Is Vietnam’s foreign investment strategy misguided?

09:24 | 29/03/2017 Investment

(VEN) - Despite their progress in recent years, Vietnamese industries still depend heavily on foreign direct investment (FDI). In fact, official data show that foreign-invested firms currently account for 50 percent of industrial production in Vietnam, and 70 percent of its total export value. For example, 100 percent of mobile phone exports are made or assembled by the foreign invested sector.  

is vietnams foreign investment strategy misguided

According to Professor of Economics Tran Van Tho from Waseda University, Tokyo, FDI accounts for a higher percentage of Vietnam’s total investment in development than in other countries, including those in the fifth generation of industrialization, such as Malaysia, Thailand and China.

Vietnamese industrial businesses mostly assemble industrial products or do other jobs outsourced by foreign firms. They have yet to be involved in higher stages of global value chains. Electronic components, computer components and mobile phones are now manufactured in Vietnam, but Vietnamese manufacturers only participate in stages that create low value through simple jobs, Tho said. Many domestic manufacturing facilities are foreign invested. The transfer of technologies from FDI firms to local businesses remains very weak due to a lack of vertical linkages between the two sides, the professor added.

To surmount these limitations and cope with new challenges, Vietnam needs specific strategies and policies to boost industrial development. In the opinion of Professor Tran Van Tho, along with accelerating industrialization in both width and depth to avoid post-industrialization risks, Vietnam needs to change its international integration strategy in specific industries, focusing on machinery, such as automobiles, motorcycles, printers, machine-tools, computers and cameras, and food processing industry.

In the global supply chains in Asia, the quality of made-in-Vietnam products remains at a low or medium level. Therefore, Vietnam should create favorable conditions for FDI businesses to improve the quality of products. The government should join dialogues with major printer, motorcycle and automobile manufacturers in order to apply appropriate policies to encourage them to expand production in Vietnam, he said.

In the food processing industry, global demand for high-quality food has increased and keeps growing. Therefore, Vietnam needs to seek advanced processing and preservation technologies from reputable firms worldwide and learn from their management and transportation experiences.

In the opinion of Professor Tran Van Tho, along with opening the domestic market as it has committed to do in various free trade agreements, Vietnam needs to foster industries of greater potential. In addition, the country should change its FDI attraction and technology access strategies. It should grant licenses only to high-technology projects that contribute directly to industrial production restructuring to improve Vietnamese products’ position in global value chains. FDI companies should be encouraged to set up joint ventures with local businesses. FDI from reputable firms worldwide should be prioritized. Domestic businesses, both state-owned and private, should be encouraged to be more active in seeking access to advanced technologies. Appropriate mechanisms are needed to enhance the sense of responsibility of state-owned businesses to avoid losses.

Professor Tran Van Tho from Waseda University, Japan:

Vietnam should accelerate industrialization to penetrate global value chains of industrial products. Along with attracting

suitable FDI projects, it should foster domestic private companies and facilitate their participation in global value chains, as

well as their brand building efforts.

Duy Minh