Vietnam is suffering a worrying deficit, according to government’s data. This proves that many industries, including export-oriented ones, are still largely relying on imported raw materials and parts.
Therefore, the development of supporting industries will help domestic industries to create greater value and reduce reliance on imported raw materials.
Low localisation ratio
Perhaps, the failure of the localisation strategy of Vietnam's automobile industry is the clearest evidence for the unexpected development of our supporting industries. After more than 10 years, Honda takes the lead in raising the ratio of locally sourced parts to only 10 %, followed by Toyota Vietnam with 7 %. Other automakers reportedly achieve only 2-4 %. In addition, the prospects of textile and footwear industries are not brighter as they are heavily depend on foreign raw materials. Particularly, the textile industry imports 80 % of polyester fibre while the footwear industry imports about 85 % of foreign chemicals and other materials.
According to experts, Vietnam is greatly dependent on raw materials, spare parts for labour-intensive production. High-quality products are mainly supplied foreign companies while local enterprises chiefly provide for the domestic market. Primary reasons are attributed to the lack of domestic enterprises’ confidence in meeting requirements for advanced features, quality, price, delivery time, service and speed. As a result, according to experts, Vietnam’s supporting industries capably meet only a small %age of the demand of foreign companies operating in Vietnam. The failure of Vietnamese supporting industries may lead to the dire fact that by 2018 when the ASEAN bloc fully implements tax exemption policies in line with the ASEAN Free Trade Area (AFTA), foreign car joint ventures in Vietnam will shift to importing cars made in other ASEAN nations to sell in Vietnam instead of importing parts for production because parts import will take more cost.
Which solutions?
With the role of supporting for production of main products, small and medium-sized companies will have more "land" to participate in supporting industries. The country now has 450,000 enterprises with 90 % being SMEs, which contribute more than 40 % of GDP. SMEs have certain limitations like small operating scale, out-of-date technology, weak governance, narrow capital access and lax association with larger concerns. Hence, we need to adopt policies for the development of SMEs by creating wider approaches to capital sources, solving difficulties in production sites and improving competitiveness of SMEs.
According to supporting industry development plan until 2010 and vision to 2020 approved by the government, Vietnam will focus on five industry groups, namely electronics - information technology, garment - textile, leather - footwear, automobile assembly and production, and mechanical engineering. Particularly, the electronics - information technology industry will focus on human resources training to lay the groundwork for attracting investment from strategic partners such as Japan and the United States. The garment - textile industry will set up three textile material centres in three different regions. Locally made fibres and synthetic yarns will meet the 50 of domestic production and 80 % by 2020. Vietnam will start exporting these products after 2020. The leather - footwear industry, according to the development plan until 2010, will meet 40 % of local demand after 2010, basing on material zone development. Automobiles supporting industries for will supply parts for production of trucks, buses, engines and dynamical systems. In the period from 2010 to 2020, Vietnam will export auto parts and raise the localisation ratio to 60 %. The mechanical industry will meet 50 per cent of rough draft and other parts by 2010 and 75 % by 2020.
To promote this process, in the near term, Vietnam will focus on three groups of measures: Creating the investment environment, encouraging enterprises to develop production and business, and developing infrastructure. The country will attract foreign investors to do business in Vietnam and then transfer technologies to Vietnamese enterprises. For easily made parts, Vietnamese enterprises can manufacture immediately. This is very important because they support Vietnamese companies to upgrade technologies. At the same time, the country should clearly define investment incentive policies and build industrial zones for supporting industries. (New Hanoi)
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