16 June 2017

Vietnam has yet to take full advantage of FDI

NDO – The links between domestic enterprises and foreign direct investment (FDI) enterprises remain loose, with only 27% of FDI enterprises’ inputs purchased in Vietnam.

A majority of the delegates, at the Midterm Vietnam Business Forum 2017, held on June 16, held the same view that Vietnam has yet to take full advantage of the benefits from FDI inflows and that private Vietnamese firms have not successfully linked up to the global production chain.

Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry (VCCI), said that the business links between local and foreign investors is still weak with limited technology and labour productivity influence from FDI firms on local firms.

This is particularly true in the modern technology sector, which is welcomed by the Vietnamese Government, and is expected to see advances of private domestic firms.

According to the survey conducted by VCCI over the past few years, there is a small proportion of private domestic firms that are providing commodities and services for FDI enterprises.

The Provincial Competitiveness Index (PCI) report in 2016 showed that only 14% of domestic private firms have FDI clients operating in Vietnam.

In addition, only 27% of inputs from FDI enterprises are purchased in Vietnam but a considerable proportion are purchased from other FDI enterprises in the country.

FDI enterprises operating in the area of modern technology production tend to import goods from their own countries of origin and do not tend to use private domestic providers.

This situation was blamed for the inadequacies in marketing and supply-demand links of domestic enterprises, which cannot meet the standards of production management and quality of FDI enterprises.

Furthermore, the Government programmes, aimed at boosting the support industries, have yet to promote efficiency and have not met the requirements effectively.

Hiroshi Karashima, Chairman of the Japanese Business Association in Vietnam, pointed out some reasons for the weak connection between Vietnamese and Japanese enterprises and FDI enterprises, including the differences in the quality of human resources, technology levels and geographic distance between FDI enterprises and domestic enterprises.

VCCI Chairman Loc also shared the same view with Hiroshi Karashima, emphasising that improving the quality of human resources is the key in spurring the effect of FDI enterprises.

He noted that, without a high quality workforce, Vietnamese firms cannot acquire modern and management technology from FDI enterprises.

“Thus, Vietnam needs to focus more on resources promoting the competitiveness of the private sector and the Government needs to quickly realise policies on fostering support industries,” Loc said.

Meanwhile, Vice Chairman of the European Business Association in Vietnam, Tomaso Andreatta said Vietnam needs further improvements to the business environment in order to bring about practical results for the business community, which will in turn contribute to building mutual trust and support between the private business community and FDI enterprises.



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