Missing Links in Vietnam’s Participation in Global Value Chain
Vietnam Economic News
Vietnam has signed 12 bilateral and multilateral free trade agreements (FTAs) and is negotiating four additional ones. This opens up opportunities for Vietnam to promote trade with 55 partners and participate in the global value chain.
In addition to opportunities provided by FTAs, Vietnam is also a magnet for foreign investment, with companies from as many as 114 countries and territories around the world pouring into the Vietnamese economy a total registered capital of around US$300 billion as of 2016. Among the investors are world leaders such as Samsung, Toyota, Honda and LG.
The chairman of the Korean Chamber of Commerce and Industry in Vietnam, Ryu Hang Ha, said that firms with foreign direct investment (FDI) in Vietnam are willing to buy spare parts manufactured locally instead of importing them from other countries. Buying spare parts produced by domestic businesses benefits the investors more than importing them thanks to easier tax refund and administrative procedures. In addition, there are no extra costs and waiting time for these companies when purchasing domestic parts and accessories.
He also said that many FDI companies have adopted practical policies to create favorable conditions for Vietnamese businesses to participate in manufacturing spare parts. For example, Samsung has regularly coordinated with the Vietnamese Ministry of Industry and Trade and the Ministry of Planning and Investment since 2015 to organize exhibitions where it can meet local manufacturers of spare parts. In addition, Samsung has set out specific standards for Vietnamese businesses wishing to become its suppliers.
Active role of local firms
Creating favorable conditions for local businesses to participate in the global value chain is also one of the major undertakings of the Vietnamese government. To promote this process, the government issued Decree 111/2015/ND-CP dated November 3, 2015 on the development of support industries. The directive prioritizes support research and development, technology transfer and market development as well as preferential tariffs to encourage businesses to further increase investment in support industries. The decree has allowed investors to enjoy subsidized pilot production in research and development activities. In addition, support industry projects in priority sectors have been supported in terms of human resources and trade promotion programs.
However, the government’s efforts are only part of the equation. Vietnamese companies themselves need to be more active in taking advantage of the opportunities they are offered.
According to Vietnam Chamber of Commerce and Industry Chairman Vu Tien Loc, the government, FDI companies and domestic businesses each have a role to play and they must coordinate with each other to achieve concrete results. The government has to act as a supporter through improvements in mechanisms and policies. FDI companies have to inform local manufacturers what parts and accessories they need in the manufacturing process and to facilitate domestic businesses in accessing the global value chain. Meanwhile, domestic businesses need to invest in modern machinery and equipment, conduct market research and strengthen training of human resources in order to produce products meeting the needs of FDI companies.
The chairman of the Vietnam Association of Foreign Invested Enterprises, Professor Nguyen Mai, said that participating in the global value chain is not easy for Vietnamese businesses as most of them are small and medium-sized enterprises with limited capital and backward technology. Therefore, they need to be more active to create a breakthrough. Samsung Vietnam General Director Han Myong Sup said that the number of Vietnamese suppliers directly participating in the production chain of Samsung Electronics Vietnam has increased over the years, proof that they are fully capable of participating in the global value chain.
Vietnam Chamber of Commerce and Industry Chairman Vu Tien Loc said that the participation of Vietnamese businesses in the global value chain will benefit the economy.