Supporting Industry Vietnam
After 20 years of Doi Moi, Vietnam’s industry has had strong stages of development and it has contributed in a large part to the rapid speed of economic growth. It is widely recognized that the manufacturing industry will play an important role in the success of Vietnam’s industrialization by 2020. Meanwhile, the integration pressure on industrial products will get higher when all free trade commitments are fully implemented by 2018.As the Decision 12/2011-TTg, Supporting industries (SI) are those producing materials, parts and components, accessories and semi-products to supply to manufacturing/assembling industries producing final goods as means of production or consumer goods. Supporting industries are focused on suppliers of parts and components to manufacturing industries, namely mechanical engineering, automobiles, motorbikes, and electronics.
In the motorbike sector, Vietnam’s demand in 2011 reached 4 million units, becoming the second largest motorbike producer in ASEAN, next to Indonesia. Having such large market volume, Vietnam currently becomes the fifth largest motorbike assembler in the world, with local procurement rate of 70-90%, and motorbike makers are expanding their production for exportation to other countries in the region, Africa, and Latin America.
Figure 1: Output of Motorbike and Automobile Industry (x 1000 pieces)
Source: GSO 2013
It seems to be positive in terms of local enterprises when two large companies of Truong Hai Auto and Vinaxuki have relatively high rate of localization. Up to now, Truong Hai Auto (Thaco) is the only enterprise in Vietnam that produces and assembles all kinds of truck, passenger car and four-seater at a localization rate of 46%. As our survey in 2011, with 75% parts and components imported, the localization rate of auto industry is 25%, of which 17% are produced in-house and 8% are outsourced in Vietnam.
Figure 2: Parts and components procurement of surveyed auto enterprises in 2011.
Source: SIDEC 2012
According to Ministry of Industry and Trade’s forecast, Vietnam’s demand in 2020 will reach 300,000 units. However, regional free trade commitments will be fully implemented by 2018 and unstable automobile policy are obstacles of Vietnam’s automobile industry. Localization rate is only about 10 to 30%, which does not reach the required rate to enjoy preferential rules of origin, which is 45%. Until 2018, if Vietnam cannot build up an appropriate roadmap for automobile industry, the country will not be able to compete with others in the region, and as a result, turning out to be their potential market.
Vietnam’s electronic industry has developed drastically in past few years, attracting investment from large firms such as Samsung, Intel, Cannon, Fujitsu,etc. Through investment with large volume of capital, these firms mainly aim to utilize land and labor force in Vietnam. Their local procurements are simple parts with low value added, such as carton box, sponge, manual book, plastic cover of TV and PC, etc. thus localization rate is low. Export revenue of Vietnam electronics in 2011 reached 4.1 billion USD, mostly contributed by FDI firms, local firms accounted for only 3%.
Figure 3: Output of main electronics products (mill pieces).
Source: GSO 2013
Vietnam’s SI supporting industries in general has been developing. The motorcycle industry has attracted the giant investors from Japan, Taiwan, Italy and SI for motorcycle industry is considered as the most successful in Vietnam where the localization reaches more than 90%.
Table 1:Localization rate (%) in Honda motorbike production;
|Engine Assy (Scooter Model)||15||2||83|
|Frame body Assy||5||11||84|
|Plastic & rubber parts||2||3||95|
|Electric & electronic parts||4||0||96|
Source: Honda Vietnam 2012
In automobile, among localized parts and components, in-house production, with production processes of painting, welding, stamping and assembly, is overwhelming. Toyota Vietnam’s outsourcing rate reaches the highest rate of 10% for each model. Being a foreign company making the most effort in localization, the company actively promotes in-house production and local procurement to develop its own supply chain in Vietnam. Currently, there are 253 components being produced locally for different models with the localization rate by ASEAN standards is 17-37%. The Japanese first tier suppliers invest successfully in Vietnam, such as Denso, Toyota Boshoku, and Harada.
Figure 4: Localization by models.
Source: Toyota Vietnam 2012
Regarding capability of SI-firms, several surveys were conducted by local and international organizations to grasp situation of supporting industries in Vietnam. According to these surveys, Vietnam’s SI in general has been developing, but mainly are occupied by foreign enterprises. Local enterprises also can Join in supply chains, but mostly in second or third tiers. For instances, in motorbike sector, though localization rate reached over 90%, most of firms in the first tier of motorbike supply chains are Japanese and Taiwanese firms. In addition, raw materials for making parts and components are imported, thus competitiveness of Vietnam’s supporting industries in terms of cost and delivery efficiency is relatively low.
Figure 5: Import situation of manufacturing enterprises.
Source: SIDEC 2012