Vietnam - Foreign firms steer clear of production

Foreign invested enterprises (FIEs) are paying more heed to distribution and importing than actually producing anything locally. 

This is because they enjoy many incentives from reductions in import tariff reductions – sometimes down to zero – and other preferential policies after the country joined the World Trade Organisation (WTO).

Industry insiders said that production, which created more jobs for local labourers and transferred vital technology, cost more for FIEs to establish than the commercial field.

Now, instead of pouring money into Viet Nam for production, FIEs tend to operate as traders only by importing goods from their countries and then selling them in Viet Nam. Consequently, domestic industries are becoming more dependent on foreign countries.

According to the Hai Quan (Customs) newspaper, nearly 20 years ago, the Japan-based Sony company began its investment in Viet Nam with only one assembly line and about 200 local workers. 

In 2008, the company announced that it decided to halt operations in the country, meaning that it was not planning to invest any more money for production. However, Sony-branded products still sell like hot cakes.

Many other huge foreign corporations have been establishing distribution networks instead of investing more money in production.

Deputy Minister of Industry and Trade Nguyen Thanh Bien said that the new FIE trend would affect adversely the country's inflation and trade deficit, and prevent it from building a healthy industrial atmosphere.

A representative of Vinaxuki JSC said that it was now unlikely that a domestic auto industry would be created, adding that the number of auto and motorbike producers had been squeezed down to 10 from 70 companies in the past.

He said this proved that FIEs tended to switch from production to distribution and importing.

According to the Foreign Investment Agency under the Ministry of Planning and Investment, Viet Nam's plan to disburse total foreign direct investment capital of US$11.5 billion for the entire year might fall short as FIEs have disbursed only US$10.05 billion in the past 11 months.

Meanwhile, FIE import revenues fetched $43.49 billion in the past 11 months, a year-on-year increase of 31 per cent, showing the sector had imported significantly.

In terms of creating jobs in the past 10 years, FIEs had hired about 1.7 million local workers, accounting for 10 per cent of demand.

Deputy Minister Bien said that the import-tariff schedule needed to be reviewed as well as the FIE mechanism of switching from production to imports and distributions.

He said this should be done while assessing import-export management so that regulations on granting distribution and import licences for FIEs could be properly adjusted.

VNS


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