Weak links with FDI firms hurt support industries

10:58 | 15/06/2018 Economy

(VEN) - For the past 30 years, foreign-invested enterprises have been a major driver of Vietnam’s growth by creating jobs, and boosting manufacturing and exports. However, the expectation of closer links with and support for domestic enterprises so they can take part in global supply chains has yet to be realized.

weak links with fdi firms hurt support industries
Cooperation with FDI companies helps domestic support industries enhance their manufacturing capabilities and competitiveness

Foreign direct investment (FDI) currently accounts for 25 percent of total investment in development, more than 20 percent of Vietnam’s gross domestic product (GDP) and over 70 percent of the country’s export value. However, development of the country’s support industries requires stronger linkage between FDI companies and domestic firms in order to help them improve their management capability and quality of human resources, and upgrade their technologies.

Many southern localities are focusing on promoting support industries. Binh Duong Province, for example, is striving to become a support industry hub. It has attracted investment from major groups worldwide, especially for the manufacturing of materials and accessories for the textile, garment, electronics and automotive industries.

According to the Dong Nai Department of Industry and Trade, about 570 support industry businesses currently operate in the province, including 130 domestic companies (22.6 percent of the total) and 440 FDI companies (77.4 percent). These companies manufacture materials, components and spare parts for the metal, electricity, electronics, plastics, rubber, chemicals and packaging industries of Dong Nai Province and neighboring localities, contributing to increasing the local content ratio. According to Dong Nai Department of Industry and Trade Director Duong Minh Dung, the department will help the provincial people’s committee formulate appropriate policies to enable small and medium-sized enterprises’ access to credit and to create favorable conditions for them to enhance their competitiveness and benefit from government incentives.

Ho Chi Minh City Department of Industry and Trade Deputy Director Nguyen Phuong Dong said the department has provided consultancy for the municipal people’s committee to boost support industries. Decision 15/2017/QD-UBND, for example, provides for the development of support industries in the city until 2020, aiming to reduce imports and increase the ratio of local content in products outsourced and assembled in Vietnam. The city also plans to tighten linkages of FDI manufacturing firms with domestic companies and to build specialized support industry industrial zones.

For the FDI sector to have a stronger impact on the Vietnamese economy, domestic companies need to take the initiative in linking up with FDI companies. At the same time, they should invest in technological innovation and improving human resources to join supply chains. FDI companies, for their part, should be encouraged to cooperate with Vietnamese businesses to help them improve management capabilities, technological standards and the quality of human resources.

Duc Minh