Supporting industry development: downstream industry is the key

VCN - During a long time of development, Vietnam's supporting industry (SI) has been associated with the image of a weak team of businesses at the request of multinational corporations. Investing strongly in the downstream industry, especially creating a number of leading regional corporations, is considered a viable direction to help this industry change.
Difficulties continue to “lay siege” to industrial production Difficulties continue to “lay siege” to industrial production
Dossiers and procedures for applying tariff rate of 0% under programme of preferential tariffs for automobile supporting industry Dossiers and procedures for applying tariff rate of 0% under programme of preferential tariffs for automobile supporting industry
4718-5440-8-3458-414d01663587cfd99696
Domestic enterprises supply about 10% of the domestic demand for supporting industrial products. Photo: Nguyen Thanh

Low localization rate

Vietnamese supporting enterprises have developed in both quantity and quality, improved their production capacity and participated increasingly in the global production chain.

However, their scale and capacity have been limited. Regarding the supporting industry, a report submitted by the Government to the Standing Committee of the National Assembly, deputies of the National Assembly on the implementation of resolutions of the National Assembly on thematic supervision and questioning during the XIV term and some Resolutions during the XIII term of the Industry and Trade sectors, stated that currently, among about 1,800 companies producing spare parts and components, there are only about 300 domestic enterprises participating in the production network of multinational corporations.

According to the Government’s latest report, the number of enterprises operating in the supporting industry by the end of 2018 was about 1,800 units producing spare parts and components and more than 1,500 enterprises producing raw materials for the textile and footwear industry (accounting for nearly 4.5% of the total number of enterprises in the processing and manufacturing industry).

Supporting industrial enterprises create jobs for more than 600,000 workers, with net revenue of production and business in 2019 estimated at more than VND900,000 billion, contributing about 11% of the total revenue of the whole processing and manufacturing industry.

Regarding the capacity of production and technology management of the majority of Vietnamese supporting enterprises, the Government assessed that there were many limitations. Up to now, domestic enterprises have only provided about 10% of the domestic demand for supporting industrial products. The gap between the requirements of multinational corporations and the capacity of domestic enterprises has been large.

From the perspective of FDI enterprises, Dao Thi Thu Huyen, Deputy Director of the General Director Office, Canon Vietnam Co., Ltd., said Canon always looked for Vietnamese suppliers.

Currently, Canon has 59 component groups that need to be localized and this information was posted on the company’s website. "What have Vietnamese suppliers provided us with? Plastic, packaging, and printing components while a printer has nearly 400 components and many different types. When we look for new suppliers, they are still only suppliers of plastic components. There are many opportunities for Vietnamese enterprises, but they are not concentrating," said Huyen.

Notably, the Government’s report clearly stated that the self-sufficiency of domestic supporting industrial products had many shortcomings, and the localization rate in many industries was low.

The textile and garment industry is one an example. Currently, the localization rate of textile and garment enterprises is about 40-45%. Similar to the footwear industry, raw and auxiliary materials account for 68-75% of the footwear product price structure, but the localization rate of this product in Vietnamese enterprises is only 40-45%. The localization rate in electronics, telecommunications; and specialized electronics and high-tech industries is much worse, at 15% and 5%, respectively.

"Vietnam's electronics industry heavily depends on FDI enterprises, especially Samsung. Most of the localized components are supplied by FDI enterprises. Only about 35 Vietnamese enterprises are Samsung’s direct suppliers. They mainly supply consumable materials, packaging, printing with a very small value compared to Samsung's needs," said a representative of the Ministry of Industry and Trade.

Focus on developing the downstream industry

Regarding the development of the supporting industry in Vietnam, Do Thang Hai, Deputy Minister of Industry and Trade, said at the beginning of August 2020, the Government issued Resolution 115/NQ-CP on solutions to promote the development of the supporting industry, setting a target that by 2030, supporting industrial products would meet 70% of the domestic production and consumption demand; accounting for about 14% of industrial production value; there would be about 2,000 enterprises capable of directly supplying to assembly enterprises and multinational corporations in Vietnam.

"This once again affirms the meaning and important role of SI development in economic structure transformation, added value and economic competitiveness in Vietnam. In particular, after the impact of the Covid-19 pandemic, the trend of transferring investment capital flows to countries other than China will appear worldwide. This is a great opportunity for Vietnam. To take advantage of opportunities, improving production and enhancing productivity and quality need to be done regularly, because the thing FDI enterprises are interested in when choosing suppliers is that the production process from input to output must be professionalized, meeting their demand for raw materials in the long run," said Hai.

According to some experts, to develop Vietnam's supporting industry in the future, it is necessary to review and build new mechanisms and policies in line with integration commitments to support supporting industrial enterprises' development; continue to have new policies in management and investment attraction to ensure FDI enterprises have the connections and technology transfer as well as create spillovers for domestic supporting industrial enterprises.

Additionally, the key point mentioned in the Government’s report is to continue to strongly develop the downstream industry, including the energy industry, the precision engineering industry and the mechanical engineering industry. The capacity of Vietnamese supporting industrial enterprises is low, the value-added content and the competitiveness of domestic supporting industrial products is not high. Therefore, there are some general solutions to develop the downstream industry. First of all, the Government should have appropriate policies to protect the domestic market and create a healthy business environment to promote the development of domestic industrial products.

Specific measures are building drastic and consistent policies and solutions to focus on supporting a number of targeted Vietnamese enterprises in key downstream industries such as the automobile, electricity - electronics, textiles and footwear industries to become large regional corporations, creating a spillover effect and leading domestic supporting industrial enterprises to develop; and to formulate flexible and suitable import tax policies for imported components and spare parts for enterprises to reduce product costs and improve their competitiveness compared to imported goods.

In addition to the policy support from State management agencies, supporting industrial enterprises also need to improve their autonomy.

According to a representative of Samsung Vietnam, unless there is a lot of capital, changing technology and lines is extremely difficult for Vietnamese enterprises. Samsung encouraged them to make efforts in other areas, especially research and development (R&D).

"R&D costs of Vietnamese enterprises are very low, averaging about 0.2-0.3% of revenue. For example, with the same screw, now the enterprise sells it for VND1, next year sells it for VND0.8 only or for the same price but better quality. Without R&D, they can never do that," he said.

By Thanh Nguyen/ Ha Thanh

Related News

Businesses need support from vietnamese representative offices abroad

Businesses need support from vietnamese representative offices abroad

VCN - Several heads of Vietnamese representative offices abroad believe that Vietnamese businesses need to prepare solutions to respond to the changing global economy and meet the increasing demands of the international market.
Available foundations and drivers for strong economic growth

Available foundations and drivers for strong economic growth

VCN - Discussing the potential for Vietnam's economic growth in the coming time, Associate Professor, Dr. Tran Hoang Ngan, National Assembly delegate from Ho Chi Minh City said that Vietnam's economy has many driving forces for strong growth from exports, foreign investment and domestic consumption. At the same time, strong financial resources are also an important foundation for development.
What do businesses need for digital transformation?

What do businesses need for digital transformation?

VCN - According to experts, to support businesses in successful digital transformation, the state needs to complete the policy framework and testing mechanism (sandbox) for the development of digital economy, green economy, circular economy and new business models. At the same time, reform institutions to attract investment in digital technology in the direction of maximizing convenience for capital contribution, share purchase, merger and acquisition of digital technology enterprises. Create a favorable environment to promote digital transformation and support business development.
The realities of cutting down on business licenses

The realities of cutting down on business licenses

VCN - According to the assessment of the National Assembly's Economic Committee, some regulations and administrative procedures at some agencies, units and localities are cumbersome and have not been thoroughly cut down, causing difficulties for businesses.

Latest News

VN

VN's food processing industry struggles to improve quality and value chain integration

Despite accounting for 19.1 per cent of Việt Nam’s processing sector, the food processing industry has been struggling with major issues such as poor-quality raw materials and subpar value chain integration, said industry insiders and economists.
Approach strategy of the seafood industry when implementing UKVFTA

Approach strategy of the seafood industry when implementing UKVFTA

VCN - As one of Vietnam's strong export industries to the UK, especially when the Vietnam - United Kingdom of Great Britain and Northern Ireland Free Trade Agreement (UKVFTA) comes into effect, with a detailed information approach strategy, it has created a great driving force to promote the export of Vietnamese seafood products to this market.
Mid-November: Vietnam

Mid-November: Vietnam's trade volume matches 2023 total, eyes record-breaking growth

VCN - By mid-November 2024, Vietnam's total import-export turnover reached an impressive US$681.48 billion, equaling the full-year trade figure for 2023
Vietnamese enterprises facing challenges from cross-border e-commerce platforms

Vietnamese enterprises facing challenges from cross-border e-commerce platforms

VCN – In recent years, with the rapid development of cross-border e-commerce (CBEC) platforms, domestic enterprises in Vietnam have been facing numerous difficulties and challenges.

More News

Vietnam, Malaysia eye new milestone in trade ties

Vietnam, Malaysia eye new milestone in trade ties

The official visit to Malaysia from November 21-23 by Party General Secretary To Lam is expected to open up new opportunities for and mark a new milestone in the economic and trade cooperation between Vietnam and Malaysia. Vietnam and Malaysia are key economic, trade, and investment partners. Their economic and trade ties have steadily grown since the two nations established diplomatic relations in 1973.
Shrimp exports surge in 10 months, generating 3.2 billion USD

Shrimp exports surge in 10 months, generating 3.2 billion USD

Vietnam’s shrimp exports in October reached US$394 million, a strong 24% increase year-on-year, according to the Vietnam Association of Seafood Exporters and Producers (VASEP).
Vietnam’s exports to the U.S. near US$100 billion milestone

Vietnam’s exports to the U.S. near US$100 billion milestone

VCN - By the end of October, Vietnam's exports to the United States approached US$100 billion, reaffirming its position as Vietnam's largest export market.
From the “abnormal” coffee price, worries about the new crop

From the “abnormal” coffee price, worries about the new crop

VCN - The Vietnamese coffee industry enters the new crop with the question of what is a reasonable price to ensure benefits for coffee growers while still retaining international consumers.
What obstacles limit the market share of Vietnamese goods in the UK?

What obstacles limit the market share of Vietnamese goods in the UK?

VCN - Vietnamese goods account for only about 1% of total imports into the UK market. One of the reasons is that they have not yet built their own brands and have not focused on effective strategies and approaches to market information.
Why seafood exports to some Middle Eastern Countries are stalled

Why seafood exports to some Middle Eastern Countries are stalled

VCN - Several shipments of seafood exported to certain Middle Eastern countries have been delayed due to legal challenges related to consular legalization procedures. This has created significant bottlenecks in accessing these markets.
Storm No. 3 destroys profits of many insurance companies

Storm No. 3 destroys profits of many insurance companies

VCN - Due to the impact of storm No. 3, the business results of the third quarter and the first 9 months of 2024 of the insurance sector have been significantly affected. This requires more efforts from businesses for the results of the whole year 2024.
Vietnam, Malaysia eye golden partnership opportunities in Halal industry

Vietnam, Malaysia eye golden partnership opportunities in Halal industry

Cooperation in the Halal industry can help Vietnamese products reach nearly 2 billion Muslim consumers worldwide, representing over 24% of the global population, according to Malaysia’s Minister of Investment, Trade, and Industry Zafrul Abdul Aziz.
Tra fish sector aiming for production, processing greening for sustainable development

Tra fish sector aiming for production, processing greening for sustainable development

Greening production and processing to meet export requirements is both a trend and a necessity for many industries, including the tra fish sector.
Read More

Your care

Latest Most read
VN

VN's food processing industry struggles to improve quality and value chain integration

Despite accounting for 19.1 per cent of Việt Nam’s processing sector, the food processing industry has been struggling with major issues such as poor-quality raw materials and subpar value chain integration, said industry insiders and economists.
Approach strategy of the seafood industry when implementing UKVFTA

Approach strategy of the seafood industry when implementing UKVFTA

VCN - Mr. Nguyen Hoai Nam, Deputy General Secretary, Vietnam Association of Seafood Exporters and Producers (VASEP), said that the advantage that UKVFTA brings is that the main products of the seafood industry enjoy 0% import tax to the UK, especially key
Mid-November: Vietnam

Mid-November: Vietnam's trade volume matches 2023 total, eyes record-breaking growth

By mid-November 2024, Vietnam's total import-export turnover reached an impressive US$681.48 billion, equaling the full-year trade figure for 2023
Vietnamese enterprises facing challenges from cross-border e-commerce platforms

Vietnamese enterprises facing challenges from cross-border e-commerce platforms

VCN - E-commerce platforms have emerged as crucial distribution channels, enabling goods to reach consumers quickly and conveniently.
Vietnam, Malaysia eye new milestone in trade ties

Vietnam, Malaysia eye new milestone in trade ties

The official visit to Malaysia from November 21-23 by Party General Secretary To Lam is expected to open up new opportunities for and mark a new milestone in the economic and trade cooperation between Vietnam and Malaysia. Vietnam and Malaysia are key economic, trade, and investment partners. Their economic and trade ties have steadily grown since the two nations established diplomatic relations in 1973.
Mobile Version