The story of increasing localization rate from leading enterprises

Vingroup and Thaco are the leading companies in joining the supporting supply chain to increase the localization rate, in the context that key industries such as electronic components, automobiles, etc. all have low localization rates and are heavily dependent on foreign enterprises.

Difficulties in increasing localization rate

Automobile and motorbike manufacturing and production is an industry with an increasingly high localization rate, but according to the assessment of the Vietnam Mechanical Industry Association, it has not yet met the requirements. For example, the localization rate for personal vehicles with up to 9 seats is still low, the target is 30 - 40% by 2020; 40 - 45% by 2025 and 50 - 55% by 2030, but the actual figure is currently only about 7-10% on average, much lower than the target and compared to countries in the region such as Thailand, Indonesia, Malaysia.

The country currently has 377 automobile enterprises, of which 169 are FDI enterprises, accounting for 46.43%. The number of domestic manufacturers and suppliers for the automobile industry is still quite modest. The total number of products in this industry is 1,221, of which the majority are supporting industrial products, with medium and low technology content, and have small value in the value structure of a car.

A large FDI enterprise can be accompanied by 10 - 20 small FDI enterprises in the supply chain. This is an extremely potential segment that we need to target in attracting investment.

Similar is the foundation of the industry. Although some industrial products supporting the electronics industry have grown quite well since the beginning of 2024, such as uninterruptible power supplies (UPS) for automatic data processing equipment, auxiliary machines and telecommunications equipment, up 23.3%; parts of computers, cash registers, postage-free stamping machines, ticket vending machines and similar machines, with a computing component (except vending machines, ATMs and similar machines), up 8.37%...

But according to statistics from the Ministry of Industry and Trade, the localization rate of Vietnam's electronics industry is currently only about 5-10%.

As a globally renowned electronics manufacturing company, Ms. Le Thi My Loan, Technical Manager of Sharp Manufacturing Vietnam Co., Ltd. (Sharp Vietnam) shared that there are currently many components and equipment that domestic enterprises cannot supply to Sharp, so even though this brand has a factory in Vietnam, it has to import up to 50% of its auxiliary components from other countries.

“There are many components that have not found suppliers in Vietnam, such as electric wires, plastic silver with brand logos, etc., so we have to order from China and Thailand. The three criteria for choosing a supplier are quality, price and fast delivery time, but currently, according to our assessment, many orders in Vietnam are progressing quite slowly,” said Ms. Loan.

In addition, talking about the disadvantages of raw material suppliers in Vietnam, Sharp representative said that, besides the weakness in quality, Vietnam currently has many component products that cannot be produced on time according to Sharp's orders. For example, an injection mold made in Thailand or China only takes 40 days, but in Vietnam it takes up to 60 days.

According to Minister of Industry and Trade Nguyen Hong Dien, the localization rate has gradually increased in many manufacturing industries such as textiles, footwear (reaching 45-50%), and mechanical engineering (reaching more than 30%). However, Minister Dien also acknowledged that due to the characteristics of supporting industrial production and low starting point, the production capacity of Vietnamese enterprises has not met the conditions to enjoy preferential policies, so in reality, implementing preferential policies for supporting industries still faces many difficulties.

Opportunities from leading enterprises

According to data from the Trade Promotion Agency (Ministry of Industry and Trade), Vietnam currently has about 2,000 enterprises producing spare parts and components, of which only about 300 enterprises participate in the global supply chain. This shows that there are too few domestic supporting industry enterprises with the capacity to "enter" the supply chain, even at home.

Meanwhile, there are currently many large domestic and foreign brands looking for suppliers of auxiliary materials from Vietnam.

Sharing with Investment Newspaper reporters, Mr. Truong Khac Nguyen Minh, Deputy General Director of Vietnam Industrial Park Management and Services Joint Stock Company, commented that in a supply chain, next to the FDI "big guys", there are small investors with a lot of potential, especially in the supporting industry sector.

“A large FDI enterprise can be accompanied by 10-20 small FDI enterprises in the supply chain. This is an extremely potential segment that we need to target in attracting investment. Not to mention, when Vietnam actively develops the supporting industry sector, attracting investment from these enterprises is also in line with the trend,” Mr. Truong Khac Nguyen Minh explained.

As of the end of 2023, Ms. Le Thi My Loan said, Sharp Vietnam only uses 50% of domestic components from domestic enterprises; the remaining 50% is imported from China and Thailand.

Therefore, Sharp is looking for a supplier of plastic injection molding products, as well as all the components to assemble into air purifiers. With the pressure on price and delivery time, this unit wants to find a supplier who can both do plastic injection molding and make molds to compete on price and compete in the international market.

The failure to meet the requirements of businesses, combined with the increasing demand for suppliers, is not only a challenge, but also an opportunity for domestic raw material suppliers, because this market share still has a lot of room.

It is worth mentioning that Vietnam has had several large enterprises taking the lead in increasing the localization rate such as VinFast and THACO, by continuously investing and increasing production and supply of raw materials, components and spare parts.

At the recent Government Standing Committee meeting working with large enterprises on solutions to contribute to the country's socio-economic development, Mr. Pham Nhat Vuong, Chairman of the Board of Directors of Vingroup, said that VinFast alone has a localization rate of over 50%; by the end of 2026, this rate will increase to 80%. This is a great opportunity for small businesses in the supporting industry.

“Recommend that the Government provide a support mechanism for small and medium-sized enterprises so that they have the initial conditions to participate and access the supporting industrial chain in the supply chain,” Mr. Vuong proposed.

According to the Vingroup boss, VinFast currently produces 80,000 cars per year, with a target of 200,000 cars by 2025, exceeding the threshold at which supporting businesses can make a profit. Therefore, this business is willing to purchase a portion of auto parts from other supporting suppliers, opening up opportunities to promote the development of the supporting industry as expected.

In addition to VinFast, THACO Group is also a unit with great enthusiasm in increasing the localization rate by investing in building automobile production centers for international brands in Vietnam and other regions, especially the ASEAN region.

In order to increase the localization rate, Binh Duong - a key industrial locality in the South, is promoting many activities to create conditions for THACO Industries to soon build a Mechanical and Supporting Industry Industrial Park, with an investment capital of VND 26,000 billion (equivalent to USD 1 billion) in the area in the near future.

Speaking at the Government Standing Committee's meeting with large enterprises, Mr. Tran Ba Duong, Chairman of THACO Group, said that participating in the automobile industry, THACO aims to become an automobile manufacturing center for international car manufacturers in Vietnam, while exporting to regions, especially the ASEAN region, to take advantage of existing trade agreements.

In this direction, THACO is focusing on supporting industries to produce components such as chassis, interior and exterior, and electronic devices as well as applying digital platforms for intelligence and safety. All of these efforts are aimed at reducing costs and benefiting consumers. However, the recent decline in car sales has also made the investment plan for supporting industries, which Mr. Duong said, "have certain difficulties".

However, THACO is still determined to invest in its supporting industry. In 2024, THACO is investing in 7 more factories and in 2025 will invest in 3 more factories to produce all components and spare parts that Vietnam has advantages in as well as not having much change in technology. This also helps increase the localization rate of passenger cars to 45%.

Currently, THACO has sold spare parts to existing car manufacturers in Vietnam including Hyundai, Ford, Toyota, and Isuzu with a value of about 13 million USD.

With the advantage of being an early mover in mechanics and continuing to invest in supporting industries, Mr. Duong also said that next year, the contribution from supporting industries to THACO's overall operations will double compared to the present. In addition, the Chairman of the Board of Directors of THACO also expressed his hope that the supporting industry will receive more attention from the Government because there is currently no industry development strategy with accompanying policy mechanisms, because attracting investors to supporting industries requires output and technology.

In fact, according to the Ministry of Industry and Trade, although the pace is slow, there have been many remarkable achievements in increasing the localization rate in recent times, such as over 90% of rice milling machines, rice polishing machines, and dryers manufactured by domestic enterprises with advanced technology, which have been exported to ASEAN countries, America, and Africa.

With the determination of leading enterprises such as Vingroup, THACO, and increasingly improved policies and mechanisms. At the same time, the entry and competition of small enterprises into the global supply chain of FDI enterprises based in Vietnam is expected to open up a bright picture for the supporting industry, as well as shorten the time to raise Vietnam's localization rate to a higher position.

Source: https://baodautu.vn/chuyen-gia-tang-ty-le-noi-dia-hoa-tu-nhung-doanh-nghiep-dau-tau-d226155.html