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A growing economy needs strong support industry

(Bqp.vn) - Manufacturing is truly the backbone of Vietnam’s economic growth, and the challenge now to making the sector’s comeback a sustainable reality comes down to developing the support industry.

The support industry is the decisive factor in developing and enhancing the nation’s competitiveness in terms of price, quality and timeliness of production. Without a well developed support industry, sustainability is little more than an elusive dream.

However, it is no easy task to develop the support industry as Vietnam is facing numerous difficulties.

Over the past decade, many foreign firms have either failed or refused to make good on their commitments to back the development of Vietnam’s support industry. This is true even though they negotiated for and received many incentives from the Vietnamese Government in return for the commitment.

The fact is that the number of domestic businesses in the support industry remains inadequately low, resulting in the industry failing to reach its set targets and woefully out of alignment with the Vietnamese government’s commitments contemplated when joining the World Trade Organisation (WTO) and the ASEAN Free Trade Area (AFTA).

It’s difficult, if not impossible, to get a solid handle and pin down exactly the causes of all the inconsistencies between commitments made by multinational groups and the resultant reality.

On the one hand, multinational companies may have tried in earnest to fulfil their commitments to develop the support industry but failed.

However, on the other hand, they may not have negotiated in good faith or even tried to realise their commitments and the deal they struck with the Vietnamese government may have simply been tactical gamesmanship.  

Despite the shortcomings, the industry should not be dissuaded from accomplishing its targets, and developing it is pivotal to propelling economic growth forward.

Yet, efficiently developing the industry is still a thorny issue in Vietnam’s current context when the country is deeply and intensively integrating into the global economy. This means that the State subsidies for the domestic manufacturing sector are not available, thus posing a huge challenge.

Japan and the Republic of Korea which have gained tremendous achievements in the support industry had applied the closed-door policy to protect their support industry until it reaches a stage of maturity and sustainability.

Another challenge results from shortcomings in macroeconomic management over the past decade. A real estate market that has attracted a huge amount of resources and a stock market in its infancy have negatively impacted the whole national economy.

In such a context, Vietnam’s support industry needs a more surgical and narrowed approach singling in on more specific goals, with a focus on developing a niche market.

The country needs to concentrate its attention on producing high added value products and reducing production costs to take part in the global supply chain - an uphill task to struggle.

Last but not least, Vietnamese businesses in the support industry must improve their management capacity and competitiveness to stand firm on the world market. As most of them (about 97%) are small and medium sized, they should take a path of cooperating with foreign firms.

If support industry firms cooperate with foreign businesses to supply products to big multinational groups, their odds of success will be greatly enhanced as they are not in a position yet to compete directly with the giants. They will also benefit from the more experienced foreign firms that will lead to greater future prosperity.

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(Source: VOV)

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