Vinh Phuc seeks to boost linkages between domestic and foreign businesses

Automobiles and auto parts are one of Vinh Phuc’s four priority fields to boost linkages between domestic and foreign enterprises

Vinh Phuc is one of the key industrial hubs in the north thanks to large foreign direct investment (FDI) inflows into manufacturing. According to the provincial People’s Committee, up to 86.7 per cent of foreign-invested enterprises (FIEs) operating in the province are focusing on manufacturing, from motorbikes and automobiles to electronics. This creates a special advantage for Vinh Phuc as very few provinces can attract FDI inflows into such diverse fields. This also facilitates Vinh Phuc to promote linkages between domestic and foreign-invested firms.

Another advantage of Vinh Phuc is the comprehensive development of its supply chains. Domestic enterprises operating in the province are present in almost all reaches of the manufacturing supply chains of FIEs. Several domestic firms like Cosmos and Me Tran Binh Xuyen have served as tier-1 suppliers for large FIEs. However, there are only 15 tier-1 suppliers, ranking the fourth nationwide, according to the Vietnam Association of Supporting Industries (VASI).

These tier-1 suppliers also serve FIEs outside of Vinh Phuc operating across a variety of fields, including motorcycle, household electronics, agricultural machinery, and electric equipment. However, this is expected to leverage small-scale and fledging Vietnamese firms to enter FIE supply chains at lower levels (tier-3 and tier-4) and gradually gain experience and upgrade their position in these supply chains.

Another prominent advantage is that Vinh Phuc has witnessed some domestically-established corporate spin-offs from FIEs firms in the past five years as FIEs’ success generated positive spillover effects. Most of these spin-offs, especially mechanical ones, were founded by individuals who had worked for Vietnam Precision Industrial No.1 Co., Ltd. (VPIC1). Customers of these spin-offs include VPIC1 and its low-tier suppliers while they also have the opportunity to reach out and supply companies in other fields and locations.

Furthermore, Vietnamese companies in the supply chains of FIEs in Vinh Phuc have created fruitful internal links. They have established a network to share information and support each other to take advantage of their machinery and technology, as well as encourage low-tier companies to join the supply chains.

Four priority fields

According to the Vinh Phuc provincial People's Committee, more than 11,200 companies have registered to do businesses in the province, with the combined registered capital of over VND128.3 trillion ($5.6 billion). However, only a few local firms participate in the top value chains of FIEs operating in the province, while many are at lower rungs. Although the province has issued policies on supporting and encouraging the development of supporting industries, there remains a big gap between the capacity of domestic firms and the needs of foreign-invested ones.

Data released by the VASI indicate that Vinh Phuc now has only 16 domestic enterprises participating in FIEs supply chains, which is only 5 per cent of the country total. Vinh Phuc ranked fourth across the country in the number of tier-1 suppliers, following Hanoi, Ho Chi Minh City, and Bac Ninh province.

Therefore, Vinh Phuc attaches special importance to improving the innovative capacity of domestically-invested enterprises, supporting them to participate in FIE and global supply chains, thus boosting the province’s industrial development.

In the draft project to support linkages and cooperation between domestic enterprises and FIEs to empower local players to gradually join the global supply chain by 2025, Vinh Phuc identified four priority fields to boost linkages between domestic and foreign firms, including motorcycles; electronic appliances; agricultural machinery and mechanical engineering; and automobiles and auto parts.

Vinh Phuc is currently the leading hub in the domestic motorbike industry, attracting large-scale projects from both Honda and Piaggio. The province now has a multi-tiered motorbike supply chain, with domestic enterprises present at all the tiers. Notably, besides supplying to Honda and Piaggio, domestic suppliers participate in many other supply chains, such as the motorbike chains of Yamaha and Vinfast, the consumer electronics supply chain of LG and Panasonic, the agricultural machinery supply chain of Yahata, and the automotive supply chains of Toyota and Honda.

To concretise its policy on boosting linkages between domestic and foreign enterprises by 2025, Vinh Phuc will aid all domestic and foreign enterprises in the province to access information on and cooperate with potential partners, assisting all domestic enterprises in the four priority industries to improve their capacity. Of note, the province has set out to establish fruitful linkages between at least 20 domestic and foreign firms.

To achieve this, Vinh Phuc will amend its policies on promoting linkages in these industries. In addition, the province plans to establish a working group dedicated to connecting domestic enterprises with FIEs.

To increase the number of competent enterprises, Vinh Phuc will promote a programme on stimulating additional investment in domestic firms through the provision of preferential incentives for machinery and equipment for production, as well as 3-5 per cent annual interest rate compensation for commercial banks. In addition, the province expects to build a set of criteria to determine whether enterprises are eligible to call for new and additional investments.

In 2021, Vinh Phuc has carried out many activities to promote investment and business cooperation with foreign partners with strong technology. In July, the Department of Planning and Investment and Vietnam-Korea Technological Consultancy and Solution Centre signed an MoU on supporting businesses operating in mechanics and electronics. Under the deal, the centre will provide technical support and advice to at least 10 domestic firms in Vinh Phuc operating in automotive, electric, and electronics to improve their productivity and competitiveness in product design and molding, and connect them with South Korean businesses.