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Demand for support industry in southern Vietnam picks up over increased FDI inflows

Monday, October 12, 2015, 18:39 GMT+7

Vietnamese enterprises operating in the support industry, especially those located in the southern region, are gathering steam in technological and production capabilities, the head of the Ho Chi Minh City office of the Japan Trade Promotion Organization (JETRO) said on the sidelines of an exhibition dedicated to the industry last week.

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They are developing fast, and sustainably with the number of firms able to meet Japanese technological and quality standards and delivery time gradually increasing, Hirotaka Yasuzumi, chief of the JETRO branch in the southern city, said at the expo at the Saigon Exhibition and Convention Center in District 7.

According to a survey conducted by JETRO last year, the domestic supply, including that from foreign-invested firms, for Japanese companies in the south is 36 percent, higher than the rate of 31 percent in the north, Yasuzumi said at the three-day event, which concluded on Saturday.

The rate of supply from Vietnamese-owned businesses is 11 percent in the north and 19 percent in the south, getting closer to those of Indonesia (21 percent) and Thailand (23 percent), he said, citing the “Survey of Japanese-Affiliated Firms in Asia and Oceania.”

For Japanese companies with high technical and managerial levels, Vietnamese firms operating in the support industry have gradually become a trusted partner, Yasuzumi said.

But the rate of local supply in 2014, though recording an increase of 33 percent, was still far behind the percentages in Thailand (55 percent) and China (66 percent), he added.

At many recent meetings and business connections between Japan and Vietnam, Japanese companies have always expressed the wish to cooperate with Vietnamese enterprises in jointly promoting the growth of the domestic support industry, Yasuzumi said.

The rate of local supply in Vietnam is one of the problems that Japanese investors are most concerned about at present, he said.

"More and more Japanese enterprises are looking to Vietnam to purchase raw materials, components and semi-processed materials to cut costs thanks to lower production expenses here,” the JETRO chief said.

Whenever Vietnamese businesses meet requirements for technical standards, Japanese companies are willing to cooperate and transfer technology for long-term development, he asserted.

According to the annual “Survey of Japanese-Affiliated Firms in Asia and Oceania,” the cost of materials and components accounts for 58 percent of the total expenditure while labor only makes up 17.4 percent of the total production expense in Vietnam.

Thus, Japanese firms tend to raise the ratio of domestic supply in Vietnam to reduce production costs, he added.

Nguyen Tuan, deputy director of the Center for Trade Promotion and Investment of Ho Chi Minh City (ITPC), said that Vietnam considers the development of the support industry a top priority to promote the growth of industrial sectors and to accelerate the process of industrialization and modernization.

In recent years, foreign direct investment (FDI) inflows to Vietnam have been quite large, Tuan said.

Statistics showed that as of September 15 the number of new foreign-invested projects, mostly in manufacturing-processing sectors, in Ho Chi Minh City alone had risen 115.3 percent over the same period last year to nearly 400 projects worth some $2.36 billion, he said.

"Producers from Japan, South Korea, and Taiwan are gradually relocating their factories and technologies to Vietnam,” Tuan said.

“This has led to a high demand for spare parts inside the country, presenting an opportunity for domestic enterprises to become suppliers to those world-ranking corporations.”

In the export processing zones and industrial parks of the city, there are about 260 foreign enterprises operating in the support industry with their main products in electronics, mechanical engineering, and automobile sectors, accounting for over 50 percent of the FDI enterprises there.

Products of the companies are chiefly shipped to foreign countries in order to implement the next stage in the global supply chain, he said.

However, most materials, parts and components for the enterprises are to be imported from abroad, suggesting links between foreign-invested firms and domestic companies are limited, he added.

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Thoai Tran/Tuoi Tre News

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