Developing Industrial Subcontractors in Vietnam

10:13:54 PM | 5/20/2011

For years, the Vietnam Chamber of Commerce and Industry (VCCI) has actively carried out many activities to promote the development of supporting industries and supply chains in Vietnam. The recent inauguration of the Subcontracting and Partnership Exchange Centre of Vietnam (SPX Vietnam) in Hanoi is part of a series of activities in support of Vietnamese enterprises joining global supply chains.
Linking domestic companies with supply chains
Mr Hoang Van Dung, Vice President of VCCI, said: Since 1998, the United Nations Industrial Development Organization (UNIDO) has supported Vietnam to carry out projects to develop the capabilities of local small and medium enterprises (SMEs), including projects concerning industrial subcontractor development in Vietnam (e.g. MPI-UNIDO US/VIE/95-004 project on Vietnamese industrial SME support). The SPX Vietnam Centre is within the framework of the UNIDO-MPI Project called “Platform for Investment Monitoring and Supplier Development in Vietnam” undertaken by UNIDO and the Ministry of Planning and Investment.
"The inaugurated SPX Vietnam Centre is part of UNIDO’s worldwide SPX Centre network, established to link domestic businesses with supply chains of large domestic and foreign businesses by developing capabilities of local small and medium enterprises to meet buyers’ needs and to identify potential business and investment opportunities for them,” said Mr Dung.
Mr Stefan Kratzsch from the UNIDO’s Investment Promotion Unit (ITU), said: The UNIDO SPX Programme uses large investors and public procurement activities (especially by State-owned enterprises) as a rudder for the SME sector to develop.
The objectives of the programme are to develop partnerships with major buyers to determine their procurement requirements in order to guide SMEs in their path to becoming competitive suppliers of the demanded products; and compare the operational performance and practices of supplier enterprises against those of other enterprises of similar size, type or sector (called benchmarking). This programme will assist potential suppliers which have participated in benchmarking to raise their competitive position by upgrading financial capacity and international position with partners. Besides, it also meets major investors’ demand of choosing and developing local, capable suppliers.
Supporting and developing supplier capabilities
Mr Dinh Manh Hung, Deputy Director of SME Support Centre and SPX Vietnam specialist, noted that if Vietnam does not develop supporting industries, it will be unable to have a powerful manufacturing industry and to reduce its trade deficit.
The question is whether Vietnam will become an industrialised nation by 2020. Even if it has the necessary “investment environment”, it cannot do this without the foreign-invested manufacturing sector. So, will foreign companies, now mainly operating in assembly, continue to operate in Vietnam?
According to Mr Hung, in 2015, Vietnam will fully join the ASEAN Free Trade Area (AFTA) and if it lacks powerful international competitiveness, its manufacturing industry will be degraded because of increasing imported industrial products.
In reality, Vietnam’s supporting industries remain very weak. According to the Ministry of Industry and Trade, its supporting industries currently rely nearly 80 percent on foreign material supplies. The localisation rate in the automotive industry is 5-10 percent, while the rate in the motorcycle industry is 40-70 percent. Parts suppliers for foreign companies are mainly foreign-invested companies in Vietnam. Additionally, the gap on quality standards between domestic and foreign enterprises is relatively large.
He noted that Vietnam has very little information relating to industrial subcontracting and data about supporting industry companies and it has not created value chains through business linkage, including the employment of financial and non-financial services to take advantage of competitive edges.
Therefore, according to Mr Hung, SPX Vietnam will support linkages between buyers and suppliers; assess the standards of suppliers and develop the capabilities of suppliers.
So, what benefits will SPX Vietnam bring to large companies and assemblers? According to Mr Hung, these businesses will be supported by SPX Vietnam Centre and SPX specialists in finding appropriate suppliers; be invited to participate in B2B (business to business) meetings with selected suppliers; and be granted access to a larger supplier base due to continuous local supplier development.
So, what benefits will suppliers and SMEs get when they join in SPX Vietnam? According to Mr Hung, these companies will have VCCI support in accessing major buyers; identifying new buyers; and participating in B2B meetings with buyers. Besides, they will be provided with objective assessments of enterprises in relation to international practices within specific sectors, and can upgrade capacity/skills to meet the requirements of buyers.
At present, SPX Vietnam is picking up suppliers operating in mechanical engineering, industrial rubber and plastic, electricity, electronics, energy, industrial services etc, all across the nation to develop a broad supplier system for major industrial manufacturers.
Quynh Chi