MNC blocks being built

October 19, 2018 | 09:47
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Some 20 per cent of local suppliers have been found to be competitive in meeting foreign-invested and multinational corporation supplier requirements, and set the example for other companies to strive to meet the threshold of the elite list of suppliers.
mnc blocks being built
Ever-increasing numbers of Vietnamese suppliers are providing the capacity to work with big manufacturers such as Toyota, Photo: Le Toan

On an assessment of 45 local suppliers conducted in August within the framework of the Pilot Supplier Development Programme (SDP) funded by International Finance Corporation (IFC) and the Vietnam Industry Agency, around 20 per cent of the samples scored above the foundational level of competitiveness when compared with peers of the same industry or sector. The suppliers were assessed on a wide range of capacities, including competitive strategy and manufacturing systems, manufacturing operations, new product introduction, and the supply chain.

The surveyed suppliers were recommended by multinational companies (MNCs) operating in Vietnam including Bosch, GE, Canon, Panasonic, Denso, Datalogic, Ford, and Toyota, as well as industry associations.

The companies, many of which are suppliers of motorcycle parts and electronic components, are deemed stable and secure suppliers to the MNCs, according to Mike Dickinson, senior advisor to the IFC Supplier Development Programme and general manager of the UK-based Society of Motor Manufacturers and Traders (SMMT) Industry Forum Ltd.

“They’ve got all of the building blocks in place that they need to build on to supply large organisations, and they are working effectively,” said Dickinson, adding that the percentage of those having the capacity to supply to MNCs is in line with the development of the suppliers in other emerging markets like India, Thailand, and China.

“One big thing that does come out when I look at the Vietnamese suppliers is the level of equipment. The suppliers here generally have got very good equipment that is very new and advanced. The investment in this is more than I’ve seen in other emerging markets. That is a good foundation block,” Dickinson told VIR.

Nguyen Manh Quang, CEO of Hanoi-based Manh Quang Co., Ltd., which has supplied motorcycle parts to Honda since 2008 and is one of the 45 local suppliers partaking in the DSP, admitted that to become a supplier of any large enterprise, companies like his own must adapt and improve to meet international standards set by the MNC, as well as grow more professional day by day.

“The hardest part in this process will often be changing the mindset of the workers and subsequently the whole system of the company on how adapting the new set of standards will affect the quality of the products they make,” said Quang.

MNCs like Samsung or Honda, as Quang noted, usually place bulk orders for parts and components at their vendors around the world at wholesale prices. When placing orders here in Vietnam, the prices may be the same but for smaller volumes, and this means local suppliers have to choose whether to keep the quality at the given prices or cut the quality to reduce costs.

“There will often not be a commitment from these MNCs to purchase all the products we make. But if we cannot meet the requirements of the specific parts or components they need, they will move on to someone else, to our competitors here or in other Southeast Asian countries,” Quang said. “It’s a fierce competition,” he said. “Investing in improving competitiveness is like taking a bet with no guarantee of winning. It’s a one-way ticket: either joining the game, making the investment, and having good cost control, or being too cautious and missing out.”

Nguyen Manh Linh, member of the Executive Committee at the Vietnam Association for Supporting Industries, agreed, stressing that finance may be a preliminary issue for local suppliers or vendors to invest in the development of their business capabilities to compete, as their progress involves the work of consulting and assessment from a third party.

“Nevertheless, in the long term, the result of applying the improved processes or procedures will offset the costs,” Linh said.

Areas where local suppliers should focus on improvement, according to Dickinson, include business plan deployment and communication with the workforce.

“So many of these companies have got very good strategies and good visions, they know what they want to do, but they haven’t taken the time yet to plan out how they are going to do it,” he said. “Once you’ve mapped out that journey, you’ve got to communicate it to the workforce so everybody is working to the same plan.”

While praising the level of equipment at local vendors, Dickinson does not see the maintenance and management of the equipment delivered to his expected level. “Most of the machines are new – often one to three years old – but if they are not maintained or they are not managed correctly, in a few years’ time they won’t be good,” he said.

Foundational knowledge in terms of international standard requirements at some suppliers is also an area of attention. “They maybe have not been exposed to these things right now so they don’t know the tools and techniques and they just need to train,” stressed Dickinson. “They will need to understand what that [core international standards and knowledge] is and they need to be able to speak that same language to then be able to work with multinational customers.”

According to Swiss Ambassador Beatrice Maser, while Vietnam has successfully attracted foreign direct investment (FDI) over the years, productive linkages with local suppliers – mostly small and medium-sized enterprises (SMEs) – remain weak.

“The newly designed SDP will support Vietnamese SMEs in improving their capacities to provide high-value domestic goods and services and to connect them to multinational enterprises. As a result, local SMEs will benefit from spillover effects due to FDI,” said Maser.

Sharing this approach, Deputy Minister of Industry and Trade Do Thang Hai stressed, "The ability to gain new business locally with MNCs is a first step to increasing the competitiveness of SDP participating local companies. The intention, over time, is to move companies up the value chain so that they can develop more sophisticated products and become globally competitive."

By Trang Nguyen

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