The big, major challenge of small, medium Vietnamese enterprises

Two events planned for this summer in Hanoi aim to not only help Vietnamese firms sharpen their competitive edge in the domestic and global playing grounds, but also strengthen partnerships between Vietnamese and Japanese firms involved in support industries.

To connect providers of machinery and technologies with industrialists, the Reed Tradex Vietnam in coordination with the Japan External Trade Organization (JETRO) and the Vietnam Trade Promotion Agency (VIETRADE) will hold the Vietnam-Japan Supporting Industries Exhibition (SIE 2019) and the Vietnam Manufacturing Expo (VME 2019), which will take place on August 14-16 in Hanoi.

Speaking at a May 30 press conference held by the events’ organizers, JETRO in Hanoi Chief Representative Hironobu Kitagawa said that in 2018, the number of Japanese projects in Vietnam peaked at 630, with total investment capital of around US$8 billion. According to the 2018 survey result, nearly 70 percent of Japanese companies confirmed plans to expand business activities in Vietnam within the next one or two years, a higher rate than in other ASEAN countries.

However, one of the challenges now is that the local content of materials, components and spare parts remains low. Hironobu Kitagawa said that the local content for materials, components and spare parts of Japanese companies in Vietnam is 36.3 percent, lower than the rates of 68 percent in China and 57 percent in Thailand. Therefore, companies have to import materials, components and spare parts from neighboring countries, such as Thailand and China. This leads to increased costs and high risks for Japanese companies operating in the Vietnamese manufacturing industry, and poses difficulties in maintaining medium- and long-term production activities in Vietnam.

“Support industries are largely undertaken by SMEs. Nonetheless, restrictions on mechanisms and policies to support SMEs are an issue that we are encountering in Vietnam. If the problem is resolved, there will be more Japanese companies eyeing Vietnam’s manufacturing industry. Moreover, Vietnam is likely to be recognized by the world as having high manufacturing and processing techniques,” Hironobu Kitagawa said.

Phan Ngan, project manager at the Reed Tradex Vietnam, said SMEs play an important role in the industrial sector in particular as well as in the economy in general. They accounted for 98 percent of total businesses and 40 percent of Vietnam’s gross domestic product (GDP) in 2016, according to statistics. However, they still face many challenges, being unable to participate in global supply chains and lacking competitiveness compared to foreign companies. In 2017, only 21 percent of Vietnamese SMEs reached the standards required to be part of global supply chains, much lower than the rates of 30 percent in Thailand and 46 percent in Malaysia.

Recognizing the importance of support industries, the Vietnamese government has assigned the Ministry of Industry and Trade to implement a development program for support industries in the 2016-2025 period. Vietnamese support industry businesses are being helped to apply modern quality management standards and systems, improve product quality and reliability, participate deeply in global supply chains, and increase the local content in key industries, such as automobile, garment and textile, leather and footwear, and electronics.

To improve and expand the supplier-buyer relationships between Vietnamese and foreign firms, the United States Agency for International Development (USAID) has decided to implement a five-year, US$22.1 million LinkSME project, which will enhance Vietnam’s capacity to supply products to larger companies both inside and outside Vietnam, and benefit foreign firms in terms of more efficient local sourcing. Vietnam has also shown a strong determination to eliminate barriers and concretize support solutions by issuing the Law on Support for SMEs and Decree 39/2018/ND-CP.