It cannot be denied that FDI has made significant contributions to the national and local economy over the past few years. However, Chairman of the Vietnam's Association of Foreign Invested Enterprises, Nguyen Mai said that the pervasive influence of FDI has not been as profound as expected.
In nearly 30 years since the first FDI project was carried out in Vietnam, only 21% of enterprises have participated in the global supply chain, while the rate is 30% in Thailand and 46% in Malaysia. This inadequacy is blamed on domestic enterprises themselves. Many directors working at Japanese, American and the Republic of Korea (RoK) firms have said that Vietnamese enterprises should be self-confident and more active to gain success as they currently lack self-confidence and activeness.
According to Dau Anh Tuan, head of the Legal Department under the Vietnam Chamber of Commerce and Industry (VCCI), the value chain includes a high value-added part and a low value-added part. Regarding the low value-added part such as garments, textiles, and designs, domestic enterprises mainly participate in producing garments, while FDI enterprises occupy almost all of the high value-added part, which is the distribution of products. Thus, the added value of the garment and textile sector only accounts for 15% of its total revenue.
It is similar to the footwear sector as Vietnamese enterprises only participate in production, while FDI enterprises participate in the marketing and consumption of products.
One year ago, FDI enterprises earned five out of every 10 Vietnamese dongs from Vietnam's export revenue but now they earn 7.5 out of every 10 Vietnamese dongs from export revenue. FDI enterprises in Vietnam have participated actively in the global production chain but the pervasive influence of FDI enterprises on domestic enterprises remains modest.
Surveys from VCCI showed that FDI enterprises buy just 26.6% of their equipment and input from Vietnamese enterprises, whilst the remaining is imported from their parent companies or other partners.
As a large-scale FDI enterprise in Vietnam, the RoK-based Samsung Group is operating six factories in Vietnam with a total investment capital of US$15 billion and US$10 billion which has been disbursed.
It is scheduled that the total workers at Samsung factories in Vietnam will increase to 150,000 by the end of 2017 and these factories will earn over US$50 billion worth of export revenue, contributing over 20% to the total export revenue of Vietnam this year.
The localisation rate of Samsung products in Vietnam is approximately 50%, however, it is very difficult for domestic enterprises to take part in the supply chain of Samsung.
Deputy General Director of Samsung Vietnam Hyun Woo Bang said that it is highly paradoxical that Samsung Vietnam has to actively search for potential domestic suppliers. He noted that Samsung operates on a large scale, thus it requires domestic suppliers to have the same scale as well. Meanwhile, Vietnamese enterprises are mainly small and medium-sized enterprises. Regarding large enterprises, they lack self-confidence and a guarantee of quality when approaching Samsung.
Hyun Woo Bang affirmed that Samsung hopes that domestic enterprises become more self-confident in order to become suppliers of Samsung. He noted that Samsung Vietnam had only four domestic level-1 vendors three years ago, while that number has increased to 25 and it is anticipated to rise to 29 by the end of this year. Samsung expects to have 50 domestic level-1 venders by 2020.
There are a lot of other level-2 and level-3 vendors indirectly supplying products for Samsung, thus, Hyun Woo Bang advised the Vietnamese enterprises to become Samsung level-2, level-3 vendors, before becoming overly ambitious in striving to be level-1 vendors.
Pham Anh Tuan, head of the Strategic Planning Department of Toyota Vietnam raised the question with regards to why domestically-produced motorcycles have 80% of domestic content but automobiles have only 20% of domestic content, while the automobile and motorcycle industries were launched at almost the same time.
The reasons for the problem are technology and output growth. The growth of automobile output is very low and is much lower than the output growth of motorcycles, which obstructs the development of the automobile industry. Vietnam posts an output of 300,000 automobiles each year including 50,000 Toyota units. Due to its low production, it is difficult to increase the localisation rate of automobile products.
Many experts wonder what will be left for Vietnam after FDI projects are over and how to accurately assess the pervasive influence of FDI. And which solutions are needed to drive FDI as expected?
According to Le Duy Thanh, vice chairman of Vinh Phuc provincial People's Committee, FDI has also revealed many inadequacies, adding that without the appropriate attention and behaviour towards FDI, it will not pay off.
In the future, FDI attraction should be more selective, which should open up opportunities for domestic enterprises to participate in the value-added chain of FDI enterprises. The Government must also put forth policies to support domestic enterprises to develop in accordance with the expectations concerning FDI.
In addition, Nguyen Mai said that investment policies should be revised. Mai expressed his belief that the appropriate policies would help Vietnam to attract more FDI enterprises such as Samsung and achieve the target of having two million enterprises in the near future, with a majority of them being private enterprises.
Meanwhile, Deputy Director of the Central Institute of Economic Management (CIEM) Nguyen Thi Tue Anh wondered about the pervasive influence of FDI to the national economic growth and that FDI makes significant contributions to GDP growth. She also questioned about the influence of labour productivity increases in the FDI sector on domestic enterprises and whether private enterprises are overwhelmed by FDI enterprises or not.
Anh noted that there is evidence that the increase of FDI will lead to the probability of bankruptcy for private enterprises in the same sector. Thus, if FDI enterprises are provided with tremendous support, more pressure will be placed on domestic enterprises. Domestic enterprises should act on their own initiative but enterprises that are too small will need the support of the Government.
In fact, policies on FDI have yet to fulfil their role of creating links between FDI enterprises and domestic enterprises, particularly private enterprises, Anh added.
Dr. Phan Huu Thang, former Director of the Foreign Investment Agency said that domestic enterprises should not expect openness from foreign investors when they have yet to improve themselves. Support policies are required to help domestic enterprises to enhance their capacity and create made-in-Vietnam products, Thang said. He added that domestic enterprises must meet high quality standards but not rely on foreign investors to cooperate with them.
Meanwhile, Deputy Director of the Foreign Investment Agency, Dang Xuan Quang said that FDI enterprises have a great demand for links with domestic ones but the links are limited. Besides objective reasons, Quang said that policies on FDI are not adequate enough to connect FDI with domestic enterprises. Thus, policy framework on FDI should be revised based on increasing the capacity of domestic enterprises to promote the effectiveness of FDI sector.
