacturing, construction, agriculture, aqualculture, forestry, auto, shipbuilding, electricity and electronics. Domestic mechanics is targeted to meet 45-50 per cent of domestic demand in industrialisation and modernisation. However, up to now, it fulfilled 20 per cent of its task.

There are many reasons for its slow development, but one of them is that the sector has yet to be paid proper attention to as a fundament to the development of key industries. For many years, the country hardly offered any incentive and support to mechanical enterprises in upgrading production and accessing the market. The reason is that they fail to gain trust from domestic clients while a bidding mechanism in which offering low cost means win the tender is still preferred. Consequently, foreign contractors won many key projects in Viet Nam including those related to thermal power plants and industrial complexes.

Is it clear that domestic enterprises are not as good as foreign ones?

Vietnamese mechanical enterprises are still good at designing and manufacturing, they can compete with foreign ones. For example, the Viet Nam Erection and Construction Corporation (LILAMA), after finishing the Uong Bi Thermal plant, continued to be a contractor for other thermal power plants such as Ca Mau, Phu My 1, Phu My 2, Vung Ang and Son La Hydropower.

PV Shipyard, a member of PetroVietnam (PVN), has succeeded in making an auto-lifting oilrig that was recognised to meet international standards by the American Bureau of Shipping (ABS). After that, the company gained a contract from Vietsopetro to make a 130-metre-underwater oilrig worth US$300 million. When big domestic enterprises play the role of investors or constructors, they can also hire other domestic enterprises to work as subcontractors. The move creates a chance for the enterprise to improve capacity and access the market.

We think that this is the right track for Viet Nam's mechanics. In the last five years, I saw many mechanical enterprises connect with big international enterprises and become sub-contractors. Thus, domestic enterprises paid more attention to changing their technology, improve human resources and management and build workshops to meet international standards as well as requirements from main contractors.

They have invested hundreds of billions of Vietnamese dong to become qualified for outsourcing exact machinery for overseas contractors, achieving annual growth of 20-30 per cent. This proves the effectiveness of technology transfer and trust of foreign contractors in Vietnamese producers.

What do you suggest to boost domestic mechanical engineering?

From now to 2015, Viet Nam plans to invest US$100 billion to build coal-fuelled thermal power plants, a huge market for mechanical enterprises to eye. If we continue to apply a bidding mechanism EPC (Engineering, Procurement and Construction) and prefer bidders with low-priced offers, foreign winning contractors would bring small crews for assembly in Viet Nam. In that case, Vietnamese mechanical enterprises continued being losers. Therefore, any major project should be divided into smaller items suitable to the capacity of domestic contractors.

Besides limited finance, domestic enterprises faced difficulty to gain markets. Thus, they need support from the State and Government. For example, in State-funded projects, there should be a mechanism to give priority for domestic enterprises. This would help to reduce the trade deficit and pave the way for the development of domestic mechanics. — VNS