The “Sony effect” among foreign invested enterprises?

Experts have warned that foreign invested enterprises (FIEs) in Vietnam now prefer importing goods to sell domestically instead of setting up production bases in the country.

Retailing, not manufacturing

Two years ago, the announcement by Sony Vietnam that it will stop production and will import products for domestic sale surprisedmany people.

Now people talk more about the “Sony effect”. More and more foreign investors have been importing goods and selling them on the domestic market. According to the Ministry of Industry and Trade, in 2010, 525 foreign invested projects were put on the table of management agencies. Of these projects, the ministry estimates that 235 projects can meet the legal requirements, including 175 projects which applied for trading goods as an additional business activity, and 60 projects which applied for investment licenses for the first time.

The noteworthy thing is that among them are projects which have been present in Vietnam since before Vietnam joined WTO, and now they want to expand their business in Vietnam by setting up new retail points.

The year 2010 witnessed the expansion of the enterprises specializing in distribution. Metro Cash&Carry set up four wholesale centers in Khanh Hoa, Binh Dinh, An Giang and Vung Tau. Lotte Vietnam opened the trade center in district 11 in HCM City, while Big C opened a new supermarket in Vinh Phuc province.

However, these projects are purely trade projects, which do not require high investment capital. The average investment capital of the projects is low, about $300,000.

As for goods trading projects, the foreign direct investment (FDI) capital sources are different. The capital comes from Asian countries and territories such as Taiwan, Japan, South Korea, China, Singapore and some other countries such as Italia, France and Germany. Meanwhile, in terms of investment destinations, the projects are mostly located in Hanoi, HCM City, Binh Duong, Dong Nai, Long An.

Time to reconsider policies

Phan Huu Thang, former Director of the Foreign Investment Agency, now Director of the Foreign Investment Research Centre, says that he is not surprised by the “Sony effect”. He said that when entering Vietnam, Sony thought that it would keep production for 10 years, and later asked for the extension.

The problem here is that while Sony clearly announces its investment plan in Vietnam, a lot of other foreign invested enterprises, especially automobile manufacturers, do not do this. In official statements, the manufacturers still commit to make long term investment in Vietnam, while in fact, many of them only plan to set up subsidiaries for importing and distributing products in Vietnam.

The shift of automobile manufacturers todistribution instead of production has raised a worry that Vietnam will never have its own automobile industry.

Explaining the new trend of foreign investors, Director of the Foreign Investment Agency Do Nhat Hoang said that investors always try to optimize their profit, and they tend to do the kinds of business which are not prohibited by the laws and can bring them higher profit.

“Our incentives have been narrowed, therefore, some investors are planning to shut down,” Hoang said.

It seems that the “historic mission” of many foreign invested enterprises assigned by the foreign parent groups has been completed. It is now the right time for policy makers to reconsider the investment incentives applied in the past many years, especially after Vietnam offered many preferences to investors and sacrificed the benefits of consumers.

From VietNamBusiness

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