Support industry businesses urged to strengthen links with FDI

Few Vietnamese suppliers

According to official data, only 21 percent of domestic private businesses were suppliers of FDI companies operating in Vietnam. Although the rate has shown signs of improvement over the years, it remains low.

Data also show that just 26.6 percent of manufacturing materials for FDI companies were bought in Vietnam, while the remaining involved purchases from other FDI firms. FDI companies claim that local enterprises are not capable of participating in their supply chain, while Vietnamese businesses say that FDI firms often only select suppliers from their own country.

Phan Dang Tuat, permanent deputy chairman of the Vietnam Association for Supporting Industries, attributed the weakness to the low capacity of the domestic support industry and its inability to meet the standards of FDI companies. In addition, some businesses have not been active in connecting with FDI companies. Local firms have been slow in improving their direct exports, especially those in manufacturing industries. Even indirect export through supply of input products for FDI companies remains a big challenge for local enterprises.

Nguyen Dinh Tien, representative of the USAID LinkSME project, said the number of Vietnamese suppliers of foreign companies remains low even though the latter have been in the country for several decades.

Taking advantage of opportunities

Given the escalating US-China trade war, FDI inflows into Vietnam are on the rise, but Vietnamese businesses need to make careful preparations to take advantage of these opportunities.

To access FDI capital, domestic businesses need to improve their capacity and participate in supply chains. Phan Dang Tuat suggested three effective solutions to absorb FDI, including promoting mergers and acquisitions (M&A) deals, strengthening links between domestic businesses and FDI companies, and foreign firms building factories in Vietnam and domestic support industry businesses working for foreign companies. Of which, strengthening links between domestic businesses and FDI companies is the most important solution.

Ho Chi Minh City organized the Sourcing Fair for Supporting Industry with Buyers 2019 to enhance supply chain linkages in support industries, contributing to improving direct connections between foreign and other manufacturing firms and Vietnamese parts suppliers.

Ngo Khai Hoan, deputy director of the Ministry of Industry and Trade’s Industry Agency, said the Sourcing Fair for Supporting Industry with Buyers is considered a crucial activity to connect businesses and boost support industry growth. It helps local parts makers understand the needs of foreign manufacturers and meet their demands, and gradually participate in the global value chain, he added.

Hoan also said that Vietnam needs to have more and more activities to strengthen investment promotion and facilitate exchange of experiences between domestic businesses and FDI companies in order to stimulate the development of support industries.

The Ministry of Industry and Trade will implement a number of international cooperation programs and projects in support industries, such as collaborating with Samsung in finding Vietnam’s support industry businesses qualified to participate in Samsung’s production chain, cooperating with Samsung in a training program for Vietnamese consultants who are qualified to advise and retrain suppliers in Vietnam’s support industries, coordinating with the Republic of Korea’s Ministry of Trade, Industry and Energy to train policy-makers and technicians in support industries, cooperating with Japan in implementing plans of the six selected industries in Vietnam’s industrialization strategy as outlined in the Vietnam-Japan Cooperation Framework until 2020 with vision to 2030, and collaborating with the International Finance Corporation (IFC) in deploying a supplier development pilot program.