VietNamNet Bridge – The government needs to create a market with the capacity big enough to develop downstream industries. Meanwhile, the opportunity for Vietnamese enterprises in the immediate time is providing accessories and components to multi-national groups.
The government has been trying to develop supporting industries and the supply chains in the electronics, automobile and motorbike industries. However, no expert can say where Vietnam should start to implement the task.
Dr Truong Thi Chi Binh, Director of the Center for the Development of Enterprises in Supporting Industries, an arm of the Ministry of Industry and Trade’s Institute for Industrial Policies, pointed out that the problem lies in the lack of information about the market scale which investors need to refer to when making investment decisions.
Vietnamese enterprises now do not have reliable information sources to define the market capacity to decide whether they should invest in machines and equipment, and how they should join forces with each other to satisfy the market demand and optimize their profits.
The supply chain for manufacturing industries in Vietnam now comprises of 300 enterprises. It is estimated that 90 percent of motorbike parts are made in Vietnam, while the localization ratio of automobile products is 10 percent, and the figure is 25 percent for electronics.
Meanwhile, Vietnam still needs to import 100 percent of the input materials. Vietnamese enterprises understand that they would be put under a hard pressure of the global integration process. Especially, Vietnam will have to fulfill the commitments relating to the agreements signed within the framework of AFTA (ASEAN Free Trade Agreement) by 2018. However, it still has not had any strong measures to cope up with the new circumstances.
Honda Vietnam, a well-known motorbike manufacturer, has 19 Vietnamese motorbike part suppliers and 59 foreign invested suppliers. Of the 11 domestic suppliers of Toyota Vietnam, an automobile manufacturer, there are only two Vietnamese enterprises.
There are two viewpoints about the manufacturing industry development trend. The first one is called “demand and then supply”, i.e. that the assembling industry takes shapes and develops before the development of supply chains.
This is the way Vietnam is following. However, experts have pointed out that the way has not brought the desired effects.
The second way of thinking is that it is necessary to develop the supply and demand at the same time. To follow that way, it would much depend on the actions of the government. Vietnam invites foreign manufacturing groups to Vietnam, while it lays down a condition that the foreign investors will have to call for first-class suppliers to Vietnam.
However, experts believe that the government should reconsider the way of calling for foreign direct investment (FDI) to manufacturing industries. It should not only target big groups, but also need to call for first-class suppliers at the same time.
Vietnam has set up a lot of policies to encourage the development of supporting industries, mechanical engineering and manufacturing industries through government’s decisions, and ministries’ circulars. However, experts have commented that the policies prove to be impractical for the manufacturing industries.
The government has offered special incentives for special projects in supporting industries. However, to date, no investor has applied for the incentives because of the too complicated procedures.
In order to make it feasible for Vietnam to join the global supply chain, the government needs to create a market with the capacity big enough by defining the key product lines. Once the market consumption is big enough, investors would make investment in the industries, because they believe that their products would be salable.