FDI-based technological transfer target fails to meet expectations

Thursday, 2018-06-28 17:04:04
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After 30 years of attracting FDI, Vietnam’s target of seeing technological transfer from FDI has failed to meet expectations.
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NDO - Over the past 30 years of luring foreign direct investment, though several local firms have been able to learn from the technology of their foreign partners, Vietnam’s overall target of alluring high technology from foreign firms has remained far behind expectations.

This week, nearly 1,500 workers of locally-owned Goldsun Holdings Company are busy fullfilling part of the company’s contract with Samsung, under which Goldsun provides the South Korean firm with assorted packaging products.

Goldsun has been selected by Samsung to be one of its top three packaging vendors and to join Samsung’s projects on security and new product development in the 2015-2018 period. Goldsun provides approximately 35 million products for Samsung annually.

“Goldsun is trying to become Samsung’s No.1 vendor by 2020,” said Nguyen Thanh Cuong, former deputy general director of Goldsun.

Goldsun is also a vendor of many other foreign invested enterprises (FIEs) in Vietnam, including Canon, Brother, Coca-Cola, Ariston, Heineken and Pepsi.

“During our co-operation process with these firms, we can learn much from them, both in know-how and technology. However, the point is that Goldsun has to take the initiative in improving its skills and technology. FIEs never take the initiative in transfering technology to local firms,” Cuong said.

A grain of sand in the desert

The story of Goldsun was highlighted at last week’s workshop on attracting and transfering technology in FIEs as an example of the lack of Vietnamese firms which have improved themselves in order to learn technology from FIEs over the past 30 years, since Vietnam launched its Law on Foreign Investment promulgated in late 1987.

The workshop, which aimed to provide input for the government’s hallmark report on Vietnam’s 30 years of attracting foreign direct investment (FDI), saw that despite Vietnam attracting a lot of FDI, FDI’s technological spillover effects have failed to spread to domestic firms.

Figures from the Ministry of Planning and Investment (MPI) showed that, as of June 20, 2018, Vietnam attracted nearly 26,000 FDI projects, registered at US$326.3 billion – of which 84% are 100% FDI projects. Some US$180.1 billion has been disbursed.

In the first half of this year, Vietnam lured 1,362 new projects, allowed 507 projects to increase their capital, and enabled stake acquisition for 2,749 projects. Total registered capital of all these projects mounted to over US$20 billion.

“FDI is contributing 25% of Vietnam’s total investment capital, 20% of the GDP, 14.4% of the total state budget revenue, and 72.6% of the total export turnover, while creating jobs for 3.6 million local workers directly and another six million workers indirectly,” said MPI Deputy Minister, Nguyen The Phuong.

In its FDI attraction strategy, Vietnam wants to receive high technology from FIEs which often receive many investment incentives. However, the technology transferred to domestic firms has often come from other domestic firms that use low and medium technology, not from FIEs.

“Goldsun is just a grain of sand in the desert, meaning that, although Vietnam has attracted dozens of thousands of FDI projects over the past 30 years, the FDI sector’s technological transfer to domestic firms has also taken place, but at a negligible level,” said Deputy Minister of Science and Technology, Tran Van Tung.

“The transfer has failed to meet our expectations,” Tung stressed. “The technological spillover effects remain very limited. Only domestic firms transfer technology to one another.”

Nguyen Thi Tue Anh, vice head of the Central Institute for Economic Manangement (CIEM), cited recent CIEM surveys as pointing out that, over the past decades since Vietnam opened its doors to FDI, the country’s prime goal of luring technology has failed to be reached.

Specially, under a report on firm-level technology and competitiveness in Vietnam, made from five high-profile surveys over 38,731 local and foreign enterprises, technology advancements usually came from other domestic firms. Over 80% of technology transfers took place between Vietnamese enterprises, if firms from both the same or differing sectors are taken into consideration.

Foreign firms in the same or other sectors have been responsible for just below 20% of technology transfer to domestic firms.

“Overall, technology transfer primarily takes place among domestic firms in Vietnam, suggesting that FDI may not be as an effective way toward technological advancements as believed,” said Tue Anh. “Many domestic firms still fail to link with FIEs, though FIEs continue expanding their size.”

In a specific case, the Vietnam Association of Corporate Directors currently has more than 3,000 member enterprises operating in various sectors. Many of them have also been co-operating with FIEs for years.

“However, over the past many years, our companies have been unable to feel, not to mention receive, any technology from FIEs. Despite their co-operation with FIEs, the companies have almost been unable to approach the FIEs’ technology,” said the association’s chairman, Han Manh Tien.

“I think over the past three decades, Vietnam has lured a big sum of FDI but has failed to achieve its target of receiving technologies from FDI enterprises as we had wished to,” said Tien, who is also general director of Consulting and Research Company Limited for Technology Transfer and Investment headquartered in Hanoi.

Nguyen Trung Quynh, vice head of Hanoi’s Hoa Lac High-tech Park, said that, at the park, there are now 14 FDI projects, including two joint venture companies and several wholly-foreign-owned enterprises.

“But they almost don’t transfer any technology because the transfer would depend on their parent companies overseas. It is very difficult for Vietnamese enteprises to receive their technologies and know-how,” Quynh said.

According to MPI Deputy Minister, Nguyen The Phuong, over the past 30 years, Vietnam has failed to attract technology from FIEs as it has been longing for.

“Frankly speaking, our target of luring FDI so that it can transfer technology to domestic firms has failed to meet our expectations. The FDI firms’ spillover effects toward domesttic enterprises remains limited, and will fail to meet the nation’s development requirements in the future,” Phuong said. “It is because the majority of FDI projects are focused on assembly activities with a very low rate of localisation, and low value created for the country. FDI firms have yet to form close links with Vietnamese enterprises or boost the development of the domestic supporting industries.”
However, in fact, FIEs had no obligation to transfer technology to Vietnam, because their prime target in Vietnam is earning as much profit as possible. Moreover, local enterprises’ capacity in receiving high technology remains weak, also making FIEs difficult to transfer the technology.

How to expand technological spillover effects?

According to CIEM’s Tue Anh, in order to expand the spillover effects of FDI in the domestic sector, the government should direct its new FDI attraction policy in a manner that could help increase the interaction and production links between FIEs and Vietnamese enterprises.

“Vietnam should also boost the development of joint ventures, not 100% foreign-owned companies, in order to materialise its long-lived dream of luring high technologies,” she suggested. “If investors want to establish 100% foreign-owned companies, they must meet several conditions on co-operation and training with domestic firms.”

Meanwhile, according to Shinjiro Kajikawa, representative from Toyota Vietnam, one of the biggest barriers for firms such as Toyota in Vietnam is the high costs for localisation.

“If a Vietnamese part’s cost is lower than the Thai part cost, including import tax and logistics, it can be localised in Vietnam, accordingly Vietnamese firms can learn from foreign firms,” Kajikawa said. “Otherwise, makers have to import the parts. In Vietnam, due to small volumes, the majority of completely-knocked-down (CKD) parts are imported. That’s one of the reasons why Vietnamese firms cannot learn much from FIEs.”

As for Goldsun Holdings, the firm will continue seeking more foreign partners, in addition to Samsung and many other partners.

“Experience has shown that the government should attract FDI selectively. Incentives should be given to FIEs that commit to and implement their links with domestic firms, thereby helping to increase the localisation rate,” Goldsun’s Nguyen Thanh Cuong said.

“For domestic firms, they must take the initiative to promote themselves to FIEs. If your companies’ profile is good, with products that are able to meet FIEs’ requirements, opportunities for you to partake in FIEs’ global value chains will be immense,” he continued.

Thu Ha