What chances exist for enterprises to participate in the global supply chain?

DNHN - The rapid increase in FDI inflows into Vietnam is generating chances for indigenous firms to strengthen their position and engage more extensively in the global supply chain.

According to industry analysts, the signing of 15 FTAs has helped the promotion of stronger, higher-quality foreign capital flows into Vietnam, as well as the introduction of superior technology from major developed nations such as Japan, the United States, and Europe. Significantly, breakthrough innovations in the sectors of electronics, vehicles, and aircraft have appeared.

According to the Foreign Investment Agency (Ministry of Planning and Investment), the processing and manufacturing industry continues to lead the way with over 10.7 billion USD invested capital (accounting for 63.9% of total registered investment capital) in the first eight months of 2022. In terms of the number of new projects, the manufacturing and processing industry is one of the top two industries.

It is possible to mention a Japanese investment project to produce solar battery equipment; Boeing (USA) held an aerospace conference in Vietnam to look for suppliers to create an ecosystem in Vietnam; Samsung committed to investing 3.3 billion USD in the field of the highest technology in semiconductor chips... FDI projects are evaluated for their ability to generate spillover value.

Ms Tran Thi Thu Trang, Director of Hanel Import-Export and Outsourcing Manufacturing Joint Stock Company, believes that FDI projects help domestic processing and manufacturing firms engage in the global supply chain. Domestic firms have various benefits, such as cheap labour costs, political stability, investor-friendly legislation, and enhanced infrastructure, which are required by FDI enterprises to boost competitiveness.

The opportunity exists, but whether or not it is seized relies on the capabilities of the firm, according to experts. According to Ms Tran Thi Thu Trang, multinational firms evaluate Vietnamese enterprises' participation in the supply chain based on aspects such as sustainable growth, vision, strategy, and corporate culture. Furthermore, there are other aspects such as quality assurance, systematic, and price rivalry. "By addressing these critical issues, local firms will be able to expand sustainably and participate in the global supply chain," stated Ms Tran Thi Thu Trang.

Recognizing the development potential for the supporting sector as a result of the substantial entry of FDI into Vietnam, analysts believe local firms, particularly capital and human resources, are missing assistance to take chances and create breakthroughs policies.

Ms Do Thi Thuy Huong, Vice President of the Vietnam Supporting Industry Association, stated that the industry's unique feature is the concentration of capital and technology, but this is also a weakness because many small and medium-sized businesses have limited resources, and development capacity should be limited to meeting requirements in global value chains. Furthermore, as a result of falling behind, firms concentrate both money and technology throughout the global value chain, as well as manpower. This is both a benefit and a drawback since we develop at the lowest level, provide minimal value in the supply chain, mostly with labour, and have a low grey matter composition.

More crucially, Ms Do Thi Thuy Huong believes that credit policy is "strangling" interest rates at a time when firms are struggling to obtain financial resources. "Many processing and manufacturing enterprises, particularly electronic enterprises, find it difficult to obtain loans from banks and domestic financial institutions when they are "hungry for capital," but with good business assessment and appraisal, they can obtain loans from international financial institutions." "Because the initial investment money is relatively substantial, this is a crucial source of assistance for enterprises," Ms Do Thi Thuy Huong remarked.

A representative from the Department of Industry (Ministry of Industry and Trade) agreed, saying: "FDI enterprises in Vietnam receive great support from the parent corporation or financial institutions of the host country with very low-interest rates, while Vietnam's domestic interest rates are very high, causing Vietnamese enterprises to lose right from the first step when using investment capital to invest in projects."

As a result, according to Resolution 115/NQ-CP on solutions to develop supporting industries, an important support policy that businesses are very interested in supporting is the policy of subsidizing the interest rate differential with the expected compensation of up to 5%, contributing to creating positive impacts on businesses and creating opportunities to improve price competition.

Ms Do Thi Thuy Huong also proposed that the government support training of high-quality human resources for the processing and manufacturing industries; continue the selective FDI attraction policy, pay attention to welcoming the leading enterprises, have basic conditions for quality FDI projects to create spillovers, and bring opportunities for domestic enterprises to participate in FDI projects supply chain in a higher-tech position.

P.V