VN targets parity between FDI, domestic firms

The need to bring about some degree of parity between foreign-invested and domestic firms while fostering increased linkages was highlighted at the Vietnam Business Forum held yesterday in Hanoi.
 Employees of LG Electronics Vietnam, a Korean-invested firm, operate a production line at the firm's factory in Hanoi. (Photo: VNA/VNS)
Employees of LG Electronics Vietnam, a Korean-invested firm, operate a production line at the firm's factory in Hanoi. (Photo: VNA/VNS)

There was a general consensus among the participants that increased links between FDI firms and the nation’s SME sector, in particular, would facilitate the process of international integration on a fairer footing.

Attending the mid-term forum were Deputy Prime Minister Vuong Dinh Hue, representatives from international organisations, trade associations and foreign chambers of commerce in Vietnam, senior ministry officials, economists and trade experts.
They agreed that effective solutions had to be found for small and medium sized enterprises (SMEs) to connect with FDI enterprises.
Deputy PM Hue confirmed that the Government would do its best to adjust the difference between the two sectors without reducing FDI inflows.
He said the Government would be more selective with FDI companies, choosing those whose business plans suited the Vietnam’s economic restructuring.
As such, priority would be given to foreign firms with state-of-the-art, environmentally friendly technology ready to connect with Vietnamese SMEs.
Meanwhile, the Vietnamese government had been striving ceaselessly to develop a transparent and uncluttered business environment for all economic sectors, the forum heard.
With Resolutions 19 and 35 on business legality, the government hoped to create a concrete playground with fair rules for all, the Deputy PM said.
Hue also said that the Government was working on renewing 73 customs regulations in order to facilitate the needs of both domestic and foreign businesses.
Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry (VCCI) and co-chair of the VBF, agreed with the Deputy PM, saying that "the government is right to spearhead linkages between the FDI sector and domestic businesses so that development is more even".
“This is one of the topics for discussion at the National Assembly and a sustainable growth strategy for FDI firms," Loc said.
However, he also warned that according to the latest report by the International Finance Corporation, only 21 per cent of Vietnamese firms were taking part in the global supply chain, which was much lower than in neighbouring countries.
Vietnamese producers are also placed at a low position on the value chain as manufacturers and low cost workers provider.
Furthermore, according to the Organisation for Economic Co-operation and Development, added value generated by the FDI sector now accounts for 48.8 per cent of total export turnover in Vietnam, as against just 12.7 per cent by domestic firms.
Most importantly, only 14 per cent of Vietnamese firms are currently functioning as parts suppliers to FDI companies, since the latter favour suppliers from their home countries.
"This means there is still a long way to go until complete collaboration and understanding is reached between the two sectors and Vietnamese SMEs finally benefit from technology transfer and production opportunities that they sorely need," said Loc.
Representatives of foreign chambers of commerce in Vietnam blamed the current situation on the lack of a unified tax and customs policy.
Tomaso Andreatta, Vice Chairman of the European Chamber of Commerce in Vietnam, said that while Vietnamese provinces compete against each other to attract foreign investment, there was yet to be a fair and standardised set of regulations for foreign companies operating in the country, which made them nervous and hesitant.
Jonathan Moreno, Chairman of the Board of Governors of the American Chamber of Commerce in Vietnam, suggested that the Vietnamese government removes or simplifies non-tariff technical barriers at border gates that are costly and complicated.
There was also positive feedback from international companies investing in Vietnam.
Ryu Hang Ha, co-chair of the Korean Chamber of Commerce in Viet Nam, said that thanks to the Free Trade Agreement between Vietnam and Korea (VKFTA) signed in 2015, bilateral trade had been increasing significantly. The nations are set to meet the two-way trade goal of US$70 billion by 2020, and 71 per cent of Korean companies are satisfied with Vietnam’s management of foreign business entities.
‘As the Republic of Korea is now the number one investor in Vietnam, Korean multinational companies as well as Korean SMEs consider the country to be a fresh and attractive destination,’ said Ryu.
Nonetheless, he suggested improvements in the easing and removal of language barriers and the provision of more information on investment policies.
Hiroshi Karashima, Chairman of the Japan Business Association in Vietnam, said he had high regard for the Vietnamese government’s efforts to improve the connection between FDI firms and domestic SMEs.
Many Japanese companies are planning to build manufacturing plants in Vietnam and generate a high demand for local supporting industry, according to the chairman.
1000 suggestions
VBF organisers said they received nearly 1,000 suggestions for the Government and administrative agencies from businesses and associations.
They expressed their hopes of joining regional and international production networks and eliminating national boundaries in production.
The Deputy PM showed his appreciation for the opinions and said that the government would take all of them into serious consideration as it tries to perfect the current legal framework and minimise litigation risks and fees. He said this was part of its efforts to become a truly constructive government on behalf of the Vietnamese people.
The VBF is an ongoing policy dialogue between the Vietnamese government and the business community organised by the Vietnam Business Forum Consortium in cooperation with the Ministry of Planning and Investment and the World Bank.
This year, the midterm forum includes four sessions on employment, supporting industries development, infrastructure investment, the fourth industrial revolution, free trade agreements, elimination of non tariff barriers, private sector investment and improving law enforcement.

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