Solutions to Develop Supporting Industry

In Vietnam, the supporting industry remains young and small; thus, it fails to meet the demand of the manufacturing industry. However in Japan the industry has been developed for a long time. The supporting industry provides input products for the manufacturing of key industrial products. This enabled Japan to become a fully industrialised nation. However, when Japanese investors do business in Vietnam, they cannot access supports from their homeland. According to economists, the supporting industry is a vital industry in Vietnam as it is the source of intermediary products (parts, accessories and materials). This is the groundwork for the development of manufacturing industries. In developed nations, the supporting industry is given high priority to lay groundwork for the development of main manufacturing industries such as automobile, motorcycle, electronics, garment, textile and telecom. In Vietnam, the supporting industry is in the infant stage of development. Currently, many industries in Vietnam have earned export value of billions of US dollar, such as footwear, apparel and electronics, but they are heavily reliant on foreign materials sources. As a result, the net export earnings remain small.

 

For example, in the electricity and electronics areas, foreign-led companies make up 90 per cent in revenue and export earnings because the supporting industry is dominated by foreigners. Up to 70 per cent of export revenue of apparels is constituted by imported materials. Dyes are wholly imported and 85 per cent of basic chemicals for the textile industry also come from foreign sources. Most made-in-Vietnam products have low value. Vietnam now has underdeveloped parts, accessory and equipment production to support the garment and textile industry; thus, most suppliers are now foreigners. The footwear industry lacks support from the tanning, chemical and machinery industries.

 

According to statistics, after nearly 20 years of industrialisation and foreign capital attraction, Vietnam’s motorcycle industry only has some 80 per cent of products sourced from local suppliers.

 

The Vietnam Electronics Industries Association (VEIA) said the number of industrial supporting companies remains small and the gap between industrial manufacturing firms and industrial supporting companies is wide. Besides, the technological level is underdeveloped for the region, some 10-15 years behind. Small production scale, small output and limited product categories are the main hurdles for the development of the supporting industry. Also, it receives insufficient interest from concerned units. To developed a sustainable industry, Vietnam must pay due attention to building a long-term development plan for a strong supportive industry. Dr Pham Duy Hieu of Ho Chi Minh City Industrial College said most investment projects have a very high demand for supportive products such as plastic parts, metal moulds and accessories. Canon Vietnam has 60 parts suppliers. An automobile has from 20,000 to 30,000 parts but Vietnam now has 60 car parts suppliers, which mainly produce simple parts such as tyres and electric wires. Meanwhile, Thailand has 1,800 car parts suppliers for 15 carmakers. Locally sourced products would send the price down, increasing product competitiveness. However, the weakness of the Vietnamese supporting industry results from insufficient interest from concerned persons. A Japanese investor said Vietnam was left behind by regional rivals with stronger supportive industries. According to JETRO’s survey of 68 Japanese companies in Vietnam, between 50 and 90 per cent of parts are imported.

 

Dong Nai is now one of the provinces with many foreign investors. Dong Nai’s supporting industry has been steadily developing. The province mainly focuses on the development of supporting industries for three backbone industries of mechanics, electrics-electronics, and garment, textile and footwear. By 2006, the supporting industry accounted for some 24 per cent of local industrial production output. However, supporting industries for other fields in Dong Nai are as underdeveloped as other parts of the country. Underdeveloped supporting industries for metal, rubber, plastic and cotton forced manufacturers to seek foreign sources. According to the Ministry of Industry and Trade, Vietnam’s footwear export revenue ranks high on the world scale, but most product value is constituted by imported materials, mainly from China. Unsurprisingly, some 80 per cent of Vietnamese footwear companies are subcontractors for foreign clients. The underdeveloped supportive industry for the footwear industry negatively impacts the competitiveness of Vietnamese companies.

 

Also according to VEIA, the importance of supportive industries has not been clearly understood; hence, both state authorities and companies pay insufficient attention to investment for development. Besides, the development of supporting industry needs advanced technology and a high-quality labour force, which are now barriers to small and medium sized Vietnamese firms. According to reports, Vietnamese market consumption is not big enough to attract foreign companies to develop supportive industries.