Tasks ahead for higher global value chain integration
In order to join the global value chain (GVC), Vietnam needs to expand production scale as well as improve labour capacity, product quality, and administrative capabilities.
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According to a recent report released by the World Bank (WB), only 9% of enterprises operating in Vietnam are qualified for GVC.
Most of these companies are foreign invested firms. Domestic companies qualifying for GVC are sub-tier suppliers with low value-added products.
According to Nguyen Duc Hong, vice director of Thong Nhat Rubber Co., Ltd, the company owns five manufacturing plants that provide supplementary goods in the fields of automobile, electricity, electronics, minerals, and mechanical engineering.
However, such products can only be sold to secondary product suppliers and thereby, have insignificant added value.
For example, the company’s rubber antenna spring mounts are installed in Toyota's Innova cars. However, the company can only sell this particular product to antenna suppliers of the Japanese automobile makers.
In addition, a company needs to grant international certificates for each specific product type in order to become an official supplier in GVC. The evaluation costs US$15,000 per assessment and expires in three years, after which it needs to be renewed.
“Domestic firms cannot compete with foreign-owned suppliers in producing high added-value products, such as technological advancements, blueprints, and electronic components,” said Charles Kunaka, lead specialist on connectivity at WB.
Domestics firms are being constantly challenged as large-scale groups like Samsung, Toyota, and Ford trade with available global suppliers instead of local ones, Kunaka added.
Le Bich Loan, deputy director of the Saigon Hi-Tech Park Management Authority, addressed the capacity mismatch between local companies and foreign-invested ones. Foreign-invested enterprises (FIEs) tend to utilize global supply chain in manufacturing process in Vietnam.
In order to match foreign-invested manufacturers’ requirements, domestic companies should produce innovative goods with high quality, in consistent quantities, and at reasonable prices.
A representative of Samsung Vietnam said that the country should provide favourable conditions for prospective joint ventures with foreign-owned companies, expand production scale, upgrade manufacturing procedures and administration, support human resources training in order to prepare for technology transfer from FIEs.
Asya Akhlaque, senior economist at WB, also talked about how businesses should be supported by revamping procedures, administration, and management in governmental agencies.
Likewise, local companies need to enhance labour capacity and upgrade infrastructure.
