The 22nd WORKSHOP
15 April 2006 (Sat), GRIPS Campus in Tokyo 14:00-17:00
"Development of Supporting Industries in Vietnam"
In this workshop, Mr. Junichi Mori (VDF Tokyo Researcher) presented his research on the supporting industries in Vietnam. The presentation was combined by his MA thesis in Tuft University in the US, as well as on-going research in VDF Tokyo under the supervision of Prof. Kenichi Ohno. The information provided in the workshop was accumulated after his visits to many local and foreign-invested companies in Vietnam with professors and researchers of VDF Tokyo and Hanoi during the last three years.
Beginning the presentation, Mr. Mori mentioned about the concept of supporting industries as there had been various concepts, and they were used in different aspects in different countries and contexts. After analyzing the definitions in economic theory and business framework, he continued with some characteristics of supporting industries and their roles in economic growth of developing countries. It was shown that they became the primary sources of industrial competitiveness, particularly in production cost reduction. In addition, supporting industries also had played crucial role in attracting foreign direct investment (FDI), encouraging technological transfer between assemblers and supplier, and thus promoting economic growth, although the net effect of this sequence was sometimes ambiguous.
To position Vietnam in the map of supporting industries, Mr. Mori also presented five steps for developing those industries. It was clear that Vietnam was still in the primitive step of development, and therefore there would be numerous issues that needed to be overcome (or to break the “glass ceiling” as Prof.Ohno’s term) in order to reach to higher level of development as other countries in the region such as Malaysia and Thailand. Adopting analysis of Prof. Ohno on those issues, he pointed out five main obstacles: (i) limited demand size, (ii) shortage of high-level industrial human resources, (iii) high import duty on parts and raw materials, (iv) information and perception gap, and (v) unstable policy environment. Due to limited time, the first two issues were in focus of attention in the workshop. For the first issue, the data of the electronic goods as an example indicated that, even though growth rate of domestic market in 2002-2003 was at 18 percent, and it was the third largest domestic market in the region (following Indonesia and Thailand), total output was much smaller than other ASEAN countries. This could be explained by Vietnam’s small size of export as 83 percent of total products was sold in the domestic market. To overcome, Mr. Mori provided some suggestions to promote assemblers and suppliers, in which healthy domestic market, technological transfer, horizontal and vertical business expansion were the key points. In the discussion of the second issue, Mr. Mori emphasized that high-level engineers, so-called “meisters”, were extremely needed in those industries since, according to his interview with a local parts supplier, “high-skilled workers are required, rather than new machines, and if we have high quality engineers, even second-hand machines are acceptable”. Therefore, with the prospective development of supporting industries, various types of engineers, e.g. modular- and integral-type “meisters”, should be available. To illustrate this idea, he showed the process of molding tool manufacturing and Canon’s “meister” system as emerging examples.
The discussion section started by the comment from Mr. Dong (Hitotsubashi University) about the vicious cycle between local and foreign assemblers and suppliers, especially in the sense of competition, and the question of the most important thing to deal with this problem. In response, Mr. Mori said that, since Vietnam was in the primitive step of development, many things needed to be simultaneously and carefully approached, if possible. However, for the current status, priorities would be to increase demand size, improve business environment, and promote human resources.
Being interested in discussion of human resource development, Mr. Thanh (VDF Tokyo & GRIPS) raised the question of whether foreign firms came to Vietnam because of cheap and potential good labour, existence of supporting industries, or accessible market, and of what the government could play in improving human resource. Mr. Mori replied that some big companies such as Canon came to Vietnam at the time that there was almost no local supporting firms, and they decided to come accordingly to their labour or capital-intensive production process. Moreover, he agreed with Mr. Thanh that potential good labour was one of the key attractive factors to get foreign firms in Vietnam. He emphasized that, in addition to other policies, e.g. tax incentives, the Vietnamese government should encourage vocational training to have high-skilled workers and engineers so that foreign firms would facilitate their business more easily with local resources.
With a similar concern with Mr. Dong as above, Mr. Hau (GRIPS) questioned about Mr. Mori’s suggestion to setup collaborative training centers between local and foreign firms since he thought that those firms would be competitors, and therefore they would never share their know-how. In his feedback, Mr. Mori said that those firms could still exchange information on basic training, although they must keep their core production process. Sharing basic training could save time and other costs to get the same target of human resource development.
The discussion part continued with the questions from Mr. Khai (VDF Tokyo & YNU) about the role of local suppliers in supporting industries in Vietnam, and the meaning of the word “development” in the presentation’s title. In response, Mr. Mori indicated that local suppliers were important. Although FDI suppliers may be a driving force at the initial stage, they will not supply all the parts, due to high capital cost and seasonal demand fluctuations. For the second question, he said that the word was used to imply the current issues and future steps to develop supporting industries in Vietnam. He suggested for instance that the first step would be to attract much more FDI, and the second step would be encourage local firms to develop in cooperation with FDI firms as the case of Malaysia.
To conclude, Prof. Ohno talked about on-going research on the supporting industries in Vietnam by VDF, and provided some comments on the questions and answers in the workshop.
According to him, the concepts of supporting industries were provided in different ways as they depended on the structure of each company/industry. For instance, Japanese concept was much based on integral-type industries. He said additionally that, even among big companies, some of them cared about those industries, while some others did not care much. He and his working team would like to know how the development of supporting industries was different between countries and continents. He emphasized that, supporting industries had been relatively unknown in Vietnam so that it was extremely necessary to deal with information and perception gap on those industries before putting all current issues and development strategies in discussion.
He said that he was not pessimistic about the vicious cycle between local and foreign assemblers/suppliers as other participants were concerned because there would be various ways to solve the problem based on different characteristics of industries. What he had been concerned was how to get “meisters” available to both local and foreign firms, and other policies to promote business environment. For the “meisters” issue, Prof. Ohno said that we should clarify capital or labour-intensive, modular- or integral-type production processes so as to have training strategies. To make examples, he provided some information on such Vietnamese “meisters” in Japanese companies in Vietnam.
As usual, the workshop ended with information exchange section, in which we announced our Second Annual Conference on Social and Economic Development of Vietnam on July 15, 2006, as well as coming monthly workshops.
(By Giang Thanh Long)
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