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Support industries provide key to greater added value

Viet Nam needs to develop its support industries to attract more and better foreign direct investment and add value to its industry, experts told a meeting held in HCM City yesterday.

Matthias Duhn, executive director of Eurocham Viet Nam, said Viet Nam’s auxiliary industries are unable to meet the increasing demand from manufacturers, especially foreign ones.

These industries are really the key to industrial development, enabling foreign manufacturers and assemblers to set up production in the country, he said.

Currently, Vietnamese industry adds little value since many components have to be imported, he said.

Nguyen Ba Tung, deputy general director of Long Hau Corporation, said the automobile industry, which needs a plethora of auxiliary industries, can only source only 5-10 per cent of its needs locally. For the textile and garment sector, the ratio is 80 per cent, while the electrical and electronics sectors import almost everything, he said.

He said support industries, which are mainly small-scale, even household, have problems accessing capital and technology, resulting in high cost and low quality.

Tran Hung, deputy director general of the Ministry of Industry and Trade (MoIT) ’s Department of Light Industry, said: “Viet Nam cannot rely on cheap labour [to attract foreign investors], and offering investment incentives is not enough if it wants to climb up the value chain.”

Support industries will provide jobs and promote exports, and prevent excessive dependence on imported goods and services, he said.

But their development has been very slow because of small scale and erratic quality, he said.

The Government’s policies are not attractive enough to draw investors, he said.

“Textile and garment and leather footwear are key sectors but the lack of support industries has caused an overwhelming dependence on foreign raw materials on their part, which reduces profits and competitiveness.”

Phan Dang Tuat, head of MoIT’s Institute for Research on Industrial Policy and Strategy, said: “In the long term, development of auxiliary industries will be the solution for the trade deficit.”

Bui Thi Thanh An, chief representative of the Viet Nam Trade Promotion Agency (VIETRADE) ’s HCM City office, said after Viet Nam joined the WTO, tax barriers have come down, making imported parts cheaper. This has taken business opportunities away from domestic companies.

“Developing supporting industries will be one of the Government’s top priorities,” she said.

Solutions

The Government needs to have policies in place to encourage the development of support-industry clusters and promote education and vocational training in these areas.

The Ministry of Industry and Trade has outlined a draft incentive scheme for five industries – machinery, apparel, footwear, electronics and IT, and auto.

Tuat said it is essential to impress on both businesses and authorities the importance of ancillary industries and choose the right sectors to develop them.

Since a skilled labour force is required to develop strong support industries, there should be financial support for training programmes for human resources in these industries.

Vietnamese businesses need to establish links with foreign investors to exchange experiences and adopt high technologies.

The Government needs to strengthen tax policies, infrastructure, and investment environment to foster the growth of support industries.

The meeting was organised by VIETRADE in collaboration with Eurocham Viet Nam and the HCM City Business Association.

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