Corporations keen for faster means to grow

At a meeting over a week ago with the government, leaders of private groups proposed various initiatives and called for joint efforts in developing local supporting industries.

THACO has generated millions of US dollars in revenue by selling parts to major carmakers, photo Le Toan

According to Vingroup chairman Pham Nhat Vuong, the government should create mechanisms to help small- and medium-sized enterprises (SMEs) so they can participate in the supporting industry supply chain.

“This would be a major boost for SMEs and for Vietnam in building a robust supporting industry,” Vuong said.

He noted that VinFast’s current annual output of 8,000 units will grow to 200,000 in 2025, far exceeding the threshold for supporting enterprises to operate profitably.

“VinFast is ready and committed to purchasing all components for vehicles in Vietnam. This is a great opportunity for the country to advance its supporting industries,” he said.

Tran Ba Duong, chairman of Truong Hai Group Corporation (THACO), made recommendations for promoting vehicle manufacturing using clean energy and developing supporting industries.

Duong explained that the vehicle industry is experiencing technological shifts, particularly in green and clean energy vehicles, in line with Vietnam’s commitments. The company aims to establish a vehicle manufacturing hub for international carmakers in Vietnam, with plans to export to regional markets, especially Southeast Asia, to leverage free trade agreements.

“The group prioritises the development of supporting industries to lower production costs, particularly in components like body frames, interiors, and electronics for smart and safe vehicles,” Duong said.

While vehicle consumption reached 500,000 units in 2022, it dropped to 300,000 in 2023, with similar numbers expected this year. Most vehicles sold are priced under $29,000, leading to a significant decline in revenue for manufacturers.

With revenue halved, investment plans for expansion, supporting industries, and new products have faced considerable challenges, Duong said.

“Currently, THACO operates seven factories and plans to launch three more, raising the localisation rate for passenger cars to 45 per cent. As the industry moves towards green vehicles, we need a clear roadmap and time to invest in infrastructure, safety, and convenience,” Duong explained.

Supporting industry manufacturers must invest heavily in technology and require sufficient demand to justify these investments. THACO, which began mechanical production early and is expected to export nearly $140 million this year, continues to face challenges with trade defence and content management, particularly with raw materials from China.

In order to double supporting industry output next year, Duong revealed plans to establish a mechanical production industrial park in the south, aiming to capitalise on foreign-invested enterprises assembling new production lines to supply 35-40 per cent of spare parts and components.

This year, THACO has sold auto parts to domestic carmakers like Hyundai, Ford, Toyota, and Isuzu, generating $13 million in revenue, with expectations of a sharp increase next year.

“The supporting industry lacks a clear strategy, yet the mechanical engineering sector plays a fundamental role in its development. This presents an opportunity for Vietnam’s basic industry and export potential. The government should consider providing supportive policies,” Duong added.

Tran Dinh Long, chairman of Hoa Phat Group, echoed the call for better policies and a more conducive business environment.

“To further develop supporting industries, the government must introduce clear and specific policies to support and protect domestic production while adhering to international practices,” Long said.

He urged the government to accelerate the development of domestic iron mines to reduce reliance on imported iron ore. Specifically, Long suggested bringing the Quy Xa iron mine in the northern province of Lao Cai into operation. He said that Hoa Phat Group is capable of producing steel for high-speed railway tracks.

According to the Ministry of Industry and Trade, Vietnam currently has about 5,000 manufacturers supplying components and spare parts for the vehicle and mechanical industries. Of these, 70 per cent supply domestic manufacturers, 8 per cent serve exporters, and 17 per cent supply both.

Some products, such as electric cables, gearboxes, and plastic components, are produced domestically and exported to markets including South Korea, Japan, China, and the United States.

Vietnam’s supporting industry developed later than its regional peers, leading to simpler products with medium to low technology content and limited value in the production chain. SMEs have struggled to meet international standards due to high production costs.

Currently, the localisation rate in the vehicle industry is around 5-20 per cent; electronics at 5-10 per cent; leather, footwear, and textiles at 30 per cent; and mechanical engineering at 15-20 per cent.

The low localisation rate results in a high volume of imported components for assembly, manufacturing, and export. Each year, components imported for the electronics and vehicle industries alone are valued at $35-50 billion.

Nguyen Chi Dung, minister of Planning and Investment Enterprises and entrepreneurs play a key role, being the main material production force of the economy. Vietnam now has more than 930,000 enterprises in operation, 98 per cent of them are small- and medium-sized enterprises (SMEs), in addition to about 14,400 cooperatives and more than five million business households. In 2023, privately-owned enterprises (POEs) contributed nearly half of GDP, and generated about 30 per cent of state budget revenue. In low- and middle-income countries, large POEs play a key role, making great contributions to the development of the economy in terms of growth, employment, budget, export, tax or creating added value. By the end of 2023, the total assets of large POEs reached about $70 billion. Mobilising this, along with tech, knowledge, management skills, and high-quality human resources of these enterprises will add a large resource to the economy, contributing to the autonomy of the country’s economy. Some large POEs have proactively transformed, and invested in new industries; pioneered in innovating business models towards green and circular direction; and gradually developed into a spreading force, leading to the development of many important industries and sectors of the economy. Thousands of SMEs and business households have benefited from the links with these leading enterprises. However, the business community still faces many difficulties, large enterprises struggle with some barriers and limitations and have not fully promoted their potential, and leading role as expected. Specifically, the production and business activities of the business sector and large-scale enterprises in particular are still subject to many adverse impacts due to objective contexts, geopolitical conflicts, and disruptions in supply chains and input materials. There are still shortcomings in the institutions and laws, which have not been promptly amended and supplemented to suit the reality and development requirements. The process of decentralisation, and reduction of some regulations, administrative procedures, standards, technical regulations, and business conditions should be accelerated. The progress in removing obstacles for enterprises is too slow, especially for large-scale projects. Although medium and large enterprises have emerged, they have not really become the leading force of the economy as expected. The proportion of investment in leading and motivating industries, and in new fields such as clean energy, chips, semiconductors, and hydrogen is too small. The activities of large enterprises are also relatively independent, without the linkage with SMEs in the supply chain of large domestic and foreign-invested enterprises. Thai Huong, chairwoman TH Group Strategic Council We should utilise the country’s advantages such as agriculture, forestry, and fisheries, along with changing production methods from fragmented and small-scale to modern and advanced. There must be some policies to engage businesses with a rich spirit, mindset, strength, passion, and desire for contribution, and enable farmers to link in the closed value chain and build the brand. Specific proposals on developing modern industrial dairy farming by applying high technology are essential, particularly on allocating clean land to businesses. The application of science and technology can overcome natural barriers. Climate conditions and livestock planning are not troubles. The important thing is clean land with a large enough area and buffer zones. Each dairy cow needs around half a hectare of raw material area, while businesses need enough land area to ensure about 30 per cent of roughage for feeding large livestock, while the rest can be purchased from farmers growing corn and grass in that area. So farmers will be a link in the high-tech agricultural production chain, as TH has done in Nghe An. There are many areas of agricultural and forestry land that are either operating ineffectively or have been returned to local governments. We should review and allocate to enterprises to do large-scale industrial production because every enterprise or individual using land must pay land tax. In addition, we need some support and incentive policies for projects such as preferential varieties, partial support for basic construction, and preferential interest rates.

Connections being improved for supporting industries Despite challenges in the market, supporting industry enterprises continue to receive positive news about export orders and are planning to expand production and factories.