"Handshakes" needed to boost supporting industry in Vietnam

Monday, 2019-02-04 16:48:48
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Currently, there are 29 enterprises that are first-tier suppliers for Samsung.
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NDO – Most of the world's leading tech giants now have factories in Vietnam, opening up opportunities for the development of the domestic support industry. However, without linkage and cooperation with FDI enterprises, domestic ones will find it difficult to participate in the global supply chain.

Effectiveness generates from linkages

Despite its youth, Minh Nguyen Supporting Industry JSC has invested heavily in technologies to produce quality products, thanks to its steadfastly aims to participate in the global supply chain since its inception in 2015. From then till now, only three years after its establishment, Minh Nguyen has become a reliable manufacturer of plastic components for multiple industries, such as digital household goods, electronic components and car parts, as well as becoming a first-tier supplier for Samsung Vietnam.

Citing specific examples of the effectiveness of the linkage between domestic and FDI enterprises, Professor Nguyen Mai, Chairman of the Vietnam Association of Foreign Invested Enterprises (VAFIE), said that in 2008-2018, Samsung has invested over US$17.3 billion in Vietnam and recruited 170,000 workers. In 2014, Vietnam had four enterprises as Samsung's first-tier suppliers. At present, Samsung has more than 200 Vietnamese supporting enterprises, of which 29 are first-tier venders. It is expected that by 2020 the figure will rise to 50 first-tier venders. To increase the number of its Vietnamese suppliers, Samsung has continuously implemented a capacity building programme for them, through sending experts from the Republic Korea to directly support Vietnamese enterprises.

"Thanks to that, in only three months, Golsun Company has a 60% decrease in its inventory, while equipment error rate decreased by 72% and the exact production rate increased from 0% to 94%. For Mida Company, the general equipment efficiency increased by 26%, equipment operating productivity up by 59%, the error rate decreased by 52%, and the proportion of inventories down by 54%,” revealed Prof. Nguyen Mai. He also affirmed that FDI enterprises connect with Vietnamese ones to provide practical support for them in terms of sending experts, technological solutions and business management to improve production and business capacity. On that basis, more and more Vietnamese enterprises have joined the global supply chain.

Statistics from the Ministry of Industry and Trade (MOIT) show that Vietnam has about 1,800 support industry enterprises, of which about 300 are participating in multinational companies' supply chains.

At a recent conference on support industry, Prime Minister Nguyen Xuan Phuc said that the capacity of the domestic support industry has gradually improved, meeting a part of localisation for Vietnam’s production sectors, particularly, 40-45% for textile and garment industry and leather shoes, 10-20% for manufacturing and assembling of cars under nine seats, 15% for electronics, informatics and telecommunications, and 5% for special electronics and high technology.

However, in addition to being proactive in seeking opportunities to establish reliable cooperation between domestic enterprises and transnational companies doing business in Vietnam, the State needs more policies to encourage this link.

Connecting enterprises

Although positive results have been achieved, Ron Ashkin, Director of the USAID-funded Linkages for Small and Medium Enterprises (LinkSME) Project in Vietnam, said that the barrier of Vietnamese enterprises is that despite efforts to develop in scale, most of them are still small and medium, with limited productivity, technology, experience, manpower and management capacity. To effectively connect with the global value chain, businesses must analyse their own capabilities to know where they are, their strengths, weaknesses, what buyers need and their ability to respond. It is also necessary to prioritise on the issues that need to be tackled and focus resources to meet customer requirements. In addition, the State needs more supportive solutions to enhance this connection.

According to the Industry Agency under the MOIT, in recent years, to strengthen the linkage between FDI enterprises and domestic suppliers, as well as to increase the number of enterprises participating in the global value chain, the ministry has often held meets and exchanges with FDI enterprises, promoting projects to facilitate Vietnamese enterprises to join the supply chain. In particular, the two outstanding areas are electronics and automobile assembly and production.

Specifically, in the field of electronics, the ministry has collaborated with Samsung in finding Vietnam's support industry companies qualified to participate in Samsung's production chain. The MOIT is cooperating with Samsung in a training programme for 200 Vietnamese consultants who are qualified to advise and retrain the suppliers in Vietnam's supporting industry. Similarly, in the automotive sector, the ministry carries out activities every year to survey and assess the capacity of support industry enterprises and support them to join the supply chain for automobile businesses in Vietnam. Since 2014, the MOIT has published an annual yearbook on supporting industry in Vietnamese manufacturing sectors.

Mr. Mac Quoc Anh, Vice President cum General Secretary of the Hanoi Association of Small and Medium Enterprises, said that there is no other way for supporting industry than to compulsorily link with FDI enterprises, who cover 65% of Vietnam’s exports, to learn how to design, manufacture and absorb source technologies. Therefore, the association will strengthen coordination with Hanoi authorities and relevant departments to bring supporting industry enterprises to Japan and the Republic of Korea – the countries with strong development of support industry, to call for investment and business cooperation with Vietnamese enterprises. At the same time, it will call for ODA and concessional loans to aid supporting industry enterprises with investment in technologies, factories and human resource training.

In the near future, the MOIT and concerned localities will continue to implement the contents in the Supporting Industry Development Programme during 2016-2025, as approved by the Prime Minister in Decision No. 68/QĐ-TTg to promote production of supporting industry products for domestic production and export and participating in global value chains.