How to increase the localization rate of industry?

The weak and loose linkage is reflected in the low rate of domestic industrial product localization.

Localization rate is not high

According to the Ministry of Industry and Trade, the problem of Vietnam's industry lies in its weak internal strength and its economic restructuring which is too dependent on FDI enterprises. For example, FDI enterprises account for more than 70% of Vietnam's total export turnover, especially in key export sectors such as electricity - electronics, textiles, footwear, the number of FDI enterprises is only about 20% of the total number of enterprises but accounts for more than 80% of export turnover. These enterprises are mainly concentrated in the downstream area to take advantage of tax incentives and input costs such as cheap labor and Vietnam's not too high environmental and labor requirements.

The weak and loose linkage is reflected in the low rate of domestic industrial product localization.

The leader of the Department of Industry (Ministry of Industry and Trade) pointed out the current situation that in recent times, the transformation and restructuring of industrial production has mainly come from FDI enterprises, not domestic enterprises; the competitive advantages of connecting economic sectors with localities to create industrial production chains have not been fully exploited.

" Most supporting industry enterprises are small and medium-sized enterprises, not yet capable of competing with imported goods in terms of price, quality, and delivery schedule. Supporting industry products with high technology content are still mainly provided by FDI enterprises. To serve domestic production and assembly needs, Vietnam still imports components and spare parts with large values " - the Department of Industry pointed out.

Speaking with Cong Thuong Newspaper, Ms. Truong Thi Chi Binh - General Secretary of the Vietnam Association of Supporting Industries (VASI) said that it must be recognized that the connection between domestic and foreign investors is still vague, the spillover effect of technology and labor productivity from foreign partners to domestic enterprises is still very limited.

In addition, the weak and loose linkage is reflected in the low localization rate of domestic supporting industrial products. Therefore, further improvement of the localization rate is a requirement to attract more FDI.

For example, the electronics industry is considered to be industry The spearhead industry plays a major role in exports, but in reality, the group of electronics, computers and components in Vietnam still depends largely on FDI enterprises. The basic reality is that the localization rate of the electronics industry is still low; most electronic products on the Vietnamese market are completely imported or assembled domestically with foreign components; although supporting industry enterprises in the electronics industry have participated in the industry's value chain, they can only provide simple products with low technological content.

Or the automobile industry is an industry that integrates many sub-industries such as precision mechanics, electronics, materials technology, requiring high technology level... but most domestic enterprises cannot meet it.

According to the Ministry of Industry and Trade, the localization rate for personal vehicles with up to 9 seats is still low, the target is 30 - 40% in 2020, 40 - 45% in 2025 and 50 - 55% in 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 and Malaysia.

Businesses must strive to affirm their strengths.

According to Ms. Truong Thi Chi Binh, Vietnam is a "latecomer" in the process of industrialization and modernization. The Vietnamese government has always rolled out the red carpet and attracted FDI investment. However, the requirement for FDI enterprises to localize is still quite cautious. Therefore, there must be strong enough sanctions for FDI enterprises to implement the localization rate, form joint ventures with domestic enterprises to produce components and accessories; set out criteria and incentive measures as well as sanctions for FDI enterprises that do not fulfill their commitments on localization rates. The government and relevant ministries and branches need to continue to be more determined and determined in "pressing" FDI enterprises to commit to localization. At the same time, focus on developing domestic supporting industries to retain FDI capital flows.

Currently, Ministry of Industry and Trade has presided over and coordinated with ministries, branches and localities to organize support for industrial enterprises to connect with multinational corporations to seek opportunities to participate in the supply chain for these corporations in Vietnam as well as abroad; effectively implemented preferential policies and investment support according to the provisions of law on industrial development, especially supporting industries.

At the same time, deploy the construction of Technical Centers (based on the reference models of Korea, Japan, Thailand) to support industrial enterprises in general, supporting industrial enterprises, mechanical engineering in particular to improve technical and management capacity, meet the requirements of multinational corporations, FDI enterprises and participate more deeply in the global value chain.

The key industries expected to be identified are supporting industries for the textile, footwear, electronics, automobile manufacturing and assembly, mechanical engineering, high technology; materials industry, metallurgy; mechanical industry; electronics industry; food industry, biology, etc.

Ms. Truong Thi Chi Binh also proposed a long-term solution for all industrial sectors, the most important factor is to support and motivate businesses to invest. Investing in mechanical projects requires large capital but low profits, so it is difficult to attract investors. The government needs to have preferential policies to encourage mechanical manufacturing projects to apply modern technology and meet international standards.

Therefore, in order to continue to create momentum to promote the development of the domestic industrial sector, in addition to efforts to improve the production capacity of each enterprise, the system of policies and mechanisms on supporting industry needs to be completed and implemented more synchronously and effectively. I believe that only then can supporting industry overcome difficulties, challenges and develop sustainably.

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