Business

Domestic electronic enterprises unable to develop

SGGP
In recent years, electronics industry has always been among top ten industries with highest export proportion of tens of billions US dollars annually. However, this ‘piece of cake’ mostly belongs to foreign direct investment (FDI) enterprises.

 Producing electronic components at a Vietnamese enterprise. (Photo: SGGP)

Producing electronic components at a Vietnamese enterprise. (Photo: SGGP)

Last year, Vietnam’s electronics exports nearly reached US$80 billion last year, an increase of more than 8 percent compared to the previous year. In the first 11 months of this year, electronics exports continued to post an impressive figure of above $83 billion. With rapid growth, currently, electronics industry of Vietnam ranks 12th in the world and third in the ASEAN region in export.

However, unfortunately, the country’s electronics and microchip industry is still facing  several challenges as most of export value, around 95 percent, is from FDI enterprises. Meanwhile, domestic enterprises have not been capable to participate in global supply chain and up to 77 percent of product value is totally imported.

Evidences from Samsung Electronics Vietnam, a FDI enterprise with dominant export proportion of more than 20 percent of total exports in 2018, will show that. Last year, Samsung’s revenues exceeded $216 billion and its profit exceeded $52 billion. The company’s average production was 160 million devices per year. As for cell phone field alone, the company has two factories in Vietnam, providing 50 percent of the cell phone sales in the world. However, this enterprise mainly has been relying on Korean intermediary input suppliers which have offices in Vietnam while Vietnamese primary suppliers are mainly packing enterprises or enterprises in mechanical and injection molding field that receive low value added.

According to experts, the reasons for this situation are because most of domestic enterprises in the electronics industry are small and medium sized enterprises, accounting for 98 percent. Just a few of them are able to participate in supply chain for FDI enterprises. The capacity of domestic enterprises remains limited and productivity is low as they use outdated technology. They lack of experience in working with FDI enterprises and skilled employees. They have not been fully standardized, and their management skills remains poor, along with language barriers and low financial access.

According to the Ministry of Industry and Trade, electronics industry of Vietnam is a potential industry because of young population structure of 100 million people in the future. Therefore, domestic consumption demand for electronic products is on the increase with domestic market of around $10-12 billion. Especially, the appearance of world’s largest electronics and telecommunications enterprises, including Samsung, Foxconn, LG, Panasonic and Intel showed that Vietnamese market is a fertile ground for electronics industry.

However, in order to change the situation, besides efforts of enterprises, it is necessary to have strong enough policies to fortify competitiveness for electronics industry.

‘The process of globalization has been pushed up rapidly in all countries, leading to cutthroat competition in production right in domestic market when there are more and more supporting industry suppliers for main industries, such as electronics, automobile manufacturing, aviation and mechanical engineering industries. Therefore, Vietnam needs to focus on improving competitiveness, promoting measures to support enterprises, especially electronics industry, a leading industry of the economy,’ said Ms. Do Thi Thuy Huong, the representative of the Vietnam Electronic Industries Association (VEIA).

As analyzed above, it can be said that the main reason that made electronics industry unable to develop is an ailing supporting industry. Thus, state management agencies need to have specific policy that prioritizes development of this sector along with other specific mechanism. ‘In order to develop this industry, there are three main factors that policies need to focus on, comprising of technology investment, capital and human resource training,’ said Ms. Huong. Sharing the same point of view, many experts said that electronic supporting industry of Vietnam needs appropriate support policy of the State in order to have opportunities to make breakthrough.

Of which, the State has policies to finance capital for enterprises; review regulations on supporting industry for enterprises before promulgating it should consider feasibility and conformance to reality; and the training system needs to improve to be more suitable. ‘Besides, when the Government signs cooperation and incentives for FDI enterprises, it is necessary to have more binding conditions. For example, if FDI enterprises receive tax exemption for 10 years, they must reach Vietnamese enterprises using ratio of30 percent in the third year. As a result, FDI enterprises will be more responsible in training domestic enterprises. By doing that, domestic electronic enterprises will gradually participate in supply chain and raise competitiveness, the representative of VEIA suggested.

By Lac Phong – Translated by Bao Nghi

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