VietNamNet Bridge – Vietnamese hardware and electronics enterprises have witnessed their market shares narrowed gradually in recent years. A question has been raised that if Vietnam should continue following the development strategy which it has been pursuing for the last tens of years.

Hardware – the land of FIEs

According to Chu Tien Dung, Director of the HCM City Informatics Association, in 2010, local hardware and electronics enterprises got the turnover of 26 trillion dong, making up 22 percent of the total turnover of the industry.

The figure then rose to 38 trillion dong in 2011, but the city’s enterprises’ turnover only accounted for 16 percent of the total turnover of the industry.

It is not Vietnamese enterprises, but the foreign invested enterprises (FIEs) which have brought the highest proportions of turnover.

Manufacturing and assembling desktop computers is the business field which gathers the highest number of Vietnamese enterprises in comparison with other production fields. However, the localization ratio of the products remains modest, which means that the majority of accessories and parts needed for computers must be imported from other countries.

It requires huge capital to make hardware products. Meanwhile, most Vietnamese enterprises lack capital and they have to borrow money from banks at high interest rates. In 2011, only 20 percent of Vietnamese enterprises making hardware in HCM City reported profit.

The problem is that desktop computers now can be sold within the framework of computerization projects. Meanwhile, individuals and households now tend to use laptops instead of desktop computers.

The five hardware and electronics FIEs in HCM City alone make up 27.6 percent (4066 billion dong) of the total turnover (23,397 billion dong) created by the 103 enterprises surveyed in 2010.

The proportion then increased to 38.5 percent in 2011, or 13, 415 billion dong, triple that of 2010.

Great efforts still have not brought success

Vietnam has been going on the way to develop a hardware and electronics industry for the last 20 years, but they have not been successful.

In 1995, Vietnam kicked off the development strategy with the assembling industry. Ten years later, the assembling industry withered away with the withdrawal of Sony Vietnam, a TV, video player assembler, form the market.

Other electronics manufacturers also tend to import 100 percent foreign made products to sell on the domestic market, or set up 100 percent foreign invested enterprises, instead of joint ventures, to assemble products.

According to Nguyen Trong Duong, Director of the Information Technology Department under the Ministry of Information and Communication, Vietnam’s turnover from hardware products reached 11.3 billion dollars, amounting to 82 percent of the total turnover of the IT industry, up by 101 percent over 2010.

However, only 10 percent of the big turnover was made by Vietnamese enterprises. Meanwhile, electronics-telecom, mobile phone and computer – the three sectors which bring the highest turnover in the IT industry – have been controlled by FIEs.

A question has been raised that the development strategy Vietnam has been following for the last tens of years is the most reasonable one?

Analysts have pointed out that with the small market capacity, the production costs would be very high, thus making it impossible to compete with Chinese products. Since Vietnam still does not have any R&D (research and development) fundamentals, it would not be able to catch up with other countries in terms of technologies and feature designs.

The analysts believe that the things that Vietnam should do in the immediate time are to develop supporting industries with the Vietnamese enterprises working as satellites for FIEs, and to make investment in R&D. Only when Vietnam gets more powerful, should its enterprises jump into the hardware industry by teaming up with others to set up joint ventures or via the merger and acquisition channel.

Lao Dong