Vietnam - New Destination of Supporting Industries

In a joint statement on the Japan visit by Vietnamese President Truong Tan Sang in March 2014, Japanese Prime Minister Shinzo Abe announced that Japan will continue to cooperate closely to implement action plans for the six sectors chosen in the Vietnam Industrialisation Strategy in the framework of the Vietnam - Japan Cooperation towards 2020, with a vision to 2030, namely agricultural and aquatic product processing; electronics; automobile and automotive parts; agricultural machinery; environment industry and energy saving; and shipbuilding. Prime Minister Shinzo Abe announced that Japan will cooperate to help develop supporting industries in Vietnam and assist the country to complete industrialisation and modernisation targets by 2020 by enhancing industry policymaking and policy enforcement capacity of Vietnam.

 

Currently, the Government of Japan has provided some soft loans for Vietnam to develop specialised industrial zones in Hai Phong, Ba Ria - Vung Tau and Hanoi to better serve the development of supporting industries. With the primary target of serving Japanese investors, the Hanoi Southern Supporting Industrial Park (Hanssip), covering 640 ha at present and 2,000 ha in the future, hired design consultants in accordance with Japanese technologies and standards.

In recent years, Vietnam has become the top choice of global electronics like Intel, Samsung, LG, Foxconn, HP and Nokia. According to the statistics by the General Department of Vietnam Customs, the country’s electronics exports expanded 68 percent in 2012 and 35 percent in 2013, led by telephone exports with respective growth of 85 percent and 67 percent.

 

In the first quarter of 2014 alone, exports of machines, equipment, tools and spare parts manufactured in Vietnam reached US$529 million, up 15.61 percent year on year. In particular, industries supportive of the motorcycle manufacturing industry achieved the greatest success. The presence of big firms like Honda has exerted a strong pull on parts suppliers to Vietnam to do business without any support policies from the Government.

 

Showing in the deep interest of Japanese enterprises to Vietnam at the Vietnam – Japan Economic Summit in September 2013, Mr Hiratsuka, JETRO Executive Vice President, said: "The China Plus One policy focuses on labour-intensive industries but, unlike other countries, Vietnam is a new destination for support industries (automobile, machinery, electronics). At present, [Japanese] companies are shifting a part of their production networks in China to Vietnam. Doing so, the effort of integrating into Asian economies is expected to serve as the leverage for Vietnam to join the Asia supply chain.”

 

One Japanese company interested in the development of supporting industries in Vietnam is Sanko Fastem Vietnam. At first, the company supplied high-quality anchoring systems imported from Thailand and the company is currently studying a plan to build a factory in Vietnam. CEO Seiji Masuda said Vietnam is still a better option than other countries in the region because of various reasons such as political stability. There is a tendency of shift production bases from China to Vietnam; Thailand is still politically unstable, Indonesia’s culture is very different to most Japanese companies; and Myanmar is still a new market. In recent years, although Vietnam’s economy increased at a slower pace than previous years, capital investment from Japan to Vietnam remained very stable.

 

Mr Duangdej Yuaikwamdee, Deputy Executive Director of Reed Tradex Company – the organiser of many exhibitions on supporting industries in Vietnam together with JETRO, said more and more investment projects are directed to Vietnam where opportunities continued to open to subcontracting businesses. The demand for advanced production technologies and methods will increase.

 

According to a joint proposal relating to the development of supporting industries delivered by the Japanese Ambassador to Vietnam, the Japan Business Association in Vietnam, and JETRO after the Vietnam - Japan Senior Economic Forum in 2013, it is essential that Vietnamese companies develop their own supporting industries rather than rely totally on Japanese companies.

 

According to a survey on Japanese overseas investment carried out by JETRO, the localisation rate of Japanese companies in Vietnam is 27.8 percent while the rate is 50-60 percent in Thailand and China. This suggests that the localisation rate in Vietnam is still very low. Furthermore, only 45 percent of enterprises are purchasing parts from local businesses. To win in the international competition to become a future production and export base, developing supporting industries is indispensable.

The development of support industries aimed to promote supply chains for enterprises is very important. Vietnam needs specific policies to carry out its missions like setting up joint ventures; conducting joint research and development on electronics parts; inviting and creating long-term business environment for training specialists; creating an assured business environment for small and medium-sized enterprises (SMEs); enhancing the role of the Vietnam Chamber of Commerce and Industry (VCCI) in connecting Vietnamese and Japanese enterprises; and building a powerful production system.

 

To attract more investors from Japan, Mr Sato Motonobu, Chairman of the Japan Business Association in Vietnam, said in a recent petition sent to the Government of Vietnam that the Government of Vietnam needs to further improve the investment environment. "Vietnam and Japan have strategic partner relations and Japanese firms are keen to further expand investment in Vietnam, and we are willing to invest. Therefore, resolving issues and problems currently facing Japanese businesses is the fastest way to increase investment."