Vietnamese Businesses Find It Hard to Join Global Supply Chains

9:10:47 AM | 11/8/2020

Only about 20% of Vietnamese businesses can join the global value chain, lower than 30% in Thailand and 46% in Malaysia, according to the Ministry of Planning and Investment of Vietnam.

Not sufficiently qualified

According to Minister of Planning and Investment Nguyen Chi Dung, despite growing in number, Vietnamese enterprises still have many shortcomings. Currently, they are weak in management capacity, lack competitiveness and competency to conquer the market or join major global supply chains and value chains. Besides, the degree of involvement of Vietnamese businesses in the global value chain is very modest. Many businesses are still afraid of the risks of upgrading standards.

Ms. Duong Lien, Deputy Director of USAID-funded LinkSME Project, asserted that Vietnamese businesses still have a lot to do to be qualified for global value chains. An important factor is their inadequate capacity. Vietnam still primarily depends on input materials from China for production. For example, imports account for 70-80% of inputs in the textile and garment industry, 77% in the electronics industry, 85-90% in the pharmaceutical industry, and 70-80% in the plastics industry.

Concurring with this viewpoint, Mr. Nguyen Anh Tuan, Head of Strategic Support Department, Samsung Vietnam, said, Samsung Vietnam has about 59 categories of domestic components. Suppliers in Vietnam can just handle some plastic and printing work, while Samsung needs more than 400 categories of components. Therefore, domestic businesses need to work harder, for example in research and development. In Vietnam, this investment is very low, accounting for only 0.2-0.3% of revenue, while Samsung products need innovation.

Like Samsung, Canon Vietnam has 147 direct suppliers of printer components in Vietnam, but only 20 are Vietnamese and this figure has been unchanged for years, said Ms. Dao Thi Thu Huyen, Senior Manager of Canon Vietnam. The localization rate of Canon is as high as 65%, mostly supplied by FDI enterprises and by Canon itself. Vietnamese suppliers can take on the easiest work, supplying plastic components, while Canon has many components of different types.

Therefore, without added efforts, Vietnamese businesses could completely lose their home market and lose export markets from FTA agreements that Vietnam has tried to sign. “Businesses need to think bigger to grab very lucrative foreign markets and bring home hard foreign currencies,” Minister of Planning and Investment Nguyen Chi Dung emphasized.

Looking for opportunities in a new normal

The Covid-19 pandemic has produced new perceptions, new consumer trends and new business models and brought market opportunities to form new value chains and links. Minister Dung said this is really an opportunity for Vietnamese businesses to recognize and test their true competence, resilience and adaptability to market events and restructure their businesses toward sustainability and efficiency.

In addition to changes adapted to market movements, new generation free trade agreements such as CPTPP and EVFTA will create great advantages for Vietnamese businesses to participate in global value chains, and upgrade equipment and technology in a more cost-effective manner.

To help businesses join value chains, the Ministry of Planning and Investment has been, and will be, working with localities to devise business support programs. Regarding specific policies in the coming time, Ms. Bui Thu Thuy, Deputy Director of the Enterprise Development Department under the Ministry of Planning and Investment, emphasized that ministries and branches will focus on helping businesses with technical bases, advanced machinery and equipment, test production and standardized training for enterprises.

Besides, the Ministry of Planning and Investment, as a lead agency, has cooperated with ministries, sectors, localities and business associations to further boost the effective enforcement of the SME Support Law, with a focus placed on a program that supports SMEs to join the value chain. At the same time, together with the USAID-funded LinkSME Project, the ministry has assisted businesses in digital transformation, competitiveness improvement and involvement in global production networks and value chains.

According to Ms. Duong Lien, to increase the capacity to grasp FDI inflows and enhance the sustainability of connection chains, Vietnam needs to immediately prepare available land for investors in industrial parks and economic zones; quickly hand over land for investment projects at ease, provide available technical infrastructure, electricity, water, sewage treatment, solid waste treatment, and human resources training.

Last but not least, to promote the development of domestic supporting industries, it is necessary to reduce the cost of freight loading and unloading, warehousing and transportation; and ensure convenient and easy administrative procedures. The business environment should continue to be improved in a way that is transparent, clear, consistent, stable and predictable. Besides, Vietnam also needs to prevent foreign goods from being labelled with Vietnamese origin to get export preferences.

By Ha Thu, Vietnam Business Forum