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Promoting the small and medium enterprises to participate in the global value chain

15:03 | 20/05/2018

VCN- Through the strengthening of chain linkages, the enterprises can undertake jointly one or some stages in the chain, thereby, they complete the work with greater capacity, helping them overcome the disadvantages of scale, respond rapidly to changes in the market, reducing the risks in business. 

promoting the small and medium enterprises to participate in the global value chain
The small and medium enterprises are less likely to benefit from the spillover effects of FDI enterprises through the transfer of technology, knowledge and increase of productivity. Photo: Internet.

Only 21% of small and medium enterprises participate in the global supply chain

Speaking at the seminar "Participating the value chain: Opportunities for small and medium enterprises" held on May 11th in Hanoi, Ms. Bui Thu Thuy, Deputy Director of Enterprise Development Bureau (Ministry of Planning and Investment), said that the enterprises doing business in chain model had not proved fully their potential in the stages to create the highest added value at the lowest cost at the present. Especially, the link among the enterprises had not been tight. Now, Vietnam has become a production point of some high-value industrial goods such as mobile phones, smartphones, tablets. In 2017, the export turnover of mobile phones in all types and accessories reached US$ 45.27 billion, up 32%, the computer, electronic products and components reached US$ 25.94 billion, up 36.9% over 2016.

But currently, only 21% of small and medium enterprises have participated in global supply chain, while Thailand has had over 30% and Malaysia has had 46%. Therefore, the small and medium enterprises have had little benefit from the spillover effect of FDI enterprises through the transfer of technology, knowledge and increase of productivity. Three typical examples were motorcycles, textiles and footwear.

Specifically, Vietnam has become a large-scale producer of motorcycles with 3.2-3.5 million units per year; 80% of components and spare parts were produced domestically, but most of them were implemented by the FDI enterprises, the domestic enterprises produced the batteries and spare parts made of plastic. Honda accounted for about 60% of motorbike production where there were 110 enterprises in the supporting industries, of which only 23 are domestic units. The main reason was that the domestic companies have not met Honda's standards of suppliers in terms of technology, time, human resources, especially the head of the companies.

The Viet Nam Textile and Garment has been trying to improve its product quality and competitive price, it is the second largest exporter after China in the US market. However, it is facing more and more fierce competition, not only China, but also other countries such as Myanmar and Cambodia… which increase the pressure on Vietnam's market share in major markets.

The Chairman of Textile and Garment Association Vu Duc Giang said that due to the lack of linkage among the enterprises in the internal industry, the competitiveness of the textile and garment industry is limited. In order to ensure the sustainable export, it was necessary to form the linking chains for producing yarns, weaving, dying and sewing to create high added value products; At the same time, to attach importance to the domestic market, to develop products being suitable to the tastes of domestic consumers; to build new brands and consumption channels.

Confidence and initiative are key

Assessing the participation of small and medium enterprises in the linkage chain, Ms. Nguyen Bich Thuy, Deputy Head of General and Policy Division, the Business Development Bureau, the Ministry of Planning and Investment, Viet Nam's economy depends on the FDI enterprises increasingly in the value of Vietnam exports, in which the contribution of FDI enterprises was 71%. Therefore, although Vietnamese enterprises formed and participated in several value chains, their deep participation in the value chain had been limited. Remarkably, the Vietnamese economy still lacked the participation of supporting industry.

At the same time, although Vietnam has established IPs and EPZs, the linkages of the enterprises in and outside these areas were still loose and the Vietnamese enterprises have still competed against each other without cooperating. In addition, the fragmentation of production and consumption had not been linked, and Vietnam's participation in high value-added activities such as R&D, processing, distribution (retail) and marketing has still not been implemented, or the level of participation is very low.

One of the other reasons is that Vietnam’s small and medium enterprises have a small financial base, weak technology and inadequate human resources. Accessing capital and trade sponsors is limited due to insufficient financial resources to enter the global supply chain; lack of skilled labor.

Therefore, Mr. Nguyen Mai, Chairman of the Association of Foreign Investment Enterprises (VAFIE), said that the business leaders must approach the management thinking in the direction of modern, respect quality and efficiency, build trust with partners and credibility of the businesses. For example, wages and salaries must be based on the efficiency of employment, because cheap labor cannot remain for a long time, so it is necessary to improve incomes to produce higher productivity and more quality.

In addition, in the context of Vietnam becoming the destination of international investors, the change of direction and policies to attract FDI was likely to have more transnational companies investing and doing business in our country.

"It is a great opportunity for the Vietnamese enterprises to participate in the global supply chain and turning the opportunity into reality depends on the capacity of the management team, especially the head of the businesses. Confident and proactive in reaching out to the large enterprises to create a cooperative relationship in signing and implementing contracts, creating a place in the supply chain of each corporation step by step are the path to success of the enterprises”, Mr. Nguyen Mai emphasized.

By Xuan Thao/ Binh Minh