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Vietnam’s supporting industries riddled with challenges

Vietnam’s supporting industries riddled with challenges

Tuesday 21, 12 2021
Vietnam’s supporting industries have been encouraged to develop, receiving supportive policies from the government in recent years. However, many challenges remain that the supporting industries of Vietnam have yet to overcome.

Overview of supporting industries in Vietnam

Currently, 3,919 companies are operating in the supporting industries of Vietnam. Of which, 1,296 are in the textile and garments sector, 955 in the leather and footwear sector, 865 in the electronics sector. Mechanical engineering and automobiles sectors have 746 and 372 supporting industry companies, respectively.

The supporting industries

The supporting industries of Vietnam have been prioritized for development and investment in recent years. The government issued a decree on the development of supporting industries and constructed legal systems and policies to assist in advancing this sector. With such support, the quantity and quality of supporting industries firms improved. Some domestic supporting industry enterprises start using modern management tools in production to meet international standards, to become suppliers that can participate in the chain of multinational enterprises.

The number of enterprises operating in the supporting industry accounts for about 4.5% of the total number of enterprises in the processing and manufacturing industry. The supporting industries also create jobs for more than 600,000 employees. Some Vietnamese component manufacturers have good capabilities in fields such as manufacturing molds, bicycle and motorcycle components, standard mechanical components, electrical cables, plastic components, technical rubber, tires, etc. Domestic supporting industry enterprises are also increasingly actively applying standards and modern management tools to production and manufacturing.

However, Vietnam’s supporting industries are still facing many challenges. Vietnam relies much on imported materials for production in supporting industry. The most apparent example is the automobile supporting industry. While countries in the region like Thailand or Indonesia only have to import 10% of auto parts for domestic production, that same number for Vietnam is 85%.

Most of Vietnam’s supporting companies are small scale, have weak management capacity, lack human resources. Meanwhile, support policy for the supporting industries has not been fully exploited.

After more than 20 years of establishment and development, Vietnam’s supporting industries have only less than 300 suppliers that can meet multinational companies, quite modest compared to nearly 800 in Indonesia and more than 2,000 in Thailand.

Support plans for Vietnam’s supporting industries

Currently, the Ministry of Industry and Trade is assigned to build the Law on Support Industry and Law on Industrial Development. Mr. Pham Tuan Anh, Deputy Director of the Department of Industry under the Ministry of Industry and Trade, stated that building legal corridors and the planning strategy of individual industries are the methods expected to solve the problems that the supporting industries have been facing over the years.

Law on Support Industry

In June 2021, the Prime Minister issued Decree 57/2021/ND-CP, supplementing provisions on corporate income tax incentives for projects producing supporting industry products. On that basis, the quantity and quality of supporting industry enterprises improved. Many domestic supporting industry enterprises have actively used modern management tools in production, met international standards, and become suppliers to multinational companies.

Vietnam’s business hub plan on boosting supporting industries

With the determination to develop the supporting industries, the government of Ho Chi Minh City – Vietnam’s business hub, will provide maximum support for businesses and investors to participate in the development of this industry.

Ho Chi Minh City prepared a land fund of more than 300 hectares to build supporting industrial parks, applying high technology to attract enterprises and investors to operate. Hence, they will contribute to the city's general development.

 Government and Ho Chi Minh City

With the support of the Government and Ho Chi Minh City, a part of supporting industry enterprises is strongly transforming, applying high technology in production to increase product value, increase competitiveness and deeply participate in the supply chain of international corporations.

However, on a general level, Ho Chi Minh City's supporting industries still have many limitations in technology, lacks high-tech supporting industry development zones with appropriate technical infrastructure to create a more favorable environment and conditions for enterprises to develop.

 

Compiled by VietnamCredit

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