SUMMARY

Up to now, the term “supporting industries” (SI) has been still relatively new in Vietnam. Although the weakness of SI has become an obstacle to development of the key industries in Vietnam, SI have not been received sufficient attention from levels of authority. It is more than two years since the Master Plan on developing SI up to 2010 and a vision towards 2020 was approved, there is still no action and guideline as well to accelarate this plan. The Vietnamese strategy on developing SI has been still on the table. The SI of Vietnam are underdeveloped and have not met the demand of manufacturing and assembling industries, especially demand of foreign investment enterprises.

A- Some theoretical issues relating to SI and international experience

I- Some theoretical issues relating to SI

The term “SI” appeared in Japan since the end of 1960s and began to be popular since 1980s. However, there is no official definition of SI by now for all the countries. In general, SI are considered industries which produce industrial products such as materials, fuels, spare parts, components, packing, labels or even intermediate products supporting for manufacturing a certain industrial products.

SI have four characteristics including: (i) SI development is a dispensable result of manufacturing specialization; (ii) SI are complicated and wide in terms of both linkages of industries and geography; (iii) SI contribute to creation of chain of value; and (iv) they are not auxiliary industries.

There are some factors affect SI including: (i) size of the downstream market; (ii) technology and technique progresses; (iii) financial resources; (iv) the real rate of protection; (v) the regional and international linkage relationships and impacts of transnational corporations; and (vi) the government policies on developing SI.

In terms of the roles of SI in economic development, firstly, SI play an important role in strengthening competitiveness of the main industrial products and speeding up the process of industrialization towards both broad and deep directions. Secondly, SI development is an important condition to ensure the initiative and raise added value of the downstream manufacturing sector. Thirdly, SI increase the ability of attracting FDI into industrial sector as well as stimulate the domestic small and medium-sized enterprises (SME) to develop. Fourthly, SI contribute to transfer of technology and application of technique progresses into manufacture. Fifthly, SI contribute to creation of jobs and income for labours. Sixthly, SI promote the impacts of “pervasive” effect in developing industrial system. Seventhly, SI development is one of important factors that creates competitive advantages for an industry and pushes up the export strategy.

II- Some international experience on developing SI

1. Experience on establishing clue organizations to support and develop SI: In order to form and develop linkages in domestic SI section, Thailand established the SI Assistance Commitee and a series of specialized agencies to support information, professional knowledge and training for SI.

2. Experience on fostering foreign investment into SI: Some ASEAN countries have been sucessful in implementing policies on attracting foreign investment into the targeted SI for example tax incentive policy, free trade area establishment for export direction, technology tranfer, etc.

3. Experience on setting rate of domestic: Taiwan, Korea and Thailand all have developed SI, accquire foreign technololy progresses and gain international competitiveness in automobile and electronic industries due to their regulations on rate of domestic.

4. Experience on fostering industrial linkages: By many measures such as issuing law on protecting and creating conditions for domestic SI enterprises to develop, issuing regulations on requiring manufacturing and assembling enterprises to use products of domestic SI enterprises, etc, Japan, Korea, Taiwan, Malaysia and Thailand have enhanced industrial linkages between large-sized enterprises and SME in SI section.

5. Experience on participating into global network: In order to participate into the regional and global manufacturing network, each countries should reach a high level of specialization of certain products. Taiwan, Malaysia and Thailand are examples.

6. Experience on developing SI basing on private enterprises

7. Experience on developing human resource for SI

Japan’s experience in these last two above aspects is worthy for every countries desiring developed SI.

B – Developing SI in Vietnam

I – Guideline of the Vietnamese goverment

By now, investors begin to focus on markets which have developed SI rather than good business environment and cheap labour costs only. Therefore, Vietnam has defined SI as one of the top priority in the the industrialization and modernization cause. Recently, a range of positive actions have been done by the government and levels of authority as well to develop SI.

First of all, to instruction to accelerate the Master Plan on developing SI up, the Ministry of Industry and Trade has been developing and collecting suggestions about the Draft Decree on developing SI. Moreover, the Government has been discussing to put SI into Vietnam-Japan Joint Initiative phase 2 and 3. Furthermore, the Supporting Industry Enterprise Development Center has been established in order to develop SI databases and link enterprises with each other.

II – Situation of Vietnamese SI

1. Situation

In terms of achievements, the first SI zone has begun to be built in Vietnam. In addition, in some industries such as automobile assembling, garment and textile, informatic and electronic equipments, etc, SI partly meet the demand of these industries with more and more improvement of design and quality of products.

However, in general, SI are still underdeveloped. Firstly, the number of SI enterprises is extremely limited. Furthermore, they are mainly state-owned enterprises which are passive in seeking clients and afraid of inovation. Secondly, quality of domestic SI enterprises is very low and unstable that hardly meets the demand of foreign investors. Thirdly, the rate of domestic of Vietnamese products is still very low. These certainly affect much the competitiveness of domestic induatrial enterprises as well as attraction of FDI into Vietnam.

2. Reasons

There are some reasons for the underdevelopment of SI in Vietnam. First, the linkages among enterprises are weak and insufficient. Second, there is a lack of high quality industrial human resource especially in SI section. Third, SI enterprises are short of capital and technology. Fourth, it is the difficulties relating to size of demand. Fifth, it is the shortage of information between Vietnamese manufacturers and foreign investors. Sixth, the business environment and policies are unstable. Seventh, Vietnam lacks tax incentive measures.

3. Some recommendations

3.1. To the government

First of all, the government should define a legal definition for SI. Then, it should have a strategy on increasing awareness of SI, a reasonable guideline for developing SI and stimulus policies for developing SI enterprises as well. Furthermore, it is important to create a really equal business environment and attract participation of all economic sectors into SI section. The government should also complete the policies on domestic, investment, export incentive relating to SI. In addition, it is neccessary to complete policies on training cadres and human resource for SI, especially, training of middle-ranking and high-ranking engineers and middle-ranking managers. Finally, the government should improve the quality control system and disseminate information for enterprises by designing and managing SI databases.

3.2. To the enterprises

First, enterprises should raise awareness of the role and position of SI. Secondly, they should be active in choosing products and seeking for markets. Thirdly, it is important for them to be active in creating linkages with other enterprises including: (i) increasing to form a joint-venture or associate with foreign investors; (ii) forming a win – win relationship; (iii) establishing a real enterprise association. Forthly, training and improving quality of human resource is always necessary.

Source: VNEP, September - 2009