Spiking input costs put firms on back foot

Sadakim deputy general director Vu Van Hien in southern Dong Nai province’s Bien Hoa 1 Industrial Zone was worried about possible power price hikes as under Decision 24/2011/QD-TTg dated April 15, 2011 the power price will be set under market rules starting from June 1, 2011.

“Power cost currently makes up 10-15 per cent of the mechanical sector’s total production costs. Business can hardly draw up workable product pricing schemes if a concrete power price hike plan is not in place,” Hien said.

Handbag maker Minh Tien Company Limited director Nguyen Tri Kien is in the same position since power cost accounts for around 10-12 per cent of the garment sector’s production costs.

Kien said the company would have to lift product prices if the power becomes dearer.  

“Our firm is checking production processes to innovate big energy ones. This would eat up huge investments but it will make us more competitive when the power price is set following market rules,”  Kien said.

In fact, less-than-modern equipment and technology is the core reason creating headaches to enterprises whenever the water and electricity costs are revised.

“Most Vietnamese firms use the technology several generations behind the world’s average level,” said deputy minister of Industry and Trade Tran Tuan Anh.

Only 2 per cent of Vietnamese companies reportedly use cutting-edge technology while the rate is 31 per cent in Thailand, 51 per cent in Malaysia and 73 per cent in Singapore.

Besides, many local firms used only 0.2-0.3 per cent of their total revenue to inject in technology innovations, Anh said.

Big investment was required for technology and equipment innovations, Hien said.

He had ascribed current high bank lending rates and difficulties in sourcing replacement spare parts to renovate machinery systems the core reason for which businesses were late in making them more competitive through technology innovation.