VietNamNet Bride – The underdevelopment of supporting industries in Vietnam has been cited as the reason why foreign investors develop their multi-million dollar projects in other regional countries, instead of Vietnam.
Vietnam “short of breath” in the race with neighbors
Japanese Ambassador, Mitsuo Sakaba, said he was shocked when hearing that the percentage of parts and accessories provided by Vietnamese enterprises to Japanese manufacturers is so low, and that the manufacturers have to import 70-80 percent of components needed.
“The underdeveloped supporting industries have hindered Japanese investors from coming to Vietnam,” the ambassador concluded.
Not only Japanese, but the investors from other countries and territories also feel hesitant when considering investment plans in Vietnam. A lot of investors have left Vietnam for neighboring countries after they came to learn about the investment environment in Vietnam.
In late 2010, the US Ford Motor decided to spend 450 million dollars to build a modern automobile factory in Thailand. Michael Pease, which was then the General Director of Ford Vietnam, said that Ford chose Thailand instead of Vietnam because Thailand has a lot of car part suppliers, while the Thai investment promotion agency always creates the most favorable conditions for foreign investors. Besides, Ford believes that the products to be made out in Thailand will be exported to the regional countries in the future.
More than 10 years ago, Thailand, Vietnam and India all were chosen by Ford Motors as the new destinations for its investment plans in Asia. In Vietnam, an automobile joint venture with the total investment capital of 102 million dollars was set up, in which Ford Motor holds 75 percent of stakes.
After the first 15 years of operation, the manufacturer has decided to pour 10 million dollars more. It is also considering further investments in Vietnam in the next years, but only with modest investment plans capitalized at several millions of dollars.
Meanwhile, the same manufacturer plans to set up three automobile factories in Thailand which will have the total investment capital of over one billion dollars. Also, Ford Motors also plans to spend 800 million dollars a year to purchase the car parts and accessories to be made in Thailand, for the new factory.
Despite the political uncertainties, Thailand still can attract a lot of automobile manufacturers and it is now called the “Asia’s Detroit”. Not only Ford Motors, Mitsubishi Motors has also decided to pour 450 million dollars to its third factory in Japan, which will manufacture environment friendly vehicles. Suzuki Motor has also invested 225 million dollars in Thailand in a plan to make small size and environment friendly products.
Manufacturers look forward to new policies
Experts have pointed out that Vietnam will not successfully persuade foreign manufacturers to Vietnam if its supporting industries remain too weak.
Meanwhile, supporting industries of a country will be able to develop when the domestic companies can upgrade their technologies and corporate governance skills to provide competitive industrial products, and when the government has reasonable policies to encourage the development of supporting industries.
Foreign investors will not highly valuate the investment environment in Vietnam until they can see the moves by the government, to set up long term strategies to develop supporting industries.
Chair of the Vietnam Chamber of Commerce and Industry VCCI, Vu Tien Loc, has warned at a recent workshop that a series of foreign invested enterprises may leave Vietnam. The enterprises have said that if they cannot access the on-spot supply sources, they will have to move to the places where there are better supporting industries.
Sources have also told VietNamNet that if the localization ratio (the percentage of locally made content in products) cannot reach 60 percent by 2018, a lot of automobile manufacturers would leave Vietnam.
Vietnam believes that multi-national groups do not want to increase the localization ratios in Vietnam because they want to use the car parts from their countries, and that the investors come to Vietnam just to take full advantage of the tax incentives, cheap labor force.
However, foreign investors argue that they really want Vietnam to have developed supporting industries, because it would be more profitable to use input materials right in Vietnam than using the imports.