Supporting Industry Expert Meeting

Time: 14:00-17:00, July 20, 2006 (Thu)
Place: GRIPS, Tokyo
 GRIPS - Prof. Kenichi Ohno, Nguyen Thi Xuan Thuy, Junichi Mori, Giang Thanh Long
 Guests - Prof. Takashi Nobehara (Fuji Tokoha Univ), Dr. Fuminori Ide (Ritsumeikan Univ), Assoc. Prof. Toshiyuki Baba (Hosei Univ)

This meeting of supporting industry experts was held to introduce each other, exchange information and views, and explore possibilities of future cooperation. At first, each researcher explained his experience and research interest.

Ms. Thuy, a GRIPS/VDF Tokyo researcher and an officer of the Ministry of Industry, presented her study on the definition and related concepts of supporting industries (SI). After reviewing the origin, historical background and related concepts, she explained that SI was a policy-oriented term, whose meaning could be adjusted depending on policy makers and their targets. The core scope of SI consists of parts and components, and production process supporters such as molds and dies, pressing, forging, casting, etc. Broader definitions may include raw material supplies or production-related services such as logistics, warehousing, insurance, finance etc. While the definition of SI can include firms of any size or nationality, policy measures are often directed to local SMEs. Ms. Thuy reviewed SI promotion policies in East Asia and drew lessons for Vietnam such as importance of inter-agency coordination and linkage between FDI and local firms.

Dr. Fuminori Ide, who specializes in Malaysia’s industrial policies, suggested that Vietnam should conduct careful research on domestic and international situations in order to draft a practical and reasonable SI master plan. He also pointed out that general, untargeted SME support might spoil local firms, as seen in the unsatisfactory results of Vendor Development Program in Malaysia.

(From the left) Prof. Nobehara, Dr. Ide, and Prof. Baba

Prof. Toshiyuki Baba, who recently published an innovative analysis of SI in East Asia using the input-output table, emphasized the necessity of adequately combining policy support and market orientation. Foreign assemblers need to have a generous and impatient mind to develop local supporting industries in cooperation with the government. Meanwhile, indigenous suppliers must be exposed to healthy market competition which compels them to produce high quality parts at minimum costs. Prof. Baba said that it would take some time for developing country officials to realize the importance of SI for industrialization. For example, most Chinese officials previously regarded SI as low-value and low-tech, but after China received a large amount of assembly-type FDI, they have come to understand that SI was the true source of industrial competitiveness.

Prof. Takashi Nobehara, a former expert at a leading Japanese think tank, previously helped to draft SI master plans and other master plans for Malaysia and Indonesia. In other ASEAN countries such as Malaysia and Indonesia, the government selected several clearly-defined targets such as automobile and electronics, which already had sufficient assembly agglomeration, and formulated SI development strategy specifically for these sectors. However, it would be difficult for Vietnam to select and promote strategic sectors, because it has low accumulation of assemblers and Vietnam has already joined AFTA and will join WTO very soon. Prof. Nobehara recommended Vietnam to target supplying skilled-labor intensive parts and components to the entire ASEAN region, not just domestic users, in various sectors. In order to achieve this, Vietnam needs to master core and elementary technology such as casting, forging, pressing, heat treatment, etc. Vietnam must also offer a very free and quick business environment in order to become an essential part of the regional production network. He thought that Vietnam had a high potential in exporting electric and electrical components.

Prof. Kenichi Ohno explained VDF activities in support of Vietnam’s industrial policy formulation such as the SI master plan and the motorbike master plan. SI in the motorbike sector has grown significantly due to the sufficient market size, while unstable policies and small demand impede the development of SI in the automotive sector. Prof. Ohno said that, with proper effort, Vietnam could become a reliable partner in integral manufacturing and cooperate with Japan more effectively. Although Vietnam’s SI is at the initial stage of development, it may catch up with and even overtake Malaysia and Thailand, if policy is improved to fully take advantage of high quality human resource.

[By Junichi Mori]