High quality human resources will bring FDI to local businesses

What do you think about the connection between FDI and domestic enterprises?

I think that the weakest point, the biggest problem of FDI attraction in the past 30 years is the lack of close linkage between FDI and domestic enterprises. This is reflected in some specific factors such as: Currently, three quarters of Vietnam's export turnover is from FDI enterprises, the remaining one quarter is from domestic ones. In addition, the number of domestic supporting enterprises involved in supplying primary equipment for large FDI companies such as Samsung, Intel,… are very small. These shortcomings have been identified over the years as a key constraint to FDI attraction. Addressing the above-mentioned issues to promote the relationship between FDI and domestic enterprises is an important task in the coming period.

In your opinion, what is the main reason for this loose connection?

There are many reasons, but in my opinion the main reason is due to limited capacity of domestic enterprises. Accordingly, many of our businesses are weak in capacity, technical level to be able to directly participate in manufacturing high technology products required by the FDI companies in Vietnam. We are not qualified to receive high technology. The past 30 years is not a short time. Over the first 20 years, the goal of FDI attraction differs from that of the new period. The linkage between the two regions this time is reflected in a number of policies, such as setting targets for localization in the manufacture of automobiles, motorcycles, electronic components,... However, up to now the localization rate of cars and motorcycles only has reached certain numbers, while the rate of high-tech products, such as mobiles, is still very low, not as expected.

Another reason comes from some shortcomings of policy management. We have allowed the proportion of 100% FDI enterprises to be too high (about 80%), which limits access to modern technology and technology of the Vietnamese. In addition, the development orientation of SMEs in Vietnam and the strategy of supporting industry development have been built up to date, but do not meet requirements and there are many obstacles in implementation

Besides the limited capacity of Vietnamese enterprises, is it because FDI enterprises do not really want to transfer technology, sir?

On the FDI enterprises side, when investing they aim for maximum profit, and when the technology they hold is profitable, they never want to transfer to us. But the core of the problem is whether local firms have enough capacity to participate in their production chain, because in this production chain, technology is the decisive factor of product quality and export scale. With the lack of technical and technological capabilities, the management level, FDI enterprises cannot allow you to participate in their production lines. FDI enterprises will never transfer their core technology to us if we are weak partners and do not bring benefits to them. And they can only transfer when they are stable and have new technology to replace. Thus, it is not because FDI enterprises do not want to accept us, but because of the limited capacity of Vietnamese enterprises, lack of high quality human resources, lack of good equipment to be able to produce high-tech products. This has affected the linking process.

In the production lines of large FDI enterprises, the qualified enterprises that become the level 1 suppliers for them are the enterprises that have been manufacturing components for FDI enterprises for a long time, from the simplest parts. At present, FDI enterprises already have their own suppliers so they wait for Vietnamese enterprises to become big enough.

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What do you think about the proposal to establish a responsible supply chain alliance, in which the major FDI enterprises, with the core of Samsung, will support the potential SMEs of Vietnam to become level 1-suppliers for FDI enterprises?

I think this is a good idea, but how to implement it is important because we cannot expect or require foreign investors to spend their time on training us. The initiative contributes to support, but the fundamental problem to solve is that Vietnamese enterprises have to develop by themselves, accumulate capital, link together to be able to participate in technological lines of big FDI companies.

The State should also actively participate in supporting businesses, considering it an urgent task in the coming time. It is necessary to support enterprises in accessing loans in a quick, clear and transparent manner so that they can feel secure and confident in participating in the association. At the same time, it should be propagandized and promoted as a trend of Vietnam.

We can call on the responsibility of Vietnamese enterprises, but not of FDI ones because their goal is profit. Alliance as proposed above is a voluntary organization, which will only solve a part of the problem. In 2017, Samsung spent three months supporting a number of Vietnamese enterprises by visiting production lines, sending training experts to help these enterprises rearrange their production line and rearrange the factory to work more conveniently, but they did not support technology. Therefore, it is necessary to determine that Vietnamese enterprises have to rise up by themselves. In particular, the training of high quality human resources is essential. We cannot absorb technology and be self-confident without knowledgeable, skilled persons in high technology. Without this platform, lack of skill, we cannot be able to call for connecting generally. If so, this link status cannot change even 5 or 10 years later. In my opinion, the implementation of the Decree 86 on foreign investment in education and training, we need to expand and promote training for human resources. Without skills, we cannot join in linking with FDI enterprises.

Training and preparation of high quality human resources, skilled engineers are very important. This will promote the linkage, bringing FDI enterprises to domestic enterprises. It is necessary to put these people into joint ventures with foreign countries to acquire technology. Therefore, establishing many joint ventures should also be the orientation in attracting FDI in the coming time. If done well, maybe in the next 5 years or more we will see improvement. It is difficult to say how much time is enough to handle this problem. The improvement of the linkages with FDI enterprises depends on our determination.

Thank you Sir!

Mr. Sebastian Eckardt, World Bank's Chief Economist in Vietnam:

"Vietnam is a success story in attracting FDI. This is a proud achievement of Vietnam, but there are still great opportunities to take advantage of FDI and tighten connections with local companies. While Vietnam has attracted large volumes of FDI, the linkages of FDI production with domestic suppliers as well as SMEs in Vietnam are weak. Therefore, it is necessary to divert strategic policies to attract more FDI, in which specific policies should be put in place to enhance connectivity and spillover effects from FDI.

The elements of FDI affiliated policies often include the establishment of vendor databases, business linkage services, focus-driven supplier development programs, investment promotion in order to attract foreign suppliers, and have priority policies to support domestic firms, as well as help them access to capital for development. While some of these factors have been implemented and a number of policies have been issued, the implementation of these policies is weak, lacking connectivity, coordination and lack of funds to implement. "

Mr. Tomaso Andreatta, the Co-chairman of Vietnam Business Forum (VBF):

"When there are no domestic suppliers, many foreign companies in Vietnam have to re-export 100% of their products, thus isolating domestic firms from FDI enterprises. A series of Free Trade Agreements signed by Vietnam require a high proportion of local resources, and the local production must be more engaged in the production chain, not just at assembly level. So, if local businesses have better capacity, we - foreign companies - will be happy because the production will be much easier. But if we cannot procure raw materials locally because they do not meet quality requirements, they are not reliable enough or are violated by local businesses, which would be a serious problem. "