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Vietnam sets targets by 2020, supporting industrial products will meet 45% of essential needs for domestic production and consumption. Photo: Nguyen Thanh

Slowly in development policies

About the development of supporting industry in Vietnam, policy constraint is one of the most prominent factors. In fact, although there are legal documents to develop the supporting industry, policies are issued very slowly. In November 2015, the Government issued the Decree No. 111/2015/ND-CP to develop supporting industry and in January 2017, the Prime Minister issued the Decision No. 68/QD-TTg on approving the Program of developing SI from 2016 to 2025.

Besides, there are some shortcomings and problems that the current law regulations cannot solve to create strong mechanisms and policies to promote the supporting industry. For example, policies to attract enterprises with foreign direct investment (FDI) are not tied with the responsibility of developing a domestic supplier system in Vietnam.

Supporting industry has an organic relationship with the finished product manufacturing industry, but the policy of creating links between these enterprises and enterprises in supporting industry has not yet been formed. The binding relationship between the incentives of enterprises producing finished products and obligations to small and medium enterprises has not been expressed in any legal documents.

One of the most pressing issues in terms of SI development policies is not to mention credit policy. According to the Ministry of Industry and Trade: Currently, due to the characteristics of manufacturing industry support as well as the starting point of Vietnam enterprises such as: enterprises do not have enough assets to mortgage; Financial statements are not feasible because the initial investment is too large, the loan application is difficult to convince credit agencies..., the supporting companies find it very difficult to access credit sources.

Currently, FDI enterprises operating in the same sector of supporting industry often borrow capital from parent companies or from foreign banks with interest rates of only 1-3%, while domestic enterprises have to borrow at the interest rate of 8-10%. This big gap has eliminated the competition of domestic enterprises. "It can be judged that this is one of the main reasons, the main barriers make it difficult for SI enterprises to invest in production, which makes it difficult to prevent domestic products from entering the global production chain," Minister of Industry and Trade Tran Tuan Anh said.

Regarding this issue, Deputy Minister of Science and Technology Pham Cong Tac said: The coordination between ministries and agencies is still not tight, lack of synchronization leads to many SI enterprises not being able to access the incentives. In the field of science and technology, the connection among research institutes, universities and enterprises in the process of implementing scientific and technological tasks is still limited, many research products still encounter very many difficulties in application and development of products.

Also according to Vice Minister Tac, there is still a lack of strong policy mechanisms to facilitate the support of output products that are widely applied in practice, lack of mechanisms and policies to support to offset risks in research and application of research results. This partly limits the applicability of high-tech enterprises in supporting industry.

The number of enterprises is too small

In addition to policies, internal "health" of supporting industry in Vietnam also has many things for discussion. According to the report of the Ministry of Industry and Trade: Nationwide, among about 1,800 enterprises manufacturing spare parts, only about 300 domestic enterprises participate in the production network of multinational corporations. Although this is the foundation for industrialization, in recent years, the number of newly established enterprises in industrial production is not much.

Notably, although the production and technology level of enterprises has gradually improved, industrial domestic products are mainly simple components and details, with medium and low technology content, with small value in product value structure. The capacity of organizing production management and technical technology of most SI companies in Vietnam is still limited.

The gap between the requirements of multinational corporations and the capacity of domestic manufacturing enterprises is still very large. Some Vietnamese enterprises have participated in supplying SI products, however, few companies have long-term development strategies to invest deeply in equipment, technology, management, as well as human resources.

Prospects are good

Many experts recognize, in the near future, the supporting industry of Vietnam has a great development prospect. Firstly, it is an opportunity for in-depth participation in the Vietnamese industry in the global value chain of multinational industrial corporations. In the current industrial production world, multinational corporations play a decisive role in driving global value chains.

The recent global value chain changes put Vietnam in a more important production base. Previously, some East Asian countries such as Japan and South Korea chose China and ASEAN countries as production bases for exports to the US and Japan.

However, China is gradually becoming a consumer market instead of manufacturing, especially in the context of the US-China trade war that will extend. Thus, ASEAN countries, especially Vietnam will have the opportunity to become an export production base for exports to the US, Western Europe, Japan and China.

Secondly, market opportunities for supporting industry are increasingly expanding. The Ministry of Industry and Trade released the analysis data: Until now, the product output of some domestic industries has been quite large, qualified to develop supporting industries in Vietnam. Many signed and effective Free Trade Agreements have also created a wide market opportunity for industries and supporting industries, especially for electronics, mechanical engineering, textiles and leather industries...

The opportunity is quite large, but in order to avoid missing the open development opportunities, the supporting industry needs to gradually overcome the existing and persistent limitations.

According to the Ministry of Industry and Trade, in the context of the capacity of domestic enterprises is still limited, unable to dominate the foreign market, to develop supporting industries, the prerequisite condition is to have developed domestic processing industry, opening market opportunities for enterprises in the supporting industry to become suppliers, to participate in the supply chain of enterprises of producing and assembling final products.

Deputy Minister Pham Cong Tac emphasized: In the coming time, it is necessary to continue reviewing, amending and promulgating mechanisms and policies to promote the development of supporting industry in the direction of creating favorable conditions for enterprises to work in the supporting industry to easily access the incentives in Decree No. 111/2015/ND-CP of the Government and relevant current documents; at the same time, studying and developing a roadmap of product localization rates for multinational enterprises and corporations which are investing and manufacturing in Vietnam based on technological processes and product development of manufacturing enterprises in the supporting industry of Vietnam.

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From the perspective of the leather and footwear industry, Mr. Nguyen Duc Thuan - Chairman of Vietnam Leather and Footwear Association - proposed: Supporting industry for footwear industry is applying preferential policies as for the development of other supporting industries, including incentives for investment promotion, trade promotion programs, credit support and export credit, bid guarantee and export contract performance guarantee.

"Regarding finance, I proposed that the Ministry of Finance draft and submit to the Government for approval on the measures to strengthen the existing financial policies, with higher incentives for the production of footwear materials and raw materials on import tax, corporate income tax, VAT... Along with that, the State Bank set up preferential policies on interest rates on bank loans, credit guarantee for investment and export credit of the State, building programs support for the construction of industrial zones of leather and footwear materials," Mr. Thuan said.