Only 14 percent of Vietnamese private enterprises are supplying goods and services to foreign invested enterprises (FIEs).

Vietnamese enterprises struggle to join foreign value chains

A report from the Vietnam Chamber of Commerce & Industry (VCCI) showed that after 30 years of attracting FDI, the connection between Vietnamese and foreign enterprises remains unclear, while the transfer of skills from FIEs to Vietnamese enterprises remains modest.

FIEs say Vietnamese enterprises are not capable of joining value chains, while Vietnamese enterprises say that FIEs only choose enterprises from the same country.

Only 20 percent of FIE joint ventures, and less than 14 percent of Vietnamese private enterprises, can provide goods and services to FIEs. 

Less than 30 percent of FIEs’ input materials and accessories are bought in Vietnam, while a large proportion of components are sourced from other FIEs.

Pham Cao Vinh, chair of Goldsun Printing & Packaging, one of only a few first-class vendors for Samsung, said that a low price is not the most important competitive edge.

“The most important factors are quality, commitments in delivery, and high requirements on environmental conditions and human rights,” he said.

Located in Que Vo Industrial Park of Bac Ninh province, the VND500 billion factory of the company, inaugurated last week, will mostly make boxes for Samsung’s electronic products. 

More than half of Samsung’s mobile phones bought globally are made in Vietnam, but only three Vietnamese enterprises can join the box and manual supply chain. They  have to compete with three other foreign enterprises.

Supplying boxes to Samsung, enterprises can earn $2 per product, or under 1 percent of the product’s value. However, to become Samsung’s vendors, enterprises have to make big investments to ensure excellent production results.

Goldsun’s VND500 billion newly set up factory is just part of the total investment capital of VND2 trillion the company has spent to make boxes for Samsung’s mobile phone models. It also has spent VND40 billion a year on average on upgrading.

However, the vinvestment has been worth it. With more than 10 production lines and capacity of 10,000 products per day, the supply of boxes is expected to bring turnover of VND600 billion in 2018, or half of Goldsun’s total revenue.

Samsung reported that only four Vietnamese enterprises had become Samsung’s first-class vendors by 2014, while the localization ratio was 35 percent. The number of Vietnamese vendors had increased to 29 by the end of 2017.

Le Van Hung from the Vietnam Economics Institute emphasized the need to build up a link between Vietnamese and FIEs, saying that if there is no strong tie with Vietnamese enterprises, FIEs may easily leave for markets that offer better incentives.

Source: VietNamNet