Solutions required to save small enterprises from halting production
Solutions required to save small enterprises from halting production
Despite having achieved success and secured orders from large groups, small and medium enterprises in Vietnam are facing many challenges, so they need support so that they can grow and contribute to developing Vietnamese industry.
Many urgent issues to build independent industries were put on the agenda of the seminar ‘Supporting Small and Medium Enterprises in Joining Global Supply Chains’ jointly held by Tuoi Tre (Youth) newspaper, the Industry Agency under the Ministry of Industry and Trade, and the Ho Chi Minh City Department of Industry and Trade at REX Hotel in Ho Chi Minh City on Tuesday last week.
Incurring losses despite securing orders from giants
Experiencing the hardship while taking part in supply chains of foreign direct investment (FDI) enterprises, a Vietnamese company said that it used to win orders from South Korean electronics giant Samsung.
With an initial price set out by Samsung, the company could not generate a profit but the giant later cut the price by 30 percent.
Therefore, the Vietnamese company, a small one in a supporting industry, had to give up and lost an opportunity to get involved in a large supply chain.
Nguyen Van Tri, general director of Lap Phuc Mechanical Manufacturing Trading Co. Ltd., which manufactures accessories for large groups, including electric vehicle manufacturer Tesla, said it is not easy to participate in global supply chains.
According to Tri, U.S. enterprises set stringent requirements for his company, specifically a factory and equipment meeting standards accompanied by competitive prices.
Therefore, the company laid down a principle that its product prices must be lower than those offered by Chinese rivals but the product quality must meet Japanese standards.
Therefore, the firm has to strive to come up with optimized solutions by importing machines from Japan and the U.S., developing a standard factory, and training human resources.
The company’s biggest issue is a brain drain as workers in the mechanical engineering sector easily change their jobs and move to FDI enterprises, while domestic mechanical firms spend a long time training the workforce.
Pham Van Tai, general director of Truong Hai Auto Corporation, a leading enterprise in the Vietnamese mechanical engineering sector, said many customers place orders with low prices but they require reducing the prices by two percent the next year, causing many small firms to break even or suffer losses.
If enterprises operate separately, they will find it hard to generate a profit.
When enterprises connect with others and take advantage of each other’s strengths, they can satisfy the requirements for orders and earn a profit.
Via cooperation, Vietnamese firms will not be afraid of being put at a disadvantage and can overcome challenges to take part in global supply chains.
Directly surveying manufacturing enterprises in Vietnam, Bui Thi Hong Hanh, managing director of NC Network JSC, said the number of processing and manufacturing enterprises is on the rise in Vietnam.
However, they are facing a dearth of orders. Some firms are worried about a production suspension until the third quarter of this year.
Hanh said enterprises expect to be supported with appropriate policies, such as reasonable interest rates and the use of machines as collateral instead of properties only.
Ho Quynh Hung, chairman of Dien Quang Lamp JSC, which currently owns a modern manufacturing factory in the Saigon Hi-Tech Park in Ho Chi Minh City, shared the difficulties of domestic enterprises which want to boost local production.
According to Hung, there have been hindrances for Vietnamese firms due to the lack of incentives.
In particular, Dien Quang produces circuit boards for computers and is subject to a three-percent tax rate for some accessories. Meanwhile, importers of the circuit boards are entitled to a zero tax rate.
In addition, import duties on LED driver circuits have been exempted, while electric wires installed in the circuits are taxed, causing difficulties for local manufacturing firms.
“Reasonable tax policies are needed to facilitate the manufacturing of basic accessories and prevent the situation that imports with preferential tax policies are cheaper than locally-made products,” Hung said.
From the point of view of an international expert, Phil Kyun Choi, a South Korean, said his country has ministry-level agencies which directly support small and medium enterprises, including the establishment of an online export platform for such companies.
Export firms can introduce their products to buyers through the platform.
According to director of the Ho Chi Minh City Department of Industry and Trade Bui Ta Hoang Vu, the city is building an industrial development plan, with a focus on boosting supporting industry development.
Vu added that the city will set aside land banks to develop specialized industrial parks in the future, including hi-tech supporting industrial parks and mechanical industrial parks to leverage enterprises’ strengths.
Truong Thanh Hoai, head of the Industry Agency under the Ministry of Industry and Trade, said the law on industrial development should include regulations on a steering committee for the country’s industrialization and modernization to deal with the minor role of industry and trade departments of localities.
The steering committee will help reach a consistency across the country and monitor the allocation and use of resources for industry.
Current policies fail to meet enterprises’ demands. As a result, the law should focus on tax policies because with a tax rate of over 10 percent, no firms will invest in supporting industries.
The importance of supporting industries
Vice-chairman of the Ho Chi Minh City People’s Committee Ngo Minh Chau hailed the cooperation between the Ministry of Industry and Trade, Tuoi Tre, and the Ho Chi Minh City Department of Industry and Trade in holding the seminar ‘Supporting Small and Medium Enterprises in Joining Global Supply Chains.'
According to Chau, this was a positive event benefiting small and medium enterprises in the city.
At the seminar, proposals were made to remove difficulties and work out solutions and policies to develop supporting industries, thus bolstering the development of industry in Ho Chi Minh City and Vietnam as a whole.
Chau added that since 2016, the city’s industry has been restructured in the right way.
The proportion of its four key industries increased to 55.82 percent in 2020 from 52.8 percent in 2016.
Supporting industries are meaningful to the economic restructuring to meet industrialization and modernization needs, helping improve productivity and competitiveness.
Multiple activities to help enterprises deeply join supply chains
Le The Chu, editor-in-chief of Tuoi Tre, said that newspapers should also offer the chance to suggest solutions to issues, so his newspaper initiated the ‘Building Independent Industries’ forum in mid-July 2022 with diversified media activities and events to attract the attention and opinions of business leaders, experts, policymakers, and other relevant agencies.
Tuoi Tre’s programs are aimed at coming up with solutions and proposals relating to policies to improve the competitiveness and remove difficulties of enterprises, especially small and medium ones, so they can fully take part in global supply chains.
According to Chu, the seminar was also an occasion to review events that Tuoi Tre and the Industry Agency have jointly organized over the last six months.
