Vietnamese supporting industries to pass up on TPP opportunities

March 31, 2016 | 22:33

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Vietnamese supporting enterprises see a few opportunities in Vietnam’s signing of new free trade agreements in general and the Trans-Pacific Partnership (TPP) in particular.

It is opinion of some Vietnamese supporting enterprises shared VIR at the forum on development of Vietnam’s supporting industries in the context of new free trade agreements organised by the Ministry of Industry and Trade on March 30, attracting the participation of over 500 representatives of ministries, local enterprises, international organisations, experts, associations as well as universities.

According to experts, the implementation of new market-opening free trade agreements, like the TPP, is considered to play an important role in helping countries “move up the value chain,” enabling Vietnam to compete in more advanced economic sectors and supporting to develop high-quality jobs. Besides, the TPP will open numerous opportunities for Vietnam’s supporting industries, as large foreign groups will increase investments in Vietnam to benefit from the TPP.

However, numerous Vietnamese supporting enterprises foresee a rather dim future brought by the TPP.

Vietnamese supporting industries are considered abundant in opportunities to develop as several large-scale foreign groups, such as Canon, Samsung, Hyundai, Nokia, Toyota, and LG, plan to increase localisation rates in the country. However, in reality, when these groups expand their operations in Vietnam, hundreds of their satellite enterprises will follow to manufacture spare parts for these groups. Vietnamese enterprises can not compete with these satellite enterprises. Even though foreign groups claimed that they want to find more domestic supply partners, they have very strict quality requirements that only a handful of Vietnamese enterprises can meet. As a result, Vietnamese enterprises will be stuck at manufacturing almost exclusively packaging and simple spare parts.

Tran Trong Thanh, chairman of the managing board of Vinapo Online Services Company

Supporting enterprises currently make up 0.03 per cent of the total Vietnamese entrepreneurial base only. The lion’s share of supporting enterprises are small or medium-sized (SMEs), a lot of them even being super-small, while land rentals, production expenditure, and modern machinery costs are high. They can not expand operations and compete with foreign supporting enterprises at the same time, due to a chronic lack of capital and technology. They also find it hard to borrow from banks due to complex procedures and high interest rates. SMEs are offered loans with interest rates over 20 per cent each year.

Le Thanh Thuy, director of Tri Cuong Industrial Co., Ltd. (TCI)

Yen Linh does not dare to expand operations as well as invest in modern machinery to become a supplier for large foreign groups. This is because Vietnamese supporting enterprises in general and Yen Linh in particular face numerous barriers, including capital, human resources, and management capacity. Besides, foreign investors currently enjoy more incentives than domestic enterprises in taxation, bank interest rates, land rentals and others. Thus, in my opinion, Vietnamese supporting enterprises should expand their operations as well as invest in modern machinery when the government introduces a policy reform to strike balance in the business environment.

Nguyen Mau Tuan, deputy director of Yen Linh Hydraulic Co., Ltd

By By Kim Oanh

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