Vietnam’s support industry in transition

Speaking at a recent conference in Hanoi, Deputy Head Nguyen Tue Anh of the Central Institute of Economic Management (CIEM) said in its plans the government had identified six key support industries.

However, the plans for domestic companies to predominate in the six industries – electronics, agricultural machinery, agricultural and aquaculture, ship building, energy-saving, and auto manufacturing – have fallen short.

The support industries include all of the intermediate manufacturers who take raw inputs from suppliers and manufacture an intermediate product that is subsequently incorporated into the final manufacturer’s product.

They also include the tool and die makers that create the moulds, jigs, and other tools used in the manufacturing process.

Support industry manufacturers and tool and die makers most often produce a product that looks easy to make, but more often than not is actually extremely difficult to produce, requiring high level engineering skills along with state of the art science and technology. 

Do Thi Thuy Huong from the Vietnam Electronics Business Association (VEBA) said the electronics support industry currently is dominated by foreign direct investment (FDI) companies.

Very few domestic companies have the capacity to compete with their foreign counterparts and as a consequence are relegated further down the supply chain to simply that of a supplier.

Huong stressed they just don’t have the business experience, technical skills, know-how, manufacturing facilities, nor ability to produce a quality product according to a set time schedule that is required.

Sharing Huong’s views, Dr Nguyen Dinh Anh in turn suggested that incentives for the support industry need to be revised and funding for investment needs to be increased in terms of both scale and accessibility.

He underscored the need to revamp preferential policies, explaining that currently it is impossible to boost the support industry with the stagnant policies that are in place, especially in the six prioritized sectors.

Many suggested the government build a full legal framework favourable for the industry as well as businesses participating in this field, and finalize and issue the government’s decrees on the sector.

The government should enhance management of environmental protection and energy conservation in order to create output markets for the environment, energy-saving and support industries, they said.

VEBA proposed tax exemptions for materials and import equipment to serve the production of key mechanics items and the exemption of corporate income tax and land lease fees for projects that supply support products to high-tech sectors.