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In need of support

Released at: 11:06, 24/03/2014

In need of support

FIEs can make an even greater contribution to Vietnam's export industry in the future if their reliance on material imports can be better managed. Do Huong reports.

by Do Huong

    Within easy reach of Hanoi, Bac Ninh province recorded significant economic achievements in 2013, partly from exports. Lacking natural resources and being the smallest province in the country with little in the way of advantages, it has nonetheless recorded the highest growth rate in the whole country for many years, thanks to successfully attracting foreign enterprises in the high-tech field such as Samsung, Canon and Nokia.

    Samsung’s factory at the Yen Phong Industrial Park helped the province earn high export revenue, contributing $23 billion and accounting for the majority of the country’s export value in the industry last year. In 2012 it contributed $12.64 billion to provincial revenue from 100 million products. Nokia, having invested $300 million in building a factory at the Vietnam-Singapore Industrial Park (VSIP), plans to produce 45 million units a month and 180 million by 2018, mainly for export. Two of three factories belonging to Canon are located in Tien Son and Que Vo districts in the province, earning $1.6 billion in revenue from exports in 2012. Large foreign companies like Sumitomo and Foxconn are also in Bac Ninh. Accounting for 91.5 per cent of the province’s manufacturing value in the processing industry, foreign-invested enterprises (FIEs) have contributed a great deal not only to its export revenue but also its socio-economic development. 2013 saw the province join the club of cities and provinces in the country earning more than VND100,000 billion ($4.76 billion) in export turnover.

    With $23 billion, Bac Ninh was the second largest province in terms of export turnover in 2013, behind Ho Chi Minh City. Ba Ria Vung Tau province, meanwhile, saw growth in exports from FIEs, which accounted for 78 per cent of its total turnover. Processing and manufacturing industries, in particular high-tech industries, have been directed to account for the majority of export items in the foreign direct investment (FDI) sector, according to the Provincial Department of Planning and Investment, and this has seen many raise their production capacity. This also reflected clearly in FIEs’ export revenues from processing and manufacturing industries in Vietnam in recent years, which accounted for 75 per cent of total export turnover, worth $70.8 billion. Some products experienced even higher rates, such as phones and spare parts (99.1 per cent worth $21.3 billion), computers, electronics and components (98.2 per cent, worth $10.5 billion), cameras and accessories (98.7 per cent, worth $1.63 billion), and equipment, tools and spare parts (90.1 per cent, worth $5.45 million).

    Analysts agree that FIEs are major contributors to economic growth, with their exports rising from 56 per cent of the total in 2012 to 61.2 per cent in 2013. The FDI sector, excluding crude oil, contributed $80.91 billion, up 26.3 per cent, while its import turnover was $74.23 billion, up 23.8 per cent. Export turnover of $6.68 billion from FIEs greatly assisted the country in recording a trade surplus of $863 million in 2013. The results of FIEs in 2013 was the highest during the 2008-2013 period, with previous surpluses being $6.6 billion, $4.3 billion, $2.1 billion, $6.2 billion and $12.3 billion. “This is the second consecutive year Vietnam has recorded a trade surplus after many years in deficit, and the FDI sector has been a major player in the turnaround,” said local economist Vu Dinh Anh. “Exports by the FDI sector have been a highlight of Vietnam’s total exports.”

    As FIEs have major capacity in exports, the sector has taken the lead not only in the growth of technology exports but also in key export items that were formerly strengths of domestic enterprises. The main commodities exported by FIEs were footwear ($4.6 billion out of a total of $6 billion), textiles and garments ($7.8 billion out of $13 billion), coffee ($670 million out of $2.2 billion), seafood ($400 million out of $4.6 billion), pepper ($251 million out of $748 million), and vegetables ($78 million out of $787 million). Compared with domestic enterprises operating in exports and imports, FIEs have much greater efficiency. Local economist Le Dang Doanh said that capital, technology and human resources management were FIEs’ advantages when doing business in exports and imports in Vietnam. They are also present in the global value chain, which helps them stabilise consumption markets. “FIEs have also utilised opportunities better than local enterprises during Vietnam’s integration process,” he said. Figures from the Ministry of Industry and Trade show that the average growth rate of FIEs in exports is 31.1 - 33 per cent each year, while the rate for domestic enterprises has been less than 10 per cent over the last three years.

    According to Mr Anh, though, many FIEs received a great many preferences from the government and provincial authorities compared with domestic enterprises. “We offered FIEs many preferences when we started to focus on attracting FDI in 1988, but we must now consider attracting capital based on the benefits it brings to the economy,” he said.

    Samsung Electronics Vietnam (SEV) brought in $23 billion in export revenue to Bac Ninh province while importing $21 billion worth of materials. Mr Doanh said that the added value the company earned is low because most of its materials must be imported. “Generally, the added value contributed by the FDI sector is 10 - 20 per cent, mainly in the assembly and processing industry,” he said. Professor Nguyen Mai, former Deputy Minister of Planning and Investment, said that Vietnam should pay greater attention to how much added value the FDI sector creates for the country’s export industry. “But it’s difficult to blame them for this because support industries providing components and materials to foreign manufacturers are in short supply,” he said.

    Forty-eight of the 68 material suppliers to Samsung are from South Korea. According to a representative from SEV, the company continually produces new products that require new components domestic producers cannot produce. For example, semiconductors and LCD screens for mobile phones account for half of a phone’s value and both must be imported. “Companies would prefer to source local components to cut costs, but they simply can’t rely on local support industries,” he said. “Investing in a semiconductor manufacturing factory requires hundreds of millions of dollars, and making such investment to only supply Samsung isn’t feasible.”

    Canon’s factories must also import electronic components for its production in Vietnam, though its localisation rate stands at 65 per cent and will reach 70 per cent this year. Importing inputs drives up the cost of production, it said, making it less competitive than in other countries and not adding value to either domestic or foreign enterprises. Meanwhile, labour costs, material costs and management costs also are increasing in Vietnam. “This could lead to producers in Vietnam being unable to compete with those in other countries,” said Mr Katsuyoshi Soma, General Director of Canon Vietnam. “The government needs promote support industries to develop further, which will help companies contribute more to the country’s exports and the economy as a whole.”

    Bac Ninh province has seen major achievements in social and economic terms thanks to the development of industrial projects in recent years. But local authorities target improvements in the capacity of domestic enterprises so that “they can participate in Samsung’s chain of production towards establishing an added value chain in the company’s major projects, as well as those of Canon and Nokia,” said Mr Ngo Sy Bich, Head of the Management Board at Bac Ninh Industrial Park. This is necessary throughout the country, not just in Bac Ninh. “Vietnamese enterprises shouldn’t worry about competition from FIEs, they should look at them as being an example to follow in human resources management and technology,” said Mr Van Duc Muoi from the Vissan Co. Ltd. “That would create added value from both domestic and foreign-invested enterprises in Vietnam.”

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