International corporations are getting more engaged in promoting local sourcing in Vietnam by investing in and sharing expertise with domestic suppliers, thus bringing hopes for the country to further access the global supply chain.
For example, the high-tech manufacturing base of the US’ GE in the northern port city of Haiphong is planning to increase the localisation rate to 20 per cent, thus bringing in more opportunities for Vietnamese suppliers.A number of leading multinational corporations (MNCs) in the automotive, electronics, energy, and household appliance sectors are paying more attention to the acceleration of the linkage process by helping local companies become their suppliers, while enabling existing suppliers to expand their business and share of added value. Such major names include Samsung, Bosch, Canon, Ford, GE, Panasonic, and Toyota.
Similarly, Panasonic Vietnam is also among the Japanese enterprises who previously found it hard to choose Vietnamese businesses as suppliers. The firm is trying to improve the situation.
“We are happy to work with local companies which could compete with suppliers from other countries,” said Masahiro Yamamoto, corporate planning director of Panasonic Vietnam. “We expect this programme to help us get business with some potentially long-term partners and promote our local sourcing,” he said.
Panasonic Vietnam and GE Vietnam are among eight MNCs joining the Pilot Supplier Development Programme supported by the International Finance Corporation, a member of the World Bank Group, to support 45 domestic suppliers throughout the value chain in targeted sectors. Through the programme, the MNCs support domestic suppliers in sharing expertise and technology transfer.
In addition, other MNCs like Samsung, which makes up nearly a quarter of Vietnam’s total exports, has announced requirements of around 500 vendors by next year, including 50 Vietnamese Tier-1 vendors.
In the aviation sector, recent investments by the US’ Universal Alloy Corporation Asia Pte., Ltd., South Korea’s Hanwha, Japan’s Mitsubishi Heavy Industries, and other foreign-invested enterprises (FIEs) have reinforced the hope of domestic suppliers to engage in the global supply chain. By boosting high-quality manpower and technology transfer, these MNCs are contributing to helping Vietnam’s aviation sector reach out to the globe.
As further programmes are carried out and more MNCs engage in improving the capacity of supporting industries, more domestic Vietnamese suppliers will benefit, thus helping place the country higher up the global supply chain. The moves will serve long-term future development plans in the country and to align with the new foreign direct investment (FDI) attraction strategy by 2030, which directs the country’s investment incentives towards focusing on the global supply chain, added value, high-tech transfer, research and development, and innovation to ensure sustainable growth.
According to statistics from the Ministry of Planning and Investment, the manufacturing sector retains the most attention among foreign investors in Vietnam. In 2018, the total newly-registered FDI capital in this sector reached $9.06 billion, making up 50.5 per cent of the country’s total newly-pledged FDI.
Vietnam now has 1,800 supporting industry businesses, however, only 300 has managed to join the supply chains of MNCs, according to the Ministry of Industry and Trade. Awakening to the growing demand amidst the enforcement of landmark free trade agreements, domestic Vietnamese suppliers are transforming themselves to improve supply capabilities to meet the requirements of MNCs including quality, price, and delivery, among others. Subsequently, they can be linked to MNCs for future supply opportunities.
To develop supporting industries, with a focus on electronics, automobiles, textiles and garments, footwear, and energy, Vietnam is expected to develop three supporting industry development centres across the country.
Furthermore, Vietnam is also implementing policies to develop supporting industries such as Decree No.111/2015/ND-CP issued in November 2015 stipulating general incentive policies for enterprises operating in supporting industries, or the Law on Support for Small- and Medium-sized Enterprises.
With such moves, by 2020, Vietnam aims to raise the localisation rate to 45 per cent and have around 1,000 domestic enterprises as qualified suppliers for MNCs in the country. The rate is expected to rise to as much as 70 per cent, with 2,000 qualified domestic suppliers.
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