VietNamNet Bridge - Many Japanese investors have left China for Vietnam where they believe they can have a more attractive investment environment. However, they have not chosen Vietnamese enterprises for their global supply chains.

 

Japanese have not chosen Vietnamese enterprises for their global supply chains.

Bui Ngoc Son, a renowned economist, said the problem of Vietnam lies in the underdeveloped supporting industries.

Son compared Vietnam’s supporting industries with the ‘child who never can grow up’ despite a lot of preferences offered to them. 

The weak domestic supporting industries are the reason why Japanese choose not to set up their factories in Vietnam, but look for spare part suppliers among businesses from China and Thailand instead of Vietnam.

Son cited a lot of reasons that make Vietnam’s supporting industries ‘stunted’, including the businesses’ small scale, low professional skills and low technologies. However, he believes there is one more important reason behind this: the exchange rate policy is not smart.

“The exchange rate policy applied in Vietnam is not smart, which makes it more costly to make products domestically than import,” he commented.

“As a result, foreign companies, including Japanese, decide to import components rather than spend money to develop supporting industries in Vietnam,” he said.

The economist went on to say that Vietnam should not think of continuing attracting foreign direct investment with investment incentives and low labor cost. It should think of long term, sustainable policies, such as the favorable investment environment, good management apparatus, rich infrastructure system and skilled labor force.

"Japanese, decide to import components rather than spend money to develop supporting industries in Vietnam,” Bui Ngoc Son, economist

If Vietnam cannot offer these, it will see foreign investors leaving Vietnam in the future. Instead of staying in Vietnam, foreign investors will leave the country for better business environments. And in order to offer these, Vietnam needs to develop supporting industries.

“When Japanese set up automobile factories in Vietnam, they will need components and spare parts for their cars. If they cannot find these things in Vietnam, they will have to import from other countries or seek them from foreign invested enterprises in Vietnam,” Son explained.

He commented that Vietnam has been making every effort to attract foreign investors, but it does not know what it needs to do to retain investors.

An analyst, agreeing with Son, commented that a reasonable exchange rate will be the key to develop supporting industries.

He said Vietnamese businesses are quite capable of making components ordered by Japanese manufacturers. However, the problem is that products they make are two to three times more expensive than products offered by foreign companies. 

“Vietnam will not be able to develop its supporting industries if it still follows the dollar-pegged exchange rate policy,” he said.

Dat Viet