FDI enterprises will provide Vietnam with leverage to engage in a substantial portion of the global value chain.

DNHN - On December 5, the speakers at the conference "Linking Vietnamese Businesses and FDI Enterprises to Participate Deeply in the Global Value Chain" shared this sentiment.

In contemporary times, alongside the accomplishments of foreign investment, which include fostering economic expansion, restructuring the economy, generating employment opportunities, and deepening global integration, foreign investment continues to face numerous obstacles, one of which is facilitating the diffusion of FDI enterprises among domestic ones and establishing connections between domestic and FDI enterprises to enhance participation in the global value chain.

The sector of foreign direct investment propels Vietnam's exports.

Dr. Nguyen Quoc Viet, Deputy Director of the Institute for Economic Research and Policy (VERP), stated at the Workshop "Linking Vietnamese businesses and FDI enterprises to deeply participate in the global value chain") that the business sector with foreign direct investment and the presence of numerous multinational corporations have helped elevate Vietnam to a new level by enhancing the production capacity of domestic enterprises and facilitating their entry into the global production chain.

Not only does the emergence of FDI enterprises serve as a vital link, but it also provides Vietnam with leverage to engage in a substantial portion of the global value chain. This has been demonstrated when the FDI sector consistently contributes a growing percentage to Vietnam's total export turnover, thereby serving as the primary driver of exports. FDI enterprise exports comprise over 70% of the total export value of the country, and the trade balance of FDI enterprise goods is significantly positive. During the period spanning from 2011 to 2020, high-tech product exports accounted for approximately 35.9% of Vietnam's total export value. From 2015 to 2019, only four ASEAN nations—Philippines, Singapore, Malaysia, and Vietnam—maintained an average high-tech export content surpassing 30%. This indicates that Vietnam is progressively closing the high-tech export proportional gap with neighbouring nations. In addition, there has been a substantial increase in the proportion of processed export goods to the total export value of Vietnam. Since 2016, this percentage has risen from 65% to 85% to 86.2% in 2021. This development further illustrates the positive trend in Vietnam's export framework, which is a transformation towards increased value. increase in magnitude.

Technology transfer and the attraction of FDI into the high-tech sector have produced numerous positive outcomes. Prominent multinational technology companies, including Intel, Samsung, LG, Honda, and Toyota, have made substantial investments in technology manufacturing in Vietnam. These corporations have established factories in the country to facilitate the assembly and production of various high-tech products and industrial sectors. The PCI 2022 report indicates that FDI enterprises are increasingly relocating to sectors characterised by advanced technological content. Almost half of the surveyed FDI enterprises are engaged in industrial/manufacturing activities (49.5%), followed by 39% in the service/commercial sector and 7% in the construction industry.

Mr Simon Kreye, Deputy Embassy of the Federal Republic of Germany in Vietnam, stated at the Conference: "At this time, approximately 500 German companies conduct business in Vietnam regularly or in conjunction with other businesses. Vietnam [country]. Germany, with an approximate 2.4 billion euro total investment value, is one of the largest investors in Vietnam and the foremost trading partner of Vietnam among EU nations. The implementation of approximately 450 FDI projects has generated approximately 50,000 jobs for the Vietnamese people. Facilitating the engagement of Vietnamese enterprises in the worldwide value chain by fortifying connections Cooperating with foreign direct investment (FDI) enterprises is a significant objective of Germany, given our involvement in the endeavour to mitigate economic risks and increase investment diversification in Vietnam.

Mr. Bradley Lalonde, Chairman of the American Business Association in Vietnam, spoke on behalf of the American business community in Vietnam: "I am convinced that bilateral relations between the United States and Vietnam have entered a new era, and things continue to improve. The opportunity has become apparent to us as the trend has departed from China. Amcham companies have also acknowledged this fact and strengthened their ties with the two nations, which has generated prospects for the reallocation of capital investments to Vietnam. Much like the period following Vietnam's accession to the WTO, foreign investment in Vietnam increased substantially during that time. and observed the expansion of bilateral investment between the United States and Vietnam, as well as the growth of Vietnamese exports to the United States. At this time, I believe a second surge in momentum will occur, particularly among Vietnamese companies. There will be prospects for increased entry into the United States market. Undoubtedly, the improvement of relations will generate favourable and beneficial outcomes. Given the current era of startups and the digital economy, the aspect regarding which I am most sanguine is the likelihood of a proliferation of enterprises. Furthermore, it is my conviction that American businesses alongside small and medium-sized enterprises will increase their involvement in the supply chain and supporting industry.

The economy has not been able to climb the value ladder despite the influx of FDI capital.

As per the report titled "Linking the Value Chain of Vietnamese Enterprises to the Global Value Chain" which was presented at the conference, technology transfer between foreign direct investment (FDI) enterprises and domestic enterprises remains inadequate, despite Vietnam's significant influx of FDI. The majority of FDI enterprises in Vietnam are wholly owned by foreign entities and prioritise capitalising on labour, tax incentives, and factory expenses rather than establishing supply chains. A significant portion of technology transfer implementation in Vietnam is attributable to the number of FDI enterprises, and the majority of technology transfer contracts are awarded by foreign parent companies to their subsidiaries in Vietnam. The proportion of Vietnamese businesses that sign technology transfer agreements with foreign partners in a direct capacity is negligible. Certain sectors in Vietnam continue to employ obsolete technology, with only a handful of industries, including footwear and leather, having attained a greater proportion of advanced technology. Vietnam is positioned at a low level in terms of technology and innovation (90/100), with innovation capacity (77/100), platform technology (92/100), and foreign direct investment (FDI) and technology transfer (73/100) (World Economic Forum, 2019).

Hence, the value proportion of Vietnam's medium and high-end technology products represents a mere 30% of the overall export value, in contrast to 80% for other nations in the region and 50% for a country as low as the Philippines. This demonstrates that Vietnam must increase its technological transfer and industrialization efforts.

A representative of the research team, Dr Nguyen Quoc Viet, stated that while Vietnam's trade map has been reshaped by the influx of FDI capital, the country has not been able to climb the economic value ladder. The value added by Vietnam's imports of inputs for processing and assembly is minimal, and there is limited diffusion of technology.

The level 1 industry group, which comprises the majority of Vietnam's value-added exports, not only signifies the country's status as a global leader in exporting rice, coffee, cashew nuts, pepper, and aquatic products but also underscores the critical economic contribution of agriculture to the nation.

In 2017, the tertiary sector, which comprises the service industry group, contributed 34% of Vietnam's total value-added exports, which is the second largest share.

In contrast, the processing and manufacturing industry group (secondary industry) makes a relatively insignificant contribution to exports, comprising a mere 25% in 2017. This is even though this industry group comprises the largest portion of the country's export basket. Vietnam [country].

"The disparity between the manufacturing industry group's contribution to total exports and total value-added exports reflects the labour-intensive nature of Vietnam's exports." Mr Viet stated, "The industry functions with little added value, and domestic supporting sectors are unable to provide export-oriented FDI manufacturers with supplies."

In light of the challenge posed by the global minimum tax policy, Dr Nguyen Quoc Viet posits that a modification to the preferential tax framework will have an immediate impact on Vietnam's ability to attract foreign direct investment. It is imperative for nations, Vietnam included, to cease their pursuit of lower tax rates and tax incentives in comparison to neighbouring countries.

Furthermore, the endeavours to attract high-quality foreign direct investment (FDI) inflows, particularly in the domains of sustainable energy, value-added services, and advanced technology, with a focus on the digital and green economies, will encounter numerous obstacles.

Mr. Simon Kreye continued: "To strengthen the connection between FDI and Vietnamese businesses, the Vietnamese government has many policies to support the participation of small and medium-sized enterprises in industries. and value chain, however, it seems that Vietnamese companies are only participating in the low rungs of the global value chain and are not yet fully connected with FDI enterprises."

There are four categories of solutions aimed at fostering connections between Vietnamese and FDI enterprises.

To facilitate greater participation of Vietnamese enterprises in the global value chain, leverage technological spillover effects, and foster a stronger connection between Vietnamese enterprises and FDI enterprises, the research team has put forth four solution groups:

To begin with, the establishment of regional connections is emerging as an essential strategy to foster the growth of industrial clusters and create fresh prospects for the economic advancement of Vietnam. establishing (i) a solid legal framework as a fundamental component to bolster the process of regional integration; (ii) the imperative to encourage engagement in worldwide production networks and value chains through fortifying interconnections among industries, domestic regions, and different regions; and (iii) the promotion of integration. Cooperation among regional members; (iii) The government should encourage the growth of production zones, industrial parks, and economic zones to enhance proactivity in the provision of raw materials, establish a closed chain of links to ensure compliance with rules of origin, and facilitate the circulation of goods; and (iv) connect and diversify output markets.

Furthermore, it is imperative to facilitate the dissemination of cutting-edge technology. From the government's perspective, this entails finalising legal instruments for the transfer and investment in environmentally sustainable, environmentally advanced technologies. solid in nature. Establish industrial technical centres in economically significant regions and areas with potential for industrial growth. Promote the formation of an internal R&D centre or the establishment of an R&D department within FDI enterprises.

Vietnamese businesses should adopt a more proactive approach in their pursuit of technology transfer opportunities from foreign direct investment (FDI) enterprises. This can be achieved through participation in research projects that involve coordinating efforts with domestic agencies, universities, research institutes, and scientists to organise field surveys, signing agreements to acquire copyrights, inventions, or franchise rights, and learning from the experience of FDI enterprises in the ap superior human capital to efficiently assimilate technology that is transferred from international collaborators.

Third, "order diplomacy" policies that facilitate connections between domestic and foreign businesses and promote export expansion: The global economy is currently encountering numerous challenges as a result of the geopolitical conflict between Russia and Ukraine, as well as the recession that has affected key economies including the European Union, the United States, and China. To alleviate obstacles for enterprises, Government Information from embassies, trade agreements, and focal points for trade promotion and investment abroad in Vietnam should be utilised by the government to increase orders and facilitate connections between domestic and international businesses.

Fourth, encourage the growth of industries that provide support to the global value chain: It is imperative to concentrate on refining policies about the advancement of supporting industries, commonly by modifying and adjusting barriers outlined in Decree No. 111/2015/ND-CP, which oversees such development. Particularly regarding regulations concerning the extent to which industries are supported, the criteria for identifying preferential subjects must be clarified further. Furthermore, it is imperative to reconsider and revise the inventory of priority-supporting industry products to align with the pragmatic development requirements of the nation.

Mr. Nguyen Van Toan, vice chairman of the Association of Foreign Invested Enterprises (VAFIE), told reporters of Business and Integration Magazine: "Peaceful and deep international integration and political stability are the two factors that contribute most to Vietnam's appeal. Vietnam is also highly developed and endowed with an abundance of human resources; foreign investors have determined that, after six months to a year of employment, the qualifications of Vietnamese workers are comparable to those of workers in developed nations. Additionally, it is crucial to note that Vietnam still possesses considerable untapped potential for progress. Vietnam experienced a significant influx of registered capital in 2008. However, this influx subsequently declined gradually due to our inability to meet the demands of foreign investors at that time, thereby squandering the opportunity. Therefore, Vietnam has a tremendous opportunity at this time to attract foreign investment. Furthermore, Vietnam is presently witnessing commendable progress in the realm of information technology and digital transformation. The aforementioned factors have collectively contributed to Vietnam's appeal to international investors.

Bao Bao