Further Facilitating SMEs in Supporting Industries 

4:06:22 PM | 1/17/2023

Supporting industries play an important role in the economy as they demonstrate the capability of manufacturing goods for industrial production, create added value, and help increase the competitiveness of industrial products. They lay the foundation for developing domestic industries, participate in global supply chains and value chains, make export goods, create jobs, and boost foreign investment and economic development towards self-reliance and sustainable growth.

Many development support policies and programs

Over the years, the Party and the Government have much cared and directed the development of supporting industries, introduced many policies and programs to encourage, allocate resources and facilitate the development of supporting industries as Decree 111/2015/ND-CP of the Government dated November 3, 2015 on development of supporting industries; Resolution 23-NQ/TW of the Politburo dated March 22, 2018 on orientations for building national industrial development policies to 2030, with a vision to 2045; and most recently Resolution 115/NQ-CP on solutions on accelerated development of supporting industries with many new policies expected to create a strong stimulus for supporting industries, processing and manufacturing industries in the coming time, especially when COVID-19 has altered many existing production and supply chains.

When many mechanisms and policies are in place to promote and develop supporting industries, it has helped foster development of supporting industries. Up to now, the country has nearly 5,000 supporting industry companies, accounting for 4.5% of total processing and manufacturing companies, which employ more than 600,000 works and generate revenue of more than VND900 trillion, accounting for 11% of total revenue of the processing and manufacturing industry. They supply raw materials, spare parts, components and input products for main manufacturing industries such as motorcycle, automobile, electronics, mechanical engineering, manufacturing, textile and garment, and leather and footwear. They make an important contribution to the economy.

Enforcing laws and policies, central and local authorities have adopted many programs to develop supporting industries. In the past time, many international cooperation programs and projects with UNIDO, JICA, SMELink (USAID), IFC and other institutions in auxiliary industries, joined by many large corporations, including multinationals, in Vietnam like Samsung, Toyota and Truong Hai Group to upgrade the level of Vietnamese auxiliary firms. Domestic industrial manufacturing has also developed and grown strongly to form large material and mechanical engineering producers, create a foundation for supporting industries to join more deeply in global production networks and value chains.

The Government has launched many mechanisms and policies to promote the supporting industry

Existing shortcomings

Although central and local authorities have worked hard for a long time, the capacity of Vietnam's supporting industries reportedly remains modest. Vietnam's industrial production is also highly dependent on the supply of imported raw materials and components. The self-supply of auxiliary products from domestic companies account for a very low percentage. Despite much improvement in the past years, the localization rate is still low. For example, the localization rate of household electronics industry is 30-35%. The rate of automobile - motorcycle electronics is 40% - mainly for motorcycle production. The rate of textile and footwear sectors is just 40-45%. In high-tech industries like electronics, ICT and specialized electronics, the localization rate is much lower, respectively 15% and 5%. A majority of localized components is made by FDI companies in Vietnam.

Currently, many foreign terminal product manufacturers with factories in Vietnam are looking for domestic vendors to optimize production in order to reduce costs and provide spare parts in a timely manner. The outbreak of COVID-19 caused supply disruptions in countries and resulted in an increase in demand for local suppliers. However, finding suppliers in Vietnam is very difficult. At a conference on searching for parts suppliers held in November 2021 in Ho Chi Minh City, up to 22 multinational corporations and manufacturers put forth their needs to find domestic suppliers for more than 400 parts like electrical, electronic and mechanical equipment, precision device, 3D printing, robotics and automation. This shows a huge demand of foreign manufacturers that Vietnamese companies cannot meet.

This is really a great opportunity and challenge for Vietnamese businesses to independently produce and supply for industrial production and join global supply chains. To seize this opportunity, vendors must modernize, improve production capacity and move towards modern production.

In the past years, together with central agencies, domestic and international organizations, VCCI organized many activities to develop auxiliary industries and connect Vietnamese and foreign businesses and its efforts were appreciated by the business community. Local vendors largely make simple components and parts with medium and low technological content and small value in the product value structure because they are mostly small and medium in size, with limited production management capacity, technology or application of international standards. Meanwhile, State-funded support resources are limited and market opportunities are not attractive enough to encourage enterprises to invest in. Meanwhile, technological innovation and production improvement often requires large and long-term investment capital, especially in the processing and manufacturing sector. So, if they cannot have access to enough capital, they will hardly conduct technological innovation and product quality improvement.

These challenges not only face the economy but also confront the business community and parts manufacturers. In order to develop a more sustainable and self-reliant economy, the Party and State have paid attention to promulgating important and practical policies to encourage and focus the country's resources for auxiliary industries to develop on the one hand and supporting companies need to actively seek solutions, strengthen connectivity, gradually transform production processes and upgrade machinery, equipment and human resources to accelerate modernization of processes and technologies to enhance productivity on the other hand. On a broader scale, the Government needs to further improve the business environment in general and supporting industry development policies in particular for better transparency, equality, convenience and accessibility to encourage businesses to feel secure and more determined to invest in development of auxiliary industries. The country's resources can be mobilized, allocated and invested effectively according to market principles to meet market, social and economic needs.

Bui Trung Nghia

Vice President of VCCI

Source: Vietnam Business Forum