Support firms or risk losing them

An annual Jetro survey revealed that Japanese companies’ local procurement for industrial materials and subcomponents in Vietnam was just 28.7 per cent, much less than other regional competitors such as China 59.7 per cent and Thailand 53 per cent.

Vietnam’s local procurement figure mostly came from the motorbike manufacturing industry’s high localisation ratio of 90 per cent, said Sakae Yoshida, director of Jetro’s Ho Chi Minh City office.
Meanwhile, the automotive industry localisation ratio of Japanese companies in Vietnam was just 25 per cent.

He said many Japanese companies shifted production bases from Japan to other countries to reduce production costs and Vietnam was a big destination for Japanese direct investment (FDI).  
Last year, new investment from Japan was 208 projects and Japan is the top foreign direct investor in Vietnam.

“But when we consider the investment environment in Vietnam, apart from many positive factors for foreign investors like a stable political system, low labour costs, we have to say Vietnam has many negative factors like high inflation, unstable electricity and frequent changes to government guidelines.

“The domestic supply of industrial material and subcomponents is a major problem for foreign investors in Vietnam,” said Yoshida.  The low rate of local procurement means investors need to import more materials and production costs will continue to grow.

“So, increasing the local procurement is strongly required for Vietnam to keep its products competitive among Asian countries. There is a strong need for Vietnam to enhance its suppliers of raw materials and subcomponents,” said Yoshida.

Director of Ho Chi Minh City’s Investment and Trade Promotion Centre Pho Nam Phuong said: “Without strong international competitiveness, Vietnam’s manufacturing industry will be degraded due to the increase in imports of industrial products and overseas investors in assembly industries will leave the country. Therefore, developed supporting industries are vital for Vietnam’s investment environment.”

At present, most supporting products manufactured by state-owned enterprises have poor quality and high prices because of backward technology and poor management. The private sector’s goods are also handicapped by capital constraints.