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PCI perspective: Vietnamese businesses increasing influence in supply chains

PCI perspective: Vietnamese businesses increasing influence in supply chains

Wednesday 22, 05 2024
The dependence of FDI enterprises on domestic private enterprises has been steadily increasing.

The latest data from the 2023 Provincial Competitiveness Index (PCI) shows that this dependence has been on the rise over the years. This index reached 75% last year, a significant increase from around 63% in 2022. This figure represents the percentage of FDI enterprise suppliers to a group of customers who are domestic private enterprises. Household businesses as suppliers have also seen a significant increase, from over 13% to more than 23%.

The Vietnam Chamber of Commerce and Industry (VCCI) believes that the growing dependence of FDI enterprises on internal suppliers reinforces the hypothesis that FDI enterprises are shifting their input goods through Vietnam to minimize the negative impacts of US-China trade tensions.

Opportunities for Vietnam to rise in the supply chain have also been emphasized by many foreign business representatives in recent exchanges. In most ASEAN markets, more than half of the surveyed businesses expressed a desire to expand their operations to Vietnam. Thailand leads in the proportion of businesses wanting to expand operations into Vietnam, followed by Malaysia and Indonesia, according to a survey by HSBC.

Opportunities for Vietnam to rise in the supply chain

The survey also indicates that the Asia-Pacific region is becoming increasingly important globally, with Vietnam being one of the markets receiving significant attention. In a recent meeting with Prime Minister Pham Minh Chinh, Ted Osius, President and CEO of the US-ASEAN Business Council, stated that Vietnam is increasingly asserting its role as an important manufacturing hub, and US companies are eagerly exploring new cooperation opportunities.

Many challenges ahead

South Korean investors in Vietnam have noted that the issue of expanding supply chains here is that the number of local businesses able to supply products/technologies suitable for the immediate needs of South Korean businesses is still limited. Additionally, information about potential businesses is lacking. In particular, the gap in certain high-tech fields such as semiconductors, electricity and electronics, and information technology is becoming increasingly serious. Therefore, to ensure competitiveness in these industries, it is crucial not only to supply products from Vietnamese enterprises but also to provide quality human resources.

The American Chamber of Commerce in Vietnam (AmCham) recently assessed that Vietnam is in a favorable position to attract large investments as multinational companies seek to diversify their global supply chains. However, like other countries with large supply chains, Vietnam needs to continuously evaluate its competitive advantages. "Vietnam needs to prioritize training workers and engineers, granting work permits to foreign engineers, and supporting vertically integrated industries, especially as companies seek to diversify their tier-two and tier-three suppliers away from China," emphasized AmCham.

The organization recommends removing barriers to foreign investment in vocational and technical training to support the development of important skills and capabilities of the workforce. Along with this, Vietnam needs to provide more support to small and medium-sized manufacturers. Although these companies are very small with low capital, they are an essential part of the support industries. Based on current assessments by planning and investment departments, such small investors often face many disadvantages and delays in licensing and permits. These companies are often employers with skilled labor and play a crucial role in building support systems that global manufacturers need in Vietnam.

build support systems global manufacturers need in Vietnam

To seize diverse opportunities, American companies in Vietnam also call for the rapid establishment of better mechanisms to approve expansion investment projects (acquisition or leasing of existing production facilities for new manufacturing activities). International manufacturers face difficulties in selling the facilities they have built/invested in, and potential buyers face difficulties in obtaining approval, executing transactions, and obtaining business licenses for these projects. "An efficient market for the transfer of existing projects is an important support factor for investment projects in Vietnam," AmCham noted.

Source: theleader

Compiled by VietnamCredit

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