The development of supporting industries, and independence of raw material and component supplies is one of the core challenges for the sustainable long-term development of Vietnam’s industrial sector.
Limited competitive capacity
According to the Ministry of Industry and Trade (MoIT), 70 percent of supporting industry enterprises in Vietnam are of small and medium size, hobbling their participation in global supply chains. What is more, due to lack of capital, most industrial enterprises are still using technologies that lag behind the world at an average of two to three generations, hindering the manufacture of high added value and competitive products.
Currently, Vietnam’s supporting industry can only meet about 10 percent of domestic demand with mostly simple components and details of low value. For example, Vietnam mainly engages in the production stages of final garment products, with profit rates of only about 5-10 percent.
A MoIT report shows that major export industries such as textiles, footwear, and electronics import more than 90 percent of their raw materials. The electronics industry mainly assembles and processes products. The weakness of the supporting industry is the main reason for the low added value of domestic economic sectors, especially the manufacturing and processing industries.
Technology innovation
According to Do Nam Binh, Director of the Industrial Development Center under the Vietnam Industry Agency, the center organizes training programs for supporting industry enterprises to improve technologies and labor productivity. Specifically, a representative of 4P said that to keep up with the latest circuit board technology, the company invested tens of millions of US dollars to replace its outdated production lines. “Every few years, we have to renew machinery and technology, in return we produce more products and recover capital quickly,” he said.
JK Vietnam Industry Joint Stock Company also regularly updates its technology and focuses on training human resources to exploit the technologies efficiently. A representative of the Vietnam Supporting Industry Association said the state should provide supporting industry enterprises with preferential loans to enhance technological innovation and machinery imports.
The MoIT will continue to ensure a favorable business environment to provide maximum support for supporting industry development, encourage localities to allocate budgets for supporting industry development of downstream industries including automobiles, electronics, textiles, footwear, and materials.
The MoIT has proposed formulating a law on industrial development, focusing on the supporting and processing and manufacturing industries. This would be the first separate law for the industrial sector, driving the “made in Vietnam” supporting industry to participate more deeply in the global supply chain.
VEN
