Vietnam - Big hand to reach around firms

Weak supporting industries have hindered foreign direct investment in Vietnam for many years. While the government and local enterprises are aware of this weakness, there are some positive signs for the development of supporting industries.

For Reed Tradex, a Thai exhibition organiser, the supporting industrial exhibition in Hanoi next month could be one of its most successful exhibitions held in Vietnam since 2007. In line with the increase of foreign exhibitors registering to participate in this event, the organiser announced a sharp increase in domestic exhibitors, with 52 companies wishing to be potential suppliers for foreign partners.

Chainarong Limpkittisin, managing director of Reed Tradex, said this figure indicated Vietnamese enterprises’ heightened awareness of supporting industries.

“The change of awareness will lead to the sustainable development of the manufacturing industry in Vietnam. It will also make Vietnam more attractive to foreign direct investment,” said Chainarong.

Indeed, Vietnam’s supporting industry is considered as one of the biggest obstacles for foreign investments inflow in this country, especially in the manufacturing sector. Though many foreign manufacturers have manufacturing facilities in Vietnam to take the advantages of low-cost labour, an expanding market and political stability, they have difficulties in buying parts and components from local suppliers.

A Ministry of Industry and Trade report points out that imported materials, equipment and machinery accounted for 81 per cent of Vietnam’s total import turnover during the first seven months this year, a 24 per cent year-on-year increase.

One of the main reasons for the poor state  of supporting industries in Vietnam resulted from local enterprises’ attitudes, said Hanoi Department of Industry and Trade director Ngo Tien Long. “Vietnam enterprises usually think big. That means they want to produce completed products but not produce small parts for other companies. That attitude hampered the development of supporting industries for long time,” he added.

Honda Vietnam, for example, has been manufacturing motorbikes in Vietnam for 14 years, but it has only 21 Vietnamese suppliers accounting for 23 per cent of total its components and part suppliers.

“For a long time, finding a local supplier was not easy,” said Kimihiro Funatsu, director at Honda Vietnam Purchasing Department.

However, this situation had changed as more domestic enterprises tried to improve their product quality to become Honda suppliers, he said.

“We want to have more Vietnamese suppliers and have seen many of them are improving their manufacturing advance and quality management to meet our requirement,” added Funatsu.

Samsung Electrics, one of the world’s largest mobile phone makers, also believes that it could find 96 Vietnamese component suppliers by 2015 for its manufacturing operation in Bac Ninh province.

“Being a supplier for foreign manufacturers in Vietnam is what many local enterprises want to,” said Le Gia Bao, deputy director at FC Hoa Lac Company.

His company now supplies Japanese ToHo and Nisses Technologies in Hanoi’s Thang Long Industrial Park. Bao said the competition between local companies in supporting industries was become fiercer.

“The lack of advanced technologies stops local firms from being involved in supporting industries,” said Bao.

The supporting industries exhibition will be a good chance for domestic companies to get know-how and new manufacturing technologies from foreign investors. About 200 foreign companies across 20 countries will show their know-how and advanced technologies at this exhibition.

To encourage development of supporting industries, the government also approved incentives for enterprises investing in supporting industries. Those incentives include import tax exemption for input machineries, components and materials. Enterprises operating in supporting industries also enjoy reduction or exemption in land rental fees.

The incentives will take effect this week on August 18. Duong Tu Anh, a MoIT Heavy Industries Department official, said those incentives would be an important driving force for the development of supporting industries.

Hanoi People’s Committee is planning an industrial park project for supporting industries with special incentives. This industrial park project is developed by a domestic N&G Corporation.

Long  said industrial parks would be  good places for manufacturers operating in supporting industries set up manufacturing facilities.

With the initial positive sign for the development, Chainarong said Vietnam would have developed supporting industries in next few years. Like Thailand, he said, Vietnam would be more attractive to foreign direct investment inflow with developed supporting industries.

In fact, figures from the Foreign Investment Agency show that Vietnam remains an attractive place for global manufacturers. Honda last month announced a $120 million investment for building its third motorbike manufacturing factory in this country.

US-based First Solar early this year started construction on a $300 million solar cell factory in Ho Chi Minh City.

“Although the local supporting industries have not met foreign manufacturers’ demands, its improvements in recent years showed that the gap could be fulfilled in the near future. Foreign investors will leave Vietnam for other countries if we fail to develop supporting industries,” said Vu Tien Loc, chairman of Vietnam Chamber for Commerce and Industry.

Instead of incentives, foreign producers were now paying more attention to the development of supporting industries in Vietnam to expand investments, said Chainarong.

He added in the next years, his company would organise more industrial exhibitions in Vietnam to satisfy the demand of foreign and local manufacturers.

Ninh Kieu reports. | vir.com.vn
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