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Vietnam to lose FDI due to ailing support
industries
Friday, February 28, 2014 19:38
Vietnam losing out to other ASEAN members in the FDI stakes for want of a
well-developed supporting industry
Workers on a mobile phone assembly line of a Samsung Vietnam f actory in Bac Ninh
Province
Automobile giants like Toyota, Ford and Honda plan to expand production in
ASEAN countries like Indonesia and the Philippines, but not Vietnam due to
the countrys weak support industries.
An official from the Vietnam Automobile Manufacturers Association (VAMA)
said Vietnam would not be a choice for foreign investors interested in the
ASEAN unless supporting industries developed more quickly slowly.
Vietnams supporting industries are far less developed than other ASEAN
countries like Thailand, Malaysia and Indonesia.
Locally-made automobile components and spare parts accounts for only 25
percent of the total parts used to manufacture a car, compared to some 60
percent in Indonesia.
The rate is very low, which means investors have to import more components
and spare parts from other countries, raising their production costs, he said.
Products made in Vietnam are less competitive than those made in other
countries with higher localization rates.
Former Ford Vietnam General Director Laurent Charpentier said it is not easy
for car producers to purchase enough batteries in Vietnam. Battery producers
in the country are mainly small-sized with limited production capacity. Thus,
supply has not met local demand, he explained.
He said the local automobile industry would develop only when Vietnam does
more to boost its supporting industry, which now has some 210 businesses
making auto parts. The number is just a fifth of that in Indonesia, and a fiftieth
of that in Thailand.
Weak supporting industries are a barrier to foreign investors not only in the
automobile sector, but also in other sectors like motorbikes, electronics and
garments.
Executives at chip producer Intel also said the company had been unable to
find enough qualified Vietnamese partners. Intel has only 18 Vietnamese
partners among hundreds of companies providing materials and components
for its production.
"We have worked with many Vietnamese companies in the supporting
industry. They showed very good samples, but when it came to actual
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5/17/2014 Vietnam to lose FDI due to ailing support industries | Business | Thanh Nien Daily
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business, their deliveries were not consistent," he said.
Samsung Electronics Vietnam has only five Vietnamese partners in its 60-
strong supply chain, and they do simple jobs like packaging and printing. The
others are mainly companies from South Korea or other ASEAN countries, or
joint ventures between Vietnamese firms and foreign partners.
A company source said production had evolved from cheap cell phones five
years ago into smart phones and tablets, but the local supporting industry
companies have failed to keep pace with the technology.
Nguyen Van Dao, vice general director of Samsung Vina, said almost none of
the Vietnamese firms could meet the technical requirements set by
Samsung. With low technology, local firms could provide foreign investors
simple products only.
Thus, it is difficult to reach the target that half of 170 providers of Samsung
are Vietnamese firms by 2015.
Hirotaka Yasuzumi, managing director of the Japan External Trade
Organization (JETRO), said Japanese firms see the weak supporting industry
as their biggest challenge. A recent JETRO study found that for Japanese
firms, Vietnam is the second most difficult place to do business behind
Myanmar.
The ratio of Japanese firms use of local parts in Vietnam is just 28 percent, or
half the rates in China and Thailand, the study showed.
This raises concerns about high input costs among firms that have already
complained about tax policies and the lack of skilled workers and information,
according to the report.
Support for support
Some industry insiders said the government is actually treating foreign
electronics investors better than the local supporting industry.
Nguyen Anh Tuan, chairman of the Ho Chi Minh City Semiconductor Industry
Association, said by failing to back the local supporting industry while
pampering foreign investors with low taxes and land fees, the government is
just giving the latter a chance to make use of cheap resources.
Tuan said foreign giants like Sony, JVC, and Panasonic only use Vietnamese
companies to assemble components, generating little value addition.
Amid reducing import tariffs under free trade agreements, the primitive state of
the supporting industry is a reason for foreign firms to shift their focus away
from production to trading imported products. Most other auto firms
manufacturing in Vietnam, like Toyota, Ford, and Honda, have increasingly
resorted to importing and selling products. Their ratio of imported cars now
matches locally made ones.
Even a few years ago 75 percent of their cars had been produced locally.
Others like Canon, Sharp, and LG have also started to depend on imports.
Nguyen Mai, former vice minister of the Planning and Investment, said
supporting industries, despite being a major concern for foreign investors,
have not been improved over the past many years.
He said supporting industries in other countries develop into production mode
within five or 10 years, but Vietnam's has been stuck in assembling for more
than 30 years.
He said the problem was that the government has not offered specific policies
to support the development of supporting industries.
Economist Dinh The Hien said state-owned corporations involved in key
sectors of the economy want to participate in all stages of their production
chain, instead of ordering spare parts for their products from private small-and
medium-sized enterprises components. It is one of reasons hindering the
development of the local supporting industries.
While local enterprises could not participate in supporting industries due to
weak technology and limited capital capacity, and shortage of support from
the government, foreign ones are not interested in it because of the small
market scale.
A representative of a foreign car assembler in Vietnam said Vietnam has a
very high number of assemblers (18) compared to the industry size (less than
200,000 units). With multiple models assembled in all factories the average
production run is less than 3,000 units a year, he said.
At this volume it is almost impossible to localize beyond a very basic level.
5/17/2014 Vietnam to lose FDI due to ailing support industries | Business | Thanh Nien Daily
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Most component manufacturers require annual production runs of at least
100,000 units a year, and this will require exports if they are to set up in
Vietnam, he said.
According to Mai, the government needs to define which supporting industries
we will boost in the coming years, and build specific policies to develop them.
There is a trend of tax reduction in the world, so Vietnam doesnt have much
time to develop its supporting industry. The most essential thing now is to
define a concrete action plan - where, when, and what to do - and implement
it well.
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Ngan Anh
Thanh Nien News (The story can be found in the February 28 issue of our print
edition, Vietweek)
More : Vietnam, FDI, support, supporting
5/17/2014 Vietnam to lose FDI due to ailing support industries | Business | Thanh Nien Daily
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Editor-in-Chief: Nguyen Quang Thong
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Published: Friday, February 28, 2014 19:38
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5/17/2014 Vietnam to lose FDI due to ailing support industries | Business | Thanh Nien Daily
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