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Falling short

Released at: 22:22, 20/09/2015

Falling short

Japan has provided much assistance over the years to the development of Vietnam's support industries but they remain weak despite their potential.

by Quynh Nguyen

One foreign investor, when asked about Vietnam’s support industries, said that his company even had to import screws from elsewhere to assemble its products in the country. His example gives weight to the notion that the development of support industries in Vietnam has become a pressing matter. In 2013 the Vietnam-Japan Industrialization Strategy Towards 2020 and Vision to 2030 was approved by the two Prime Ministers, targeting to promote support industries in six priority sectors: electronics, automotive, agricultural machinery, agricultural and fishery products processing, shipbuilding, and the environment and energy efficiency, with the aim of creating links among enterprises from the two countries. Japan’s assistance to Vietnam’s support industries has seen positive results but difficulties remain. 

Japanese backing

According to a survey by the Japan External Trade Organization (JETRO), more than 70 per cent of Japanese enterprises in Vietnam said they have problems with the supply of raw materials and components. Raw material supplies meet just 33 per cent of demand, lower than China’s 66 per cent, Thailand’s 55 per cent, Indonesia’s 43 per cent. and Malaysia’s 41 per cent. “It is clear to see that Vietnam’s support industries have not developed and are still in the formation stage,” said Mr. Atsusuke Kawada, Chief Representative of JETRO Hanoi. 

In recent years JETRO has assisted support industries in Vietnam through a program connecting trade and support industry exhibitions. In 2014 it established a new organization, called the Vietnam-Japan Support Industries Forum, in which private enterprises and government agencies from both countries work together to develop support industries. 

In the Japan International Cooperation Agency (JICA) Partnership Program (JPP), the organization has a project to assist support industries relating to steel in southern Ba Ria Vung Tau province. To aid human resources development and build a supporting system for production and technology relating to steel industries in the province, Sanjo city and Ba Ria Vung Tau have implemented the “Human Resources Training and Supporting Steel Industry Promotion in Ba Ria Vung Tau Province” project, under the framework of the JPP. 

The project began in December 2013 and four seminars, including two in Japan and two in Vietnam, have been held so far. At the first seminar officials from the Ba Ria Vung Tau PPC (industrial promotion policymakers in the province) heard of Japan’s industrial development history and the industrial development policies both Sanjo city and Japan have implemented. At the second seminar leaders and staff from Vietnamese enterprises and a vocational school heard of the role of the government in promoting industrial development and visited some Japanese enterprises in Sanjo city to learn of their experience and gain know-how. 

The third and fourth seminars were held in Ba Ria Vung Tau for government officials. Forty-one young officials were in attendance at the first and heard of the importance of the management of intellectual property and design, etc., and discussed how to promote industry in the province. At the second, participants followed-up discussions at the second seminar in Japan and addressed the current issues they face. 

Through the implementation of such activities, JICA said that policymakers, business managers, and vocational teachers in Ba Ria Vung Tau will have acquired the necessary know-how to promote local steel industries, develop businesses, and implement industrial promotion activities.

Difficulties remain

Despite receiving support from Japanese organizations such as JICA and JETRO, Vietnam’s support industries in recent years have not developed to any great extent. According to the Foreign Investment Agency under the Ministry of Planning and Investment, 9,800 out of the more than 18,000 FDI projects registered in the Vietnam are in manufacturing and processing industries, with total registered capital of $143.8 billion, or 56 per cent of the total. This represents a good opportunity for support industries to develop but they’ve long been poorer than those elsewhere in the region. 

Domestic firms seem unlikely to leap into support industries, according to many experts. Vietnam has attracted about 500 foreign-invested enterprises with advanced production to invest in support industries, primarily in producing electronic components, metal parts, and rubber components. The number of domestic enterprises in the sector remains low. 

Many Japanese investors have complained that they cannot expand investment or production in their projects because local support industries are not adequately developed. Japan is currently the largest investor in Vietnam, but most of its investment projects must still import components and materials from other countries, which results in higher production costs. While components account for as much as 90 per cent of the total production cost, Japanese investors say they have no choice but to import because of the shortcomings of local support industries. Local companies simply assemble imported parts, one investor said. 

According to Mr. Endo Hiroyuki, Deputy Director of the Engine Manufacturing Department at Mitsubishi, because Vietnam’s support industries are undeveloped the company is forced to import components from other countries, which add to costs. “If this problem is not resolved it will be difficult for us to expand our operations in Vietnam,” he was quoted as saying. 

Despite appreciating the cooperation between Japan and Vietnam in promoting support industries, economic expert Mr. Vu Dinh Anh said that the size and level of development of Japan’s support industries in Vietnam has not achieved the desired results. The number of Japanese firms in support industries in Vietnam remains quite small. In particular, the participation of Vietnamese enterprises in production chains and product support is negligible.

Links between domestic and foreign enterprises, including Japanese enterprises, Mr. Anh said, must be more comprehensive if they are to promote the development of support industries in Vietnam. “Businesses need assistance to grow, in particular removing barriers and discrimination between Vietnamese and Japanese enterprises in the sector,” he added. 

Continued support

Many experts believe that while Vietnam’s support industries are weak they still hold a great deal of potential because of the country’s large population and young and diligent workforce. Such factors will help Vietnam to remain an attractive investment destination in the future for foreign firms investing in support industries. 

JETRO said it will continue its efforts in developing support industries and plans to organize a supporting technology exhibition in September in Hanoi and in October in Ho Chi Minh City. The exhibitions aim to connect Japanese enterprises looking for components and materials in Vietnam with Vietnamese businesses that can supply them. “JETRO expects to make a positive contribution to the development of support industries in Vietnam,” said Mr. Kawada. “We have established a list of Vietnamese enterprises to enable approaches by Japanese enterprises, to increase the supply of raw materials.” 

JICA, meanwhile, has been providing assistance regarding support industries primarily to the central government, by helping establish an industrialization strategy and facilitating finance to small and medium-sized enterprises (SMEs), providing business training courses targeted at executives and managers, organizing human resources development at vocational training colleges, directly advising industries on the Japanese “5S” and “Kaizen” principles, business management, and so on.

JICA is also interested in working with local governments to realize the development of support industries in the future from a shorter-term perspective, as successful examples in provinces will become models that can be expanded nationwide. 

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