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Vietnam part suppliers incapable of partnering with global tech giants

Wednesday, August 27, 2014, 12:18 GMT+7

Joining the production chain of global tech giants running operations in Vietnam remains a perennial problem for local businesses operating in support industries due to weak technology and poor support from the government, industry insiders have complained.

Vietnam is now home to production plants of many of the world’s leading hi-tech manufacturers such as Samsung, Intel, LG, and Nokia, but the localization rates, or the amount of materials and parts that can be domestically sourced at these firms remain considerably low.

The Vietnamese unit of South Korean electronics giant Samsung is seeking local suppliers for 170 different types of spare parts for its products, but not a single domestic business is qualified to grab the opportunity, according to an official from the Ministry of Industry and Trade.

Foreign direct investment (FDI) businesses in Vietnam tend to choose spare part suppliers from their own countries, or among their existing global partners, rather than starting anew with a local business, said Nguyen Duong Hieu, general director of Lidovit, a part supplier based in Ho Chi Minh City.

“South Korean firms, for instance, would choose their compatriot companies that are also operating in Vietnam as part suppliers,” Hieu said.

The businessman added, however, that Vietnamese businesses badly need support from the government to develop as the domestic support industries remain in the early stage.

“It is certainly the responsibility of businesses to find customers, but the government can also take actions to facilitate them,” he said.

“Regulatory agencies can, for example, meet with FDI businesses and show them the list of spare parts that local businesses are capable of making instead of letting the [foreign] firms seek suppliers on their own because they will first look to their fellow companies.”

But Hieu also admitted that Vietnamese businesses are unable to meet the high requirements of the foreign hi-tech companies.

“There are cases when our foreign partners placed orders on ten types of products but we were only able to make three of them,” he shared.

In 2013 there were only 1,300 businesses that made spare parts in Vietnam, against around 58,000 businesses operating in industrial sectors, according to a report the Ministry of Industry and Trade submitted to the Prime Minister.

And only five percent of the spare parts used in FDI assembling plants across Vietnam are locally manufactured.

“The spare parts made by local businesses have low quality yet high prices, so they are only used by other local businesses,” the ministry admitted.

The Ministry of Industry and Trade also noted that 4P Co Ltd, a spare part supplier based in the northern province of Hung Yen, is one of a few Vietnamese businesses that actually bear fruit in support industries.

The company has intensively focused on improving its production and workforce quality since 2001 and is now supplying three million parts a month to Samsung, Canon, Wintek, RFT, and LG.

The products include circuit boards for LCD and 3D TV sets, printers, and cameras, among others.

“We have also been invited to be the main part supplier for LG at its manufacturing complex in northern Hai Phong Province,” 4P general director Hoang Minh Tri said.

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