(Vtown) - With remarkable development of some industries such as automotive, motorbike assembling, textile and mechanics..., there is a need for supporting industry

 Definition:

Supporting industry is the industry that focuses on manufacturing spare parts, components and semi-finished products to supply to other enterprises that are in charge of manufacturing, processing and assembling finished products which are industrial materials or consumption goods.


In the era of modernization and industrialization, supporting industry has become a critical factor that makes contributions to the sustainable development of enterprises, which is a huge opportunity for manufacturers to approach innovative technology and know how in the manufacturing process. Developing supporting industry has also allowed enterprises unnecessarily take part in the entire manufacturing process but still manage to manufacture high quality products and attract foreign investment. Particularly, according to survey conducted by Reed Tradex Thailand, Vietnam’s supporting industry has significant development and plays an important role in supply chain as well as global value one. A great number of foreign companies and corporations have established their production and assembling bases in Vietnam, which showed their expectation on risk and cost reduction. This is a great motivation for local suppliers to accelerate their manufacturing.


Supporting industry in Vietnam’s snapshot:


Currently, there is some industries have particular strengths in Vietnam, for example, textile, footwear, automotive and motorbike assembling… but mostly, it is yet to have supporting industry, thus having to depend on imported materials, which makes passive manufacturing process with high cost.


In the past few years, the government set favorable policies for supporting enterprises, however, they were not clear enough. 70% foreign owned enterprises took favorable benefit, the rest went to domestic ones.
In the inflationary situation, Vietnam’s labour cost was higher than before, which was once our competitive advantage. Besides that, based on experience accumulated for many years in industries, it was witnessed that engineers trained in Vietnamese technical institutes did not meet with standards set by recruiters. Up to now, there have been approximately 500 enterprises which supplied products to automotive, motorcycles and electronics. Mostly, industrial materials for manufacturing had to be imported.


As a matter of fact, domestic supporting material supply rates for major sector were respectively 20-30% (automotive) and above 10% (footwear and textile)…, which led to the low growth rate and enterprises’ competitiveness…


The whole country’s supporting materials only concentrated on foreign owned enterprises, and domestic ones did not meet with quality criteria for export orders. The number of Vietnamese enterprises involved in supporting industry is limited. Enterprises that supplied components and sell products now came from Japan and Korea, followed by Taiwan and the bottom position in the list belonged to Vietnam.


There was still a big gap in term of quality between domestic and international suppliers.


According to general statistics of Vietnam Association of Mechanical Industry (VAMI), the whole country currently has had 3.100 mechanical enterprises in total 53,000 mechanical manufacturing bases among which, there were almost 450 state owned enterprises, 1,250 public bases and 156 private ones. Around 50% production workshops were major in assembling and manufacturing products, the rest were repairing bases. Total capital of state own mechanical enterprises was about 360-380 million USD, one of foreign direct investment in mechanical industry was approximately 2.1 billion USD, 50% of which went to automotive, motorbike and other consumption products assembling industries.


Mechanical fabrication support industry



Domestic mechanical fabrication technique in general still remained out of date, simple and was left behind by many countries in the same zones. Mostly, equipment, after many years being used, became outdated in term of functionality and technology and lacked precision, substitute, maintenance and capital for renewing and upgrading. It could be easily seen that mechanical fabrication in Vietnam has not fostered enough experience and know how in forming, pressing and heat and quality treatment, which negatively affected quality of completed products. As for metal processing, old equipment and machines, together with classic techniques and low automated process, have been still applied.  


Automotive supporting industry



Automotive assembling and manufacturing industry was highly expected with many favorable policies for developing, however, up to now, the domestication rate was still low, which was about 10% for middle cars. As market size was limited, spare part manufacturer did not participate in supply chain.


Motorcycle supporting industry



Vietnam is the country that has high number of motorcycle drivers. In other word, motorcycle accounted for 90% of total means of transportation. It was forecasted that in 2015, the number of motorcycles used in Vietnam would reach 31 million and the number would be up to 33 million in 2020. Therefore, there were multiple, almost 60 enterprises from Japan, Italia and Taiwan that took part in motorcycle assembling and manufacturing industry. According to Ministry of Trade and Industry, till the end of 2012, total capacity of motorcycles in Vietnam would reach 5 million/ year.
From 100% importing from foreign countries, supporting industry for motorbike manufacturing and assembling in Vietnam was able to manufacture 70% spare parts and components on their own, contributing to increasing the domestication rate of motorcycles manufactured in Vietnam. However, it still faced with unstable price and quality and high cost.


Footwear supporting industry



Currently, there were almost 100% footwear manufacturing and processing enterprises. It was hard for supporting industry in this field to develop, because it was up to customers’ dominance. With the competitive advantages including size and low cost and typical feature of the industry, in the past few years, footwear brought high export value for the country, taking the third position after oil and textile. Recently, the government has issued some policies focusing on domestic supporting industries.


Textile supporting industry



In textile field, not only spare parts and components of machines as well as textile materials and accessories had to be imported but also chemicals used in the related context must be purchased from overseas. Vietnam has only had some production bases for textile accessories such as spreads, pads, zippers, buttons, packages, and labels… which met with a small part of domestic demands.


Domestic materials had to face with much pressure from competitors, especially China since they had traditional manufacturing, big sizes, diversified models and low prices. Besides that, Vietnam seriously lacked qualified labour force to be in charge of processes that require much skills such as dying and weaving…


Potential of Vietnam’s supporting industry 


According to numerous specialists, Vietnam had much potential to develop its supporting industries, especially those that had much export potential as well as secured position when people’s living standard was high, for example, oil and exporting processed agro, sea economy, automotive and IT…


And to develop supporting industry, it is a long process that needs to emphasize on those 4 critical factors including human resources, technology, finance and distribution systems.


Cre: HPtrade and Hanoi trade promotion center

By Mỹ Anh on May 22, 2014 4:46:26 PM

By Mỹ Anh on May 22, 2014 4:46:26 PMinke