Specialised Industrial Parks and Complexes: Crucial in Supporting Industry Development

According to Mr Ha, the localisation ratio of industrial products of the city was only about 30 percent. Due to limitations in the domestic availability, every year, the mechanical-engineering sector of the city has to import a large amount of components and parts which amounts to nearly US$3 billion of import value. Supporting industry for textile has experienced some developments but it concentrates mostly in low-value products, the stages of creating products of high added value still heavily depends on imports; that limitation has been dragging textile industry’s development toward the form of mainly processing. Meanwhile, supporting industry for footwear has yet to meet the requirements in both quantity and quality of downstream industries. As for mechanical and electrical production and other related fields, supporting industry currently stands at a rather moderate level so it has not been able to get more involved in the value chain of automotive industry.

 

According to Director of the Management Board of Ho Chi Minh City Hi-Tech Park Le Hoai Quoc, the capacity of supporting industry for Vietnam’s high-tech industries currently is still at the potential stage, there is virtually no business that specializes in manufacturing for those industries, so most of them resort to imports. At local level, according to a 2013 survey by the National Centre for Socio-Economic Information and Forecast, Ho Chi Minh City and other southern key economic provinces of Binh Duong, Dong Nai and Ba Ria - Vung Tau had a very slow supporting industry development compared to the demand. The percentage of the number of suppliers (suppliers of industrial services included) on the downstream assembly businesses in Ho Chi Minh City, Dong Nai and Binh Duong was only 2.07, the lowest of which belonged to mechanical engineering while the highest was of automotive industry. The reality is that Vietnamese businesses are still slow in technological innovation; and therefore fail to meet the components demand of manufacturers and assembly businesses.

 

Mr Vu Van Hoa, Director of the Management Board of Ho Chi Minh City Export Processing and Industrial Zones Authority (Hepza), said that if excluding companies of foreign investment, Ho Chi Minh City currently has a total of 371 domestic supporting industry enterprises, mostly manufacturing products serving mechanical, textile, packaging, etc. Supporting industry products of domestic enterprises have low added value and most do not participate in global supply chains, the main reason is because many domestic businesses using outdated technology, old machinery which cause them difficulties in meeting quality requirements and high products’ costs, thus failing to meet the market’s requirements.

 

Aiming to attract supporting industry investment from Japan, Ho Chi Minh City is building the Japan-Vietnam Industrial Zone located in Hiep Phuoc Industrial Park, projected to be completed and put into operation in October 2014. When coming into operation, the Japan-Vietnam Industrial Zone will attract investment flows from Japanese small and medium enterprises in high-tech supporting industry sector.

 

To develop supporting industry, Mr Hoa proposed the city should build industrial parks and complexes specialized in supporting industry suitable with production scale of small and medium enterprises, creating connections among businesses in a same “supply chain”; at the same time granting preferences for investors of industrial zone infrastructure as well as businesses leasing land for production investment in those industrial parks and complexes. Initially, Mr Hoa proposed selecting two industrial parks which have available land to establish specialized industrial zones of supporting industry (including Hiep Phuoc Industrial Park - Phase 2 and Le Minh Xuan Industrial Park 3); thereby attracting supporting industries for sectors such as engineering, electronics and IT.

 

Mr Le Van Khoa, Director of Ho Chi Minh City Department of Industry and Trade, said that specialised industrial parks would help create a connection between FDI businesses and domestic enterprises in the production chain, facilitating the learning process and the transferring of science and technology among enterprises. He also suggested the city establish a Supporting Industry Development Centre to assist small and medium enterprises in creating links between domestic supporting industries and foreign corporations, supporting human resources training, and advising on supporting industry investment.

 

According to Hirotaka Yasuzumi, Japan External Trade Organisation (JETRO) Office in HCM City, compared to other Southeast Asian countries, the domestic supply rate of Vietnamese supporting industry is relatively low (Vietnam is 32 percent; Thailand 53 percent, China 64 percent). Not only affecting the speed and quality of industry development, a slow-paced supporting industry also restricts investment flows. Accordingly, to promote the development of domestic supporting industry, Mr Hirotaka Yasuzumi recommended Vietnam avoid scattered investment, instead focusing on industrial parks specialised in supporting industry and high technology industries. There must be policies for technology transfer for supporting industry as well as tax preferences, low-interest loans mechanism (1 – 3 percent) as well as human resources training in technology transfer. Mr Hirotaka Yasuzumi also noted that in order to develop domestic supporting industry, the Vietnamese government should support the development of local businesses, promote technology transfer. If the city only attracted FDI businesses in supporting industry then there would be not much to expect from technical transfer of the development of Vietnamese supporting industry.