Industrial support enterprises still have a "weakness" in the supply chain

MoIT facilitates development of two industrial supporting centres

There is a need to enhance the effectiveness of the linkages between industrial support enterprises and FDI companies.

Competitive capacity not strong enough

Pham Tuan Anh, Deputy Director of the Industrial Department, MoIT, stated that in the electronics sector, Samsung currently has about 50 first-tier supplier businesses and around 170 second-tier supplier businesses. In the mechanical and automotive sector, there are about 12 businesses supplying directly to Toyota. The localization rate of supporting industrial products has also improved significantly in recent times. Specifically, in the textile and footwear sector, the localization rate is about 45 - 50%; mechanical engineering sectors achieve 15 - 20%; automobile manufacturing and assembly sectors range from 5 - 20%. For certain vehicle products such as trucks and buses, the localization rate is even higher.

Although in recent times, ministries, sectors, and localities have made efforts to connect domestic industrial support businesses with multinational corporations and have achieved some positive results, the supporting industry is still limited and remains in the low value-added segment of the supply chain. In addition, research and development (R&D) in domestic industrial support enterprises have been given attention but have not reached the desired level. The linkage between industrial support enterprises and FDI companies has not been tightly connected.

For example, in the mechanical sector, the MoIT evaluated that despite the large market potential, diversifying and expanding the market for mechanical enterprises was still very difficult due to fierce competition from foreign businesses. Their competitive capacity is not strong enough, they have not built a brand, and many potential customers do not know them.

Nguyen Chi Sang, Vice Chairman and General Secretary of the Vietnam Mechanical Association, stated that the import and export figures for the mechanical industry were large, but most of it comes from FDI enterprises, with a modest proportion from domestic units. In reality, foreign customers identify many limitations in Vietnamese mechanical companies. Specifically, skills in finding customers (through fairs, exhibitions, trade promotion, associations, web advertising, and e-commerce platforms) are limited; there are no traditional product, no representation for selling to groups, and no close connection in finding customers; there is a reluctance to change production scale, and limitations in using e-commerce for production and business. Especially, Vietnamese mechanical companies mainly compete on labor costs.

Sharing about the opportunities and challenges facing Vietnamese industrial support enterprises, Pham Tuan Anh stated that although the investment environment has improved significantly, there are still some obstacles that need to be further improved. Infrastructure is still not commensurate, causing concerns for businesses investing in Vietnam. Furthermore, the capacity of Vietnamese businesses is still limited. "When a foreign business invests in Vietnam, they need local satellite businesses with the capacity to provide products, helping to minimize costs in the production process. This is still our weakness," analyzed Tuan Anh. Additionally, at present, Vietnam's education and training system, as well as vocational schools, have almost failed to keep up with the needs of foreign businesses investing in Vietnam.

According to Tuan Anh, in recent times, political instability, climate change, and the changing structure of the supply chain have led to certain changes. Some countries with enterprises investing abroad are building policies to attract businesses to return to domestic investment. This is a challenge, but conversely, in the context of instability, foreign businesses will seek countries with stable political situations for long-term, stable production. Vietnam stands the chance to embrace the investment shift of these enterprises due to its strong political stability and abundant young labor force.

Opportunities from the supply chain shift

According to Tuan Anh, the wave of supply chain shifts will affect many industries, including some relatively hot sectors at present, such as high-tech industries and semiconductors. "During the official visits of the leaders of Vietnam and the US, there have been hints that US investors will invest in Vietnam. Most recently, during a working trip to the US, Prime Minister Pham Minh Chinh witnessed the signing of agreements between Vietnamese organizations and businesses with leading US semiconductor manufacturing corporations. These are very encouraging signals for the near future," said Tuan Anh.

To enhance support for businesses, representatives from the Industrial Department stated that there would be policy amendments in the near future. Specifically, Decree No. 111/2015/NĐ-CP on the development of supporting industries was issued in 2015, and it has been eight years since then. Given new developments in the economic and technological landscape, the decree needs to be revised. In the draft decree amending Decree No. 111/2015/NĐ-CP, the core issue is providing interest rate subsidies to industrial support product manufacturers. State support for businesses in the initial stages of the production process is essential as businesses need to generate revenue and enjoy preferential corporate income tax rates after producing goods for the country. This is one of the latest provisions in the draft decree.

"Additionally, regarding the list of industrial support products, we have also added many new products that are in line with current trends. When the list is expanded, any unit that manufactures these products must receive State support. The MoIT is coordinating with relevant ministries and sectors to finalize the draft proposal for the government," said Tuan Anh.

Furthermore, in recent times, the government has tasked the MoIT with drafting a Law on Key Industries. Once this law is enacted, industries such as processing and manufacturing, as well as supporting industries, will have a legal framework to operate within.