Deeply joining global value chain

Wednesday, 2017-09-13 14:25:29
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Around 300 enterprises in Vietnam are currently able to participate in the global supply chain. (Credit: VGP)
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NDO - According to many experts, Vietnam is sitting in a low position in the global value chain because the country only joins low value-added activities, mainly assembling and processing.

In Vietnam, around 300 enterprises are currently able to participate in the global supply chain, including 2% of large companies and 2%-5% of medium sized firms, with the rest being small and micro enterprises. The main problems for Vietnamese enterprises are the lack of working and management skills, less technological innovation, difficulties in accessing finance, and the lack of spill-over effects from foreign partners to domestic enterprises. Notably, the links between domestic and foreign firms, as well as those between export enterprises and domestic input suppliers are weak, so very few businesses are connected to the global value-added chain. In addition, the number of foreign direct investment enterprises using domestic inputs remains low.

The contacts between domestic firms and FDI enterprises have not achieved the desired effect due to a lack of competitive domestic suppliers, barriers in accessing financial resources, particularly in the field of information technology, and a lack of skilled workers. The programmes supporting medium and small sized enterprises are not effective, while there is a lack of plans related to accessing finance and the market.

Therefore, Vietnam is at a crossroads, on the one hand it can continue to develop into becoming a platform for exports of global value chains, specialising in processing and assembling functions that bring low added value; or on the other hand the country can take advantage of the current wave of growth to diversify it’s products and strive to participate in higher value-added activities in the chain. In order to achieve higher development, the country should enhance economic reform and create a link among enterprises, in addition to building rational policies, mechanisms and an environment in which to promote production and business, as well as paying greater attention to the workers’ interests.

The Ministry of Industry and Trade and the World Bank have released two reports entitled “Vietnam at a Crossroads: Engaging in the Next Generation of Global Value Chains” and “Enhancing Enterprises Competitiveness and SME Linkages”. The experts assessed that the reports consist of numerous valuable comments and recommendations for the Vietnamese Government, ministries and agencies in enhancing comprehensive and profound reforms to help Vietnam deeply join the global value chain.

The reports emphasised that Vietnam should set out new methods in their approach, as well as new policy frameworks through integration, domestic reform, improvement of the business and investment environment, institutional reform, and the reform of state-owned enterprises, to effectively allocate resources. It is essential to promote technology and nurture innovation to advance in the global value chain.

The World Bank's Country Director for Vietnam Ousmane Dione said that Vietnam has only just joined the last chain of activities but is moving to the development state to diversify and bring about high added value, as well as take advantage of innovations. The country can increase the added value through reforms, initiatives and polices in numerous fields such as transport, service, border procedures and regional integration. Vietnam is a country with a good FDI flow; however it is necessary to create more spill-over effects.

The WB experts also made a number of major recommendations, including improving inter-ministerial coordination, facilitating information flows and contacts between domestic and foreign-owned firms, and promoting the strengths of certain domestic suppliers. If Vietnam reaches a higher position in global value chains, the country can attract more large-scale FDI projects, creating more jobs and opportunities for domestic suppliers.

In order to reach this target, the Government needs to deploy a comprehensive reform package such as narrowing the infrastructure gap through greater mobilisation of private financing and a more integrated approach to developing transport corridors; developing competitive services markets and liberalising regulations on FDI; streamlining border procedures to make them more transparent and predictable; and strengthening the relations with developed countries to ensure strong demand and technology-related investment.