Industrial target: Less outsourcing, more local production

14:28 | 31/03/2019 Industry

(VEN) - The Ministry of Industry and Trade (MoIT) is forecasting 9-10 percent growth of the industrial production index in 2019, a strong indicator of economic expansion. 

industrial target less outsourcing more local production

Growth target

According to the General Statistics Office of Vietnam (GSO) under the Ministry of Planning and Investment, the industrial sector’s production index was down an estimated 3.2 percent in January 2019 compared with December 2018, but grew 7.9 percent compared with January 2018. Processing and manufacturing industries grew 10.1 percent, contributing significantly to the growth of the entire industrial sector.

The industrial sector is focusing this year on industries that create high added value and export value. Processing and manufacturing continue to be a major driving force of industrial growth, with the active support of foreign-invested firms, especially large economic groups with global value chains such as Samsung, LG, Formosa and Toyota.

The MoIT leadership believes the improving business environment will create favorable conditions for domestic companies to invest in production and promote private sector development. Free trade agreements (FTAs) to take effect this year will help Vietnam attract more Foreign Direct Investment (FDI) in manufacturing. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) came into force on January 14, providing various development opportunities for the Vietnamese industrial sector.

According to the MoIT, the 9-10 percent growth of the industrial production index will include a 13-percent growth of the processing and manufacturing industries, and an increase of 9.5 to 10 percent in electricity generation and distribution.

Industrial restricting

Despite initial positive results, experts point to underlying problems in the industrial sector - specifically, the unsustainable restructuring of some industries and slow growth of added value products, such as textiles and garments, leather, footwear and electronics. The competitiveness of industrial products also remains low.

For these reasons, industrial businesses are concentrating on developing material areas and investing in machinery and equipment. At the same time, they are trying to improve their design capability rather than focusing on providing outsourcing services for foreign firms. The Vietnam National Textile and Garment Group (Vinatex) is an example. Instead of investing in a new factory, the Garment 10 Joint Stock Company, a Vinatex member, has invested in automating production stages to achieve higher accuracy and reduce its labor force.

Phan Thi Thanh Xuan, Secretary General of the Vietnam Leather, Footwear and Handbag Association, said that in the past, domestic companies had to import 65 percent of material to produce 1.2 billion pairs of footwear each year, but now they have to import only 50 percent.

Leather and footwear companies have also paid great attention to improving the quality of their human resources. In the past, they mostly did the work outsourced by foreign firms, but now many companies, such as Biti’s, Thai Binh Shoes and Tuan Viet Shoes are able to design their own products.

In 2019, the MoIT will accelerate the restructuring of industries, focusing on quality to create products that can compete on regional and global markets, deepening domestic companies’ involvement in global value chains. Industrial restructuring will also target increased processing and manufacturing while at the same time reducing outsourcing services (assembly). Policies and mechanisms will be improved to promote support industries in an effort to increase the local content of industrial products.

The MoIT will coordinate with relevant units to seek preferential loans for businesses operating in prioritized industries, including support industries, in order to enhance the competitiveness and added value of industrial products. The ministry will assist domestic companies in attracting orders for major mechanical products. Priority will be given to companies capable of supplying equipment for major national projects.

The MoIT will examine the mechanisms and policies affecting each industry and product in order to ease conditions

for businesses, helping them enhance competitiveness. Technical barriers to imported goods will be created to protect

domestic products and increase the local content ratio.

Lan Anh