Solution of linking domestic and FDI enterprises

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Domestic private companies and FDI enterprises are equal before the legislation. Photo: Danh Lam.

Necessity

According to the statistics by the General Department of Statistics, the whole country has over 21,000 FDI enterprises with a total investment of nearly $US 300 billion, of which there are leading corporations in the world. In 2016, Viet Nam had more than 100.000 newly established enterprises nationwide. Thus, 12 enterprises are set up each hour. Nevertheless, the number of enterprises which are able to access the world market such as Vinamilk, Viettel, Vietnam Airlines, is still small.

By October 2016, as shown in the report by the International Finance Corporation (IFC), there were 21% of Viet Nam enterprises getting involved in the global supply chain. This figure is small compared to Thailand (30%), and Malaysia (46%). So, Vietnam should complete numerous tasks to strengthen integration of domestic goods and service suppliers, particularly small and medium sized enterprises.

Many experts supposed that small and medium sized enterprises made up the biggest sector of Viet Nam economy. Thus, developing this sector would significantly improve the whole economy. When small and medium sized enterprises like leading FDI enterprises make achievements, Vietnamwill become one of the most successful countries in the world. To attain this target, experts suggested that the economy needed close coordination in a three-stand model consisting the Government, FDI enterprises and domestic enterprises.

Delivering a speech at the Viet Nam business forum (VBF) dated December 5, 2016, Prime Minister Nguyen Xuan Phuc stressed that the Government considered FDI enterprises as an economic component of the Vietnamese economy. The FDI sector is an integral part Vietnam’s economy. The reality showed that the FDI sector was playing a more and more important role in the economy. Therefore, the government has committed to further facilitate FDI enterprises.

Nevertheless, the Prime Minister confirmed that private or FDI businesses are equal before the legislation. Thus, the Government expected FDI businesses with their advantages in technology, finance and financial administration capacity to commit and take detailed actions for supporting coordination, alignment and domestic enterprises to develop together.

The aforesaid commitments have been confirmed by the Prime Minister. In reality, there have been policies, resolutions such as Resolution 19 or Resolution 35/NQ-CP by the Government facilitating and improving the business environment and assisting enterprises to grow by 2020. The actions are aimed at the target of one million enterprises by 2020. The criteria in terms of quantity, quality, scope and resources shall be ensured.

Enterprises’ expectation

Mr. Tony Foster, Head of the VBF infrastructure working group shared that association between FDI and domestic enterprises would create chances and potentiality for developing infrastructure. Typical mechanisms and cooperation fields are now PPP model development, thermoelectricity projects, and transportation projects.

Discussing the roles of associating with FDI enterprises, Mr. Fred Burke, head of the VBF Investment and Trade working group said that only by minimizing barriers to efficient cooperation between domestic enterprises, FDI enterprises and foreign companies, will Vietnamese enterprises become key players in the global supply chain.

Remarkably, the association with FDI enterprises is still limited due to the fact that domestic enterprises do not have enough capacity, infrastructure and trading and manufacturing conditions, not meeting demands by FDI enterprises.

However, Mr. Han Dong Hee, Chairman of the Korea Industry and Commerce Association (Kocham) in Viet Nam shared that in order to carry out the policy of associating foreign investment and Viet Nam enterprises, it is necessary to expand the relations of trading spare parts and products from Viet Nam enterprises. Accordingly, the Government should develop policies of establishing channels for FDI enterprises to source goods from Vietnam’s small and medium enterprises.

“Setting up an information channel for the two sides to understand each other is important. Thus, it is necessary to establish an agency connecting FDI enterprises and small and medium enterprises. To accomplish this target, an Investment Cooperation Committee should be set up to provide information of Vietnam’s potential small and medium enterprises for FDI enterprises before giving consultation for each case” said Mr. Han Dong Hee.

In addition, Kocham proposed a policy to select and encourage FDI enterprises to actively cooperate with Vietnam enterprises. Furthermore, FDI enterprises which purchase spare parts and goods in Viet Nam should be appraised and given more priorities in terms of taxes and lesser limitation of investment.

With regard to the requirements of standardizing domestic enterprises, experts and many enterprises requested a mechanism to facilitate businesses and to narrow the gap in terms of standards between domestic enterprises and FDI companies. One example can be shown as the gap between Vietnam’s accounting system (VAS) and International Financial Reports Standards. This gap is having impacts on investors and costs of business activities because businesses must comply with bothstandards.

In general, for the benefits having been attained or to be attained, it is expected to continue cooperation between domestic enterprises and FDI businesses. There are many stories of success in cooperation in Viet Nam. Thus, both the government and businesses should be get involved and solve problems to make achievements matching their potential.