Suppliers struggle to join multinationals’ chains

By Dat Nguyen   August 22, 2019 | 09:15 pm PT
Suppliers struggle to join multinationals’ chains
Workers arrange containers with phosphoric acid at a plant belonging to the Duc Giang Chemicals Group in Lao Cai Province. Photo courtesy of Duc Giang Chemicals Group.
Vietnamese firms say they have struggled to participate in MNC supply chains, with the latter prioritizing cheaper home country inputs.

Dao Huu Huyen, Chairman of Duc Giang Chemicals Group Jsc in the northern province of Lao Cai, said that his company can produce 30,000 tons of electronic grade phosphoric, a high-purity chemical which is widely used in the production of circuits and display, every year.

But Huyen cannot sell it to big global firms, like Samsung. The electronics giant mostly sources this product from other South Korean firms, even though they also buy materials from his company to make the same product, he said at a recent forum.

Although the low quality of Vietnamese products are often cited as the reason preventing them from entering the global supply chain, local firms said this remains a challenge even with high quality goods.

Typically, multinational companies prioritize more experienced suppliers from their home country.

Among 8,000 industrial companies in Vietnam, only a small number is participating in the global supply chain with low added value, Truong Thanh Hoai, head of the industrial department under the Ministry of Industry and Trade, said.

Local firms only manufacture parts that global companies at the top of the chain demand, and cannot go further even if they have the capability to make high quality products, he added.

Vietnamese firms have only recently been able to make products that meet global standards, while foreign firms have been able to do so for decades, said Vu Huu Thang, Deputy Director of a company in the northern province of Bac Ninh Province which produces plastic parts for Canon printers and Samsung smartphones.

"Multinationals obviously prefer a 30-year-old supplier from their home country to a 10-year-old Vietnamese one," he told VnExpress International.

Cost is another issue. Industry insiders say that even if Vietnamese products meet global standards, their prices may not be competitive enough to attract a multinational company.

"Prices could be high because Vietnamese firms have to import material from other countries such as China, and they are still in the learning process. It could take years before they figure out how to lower prices," Thang said.

Another problem is a general distrust among foreign companies of products manufactured in Vietnam, industry insiders say.

Economist Nguyen Tri Hieu said that even if a Vietnamese firm could make a product as good as or better than one from another country, the "Made in Vietnam" brand does not carry as much as weight as "Made in South Korea" or "Made in Japan."

"Vietnamese firms still need more time to establish their reliability and global companies."

Less than 14 percent of Vietnamese private firms are suppliers to foreign direct investment (FDI) businesses, said a report released last year by the Vietnam Chamber of Commerce and Industry (VCCI).

Only 20 percent of FDI firms have ventured to do business with local companies, even after they have been in Vietnam for 30 or so, the VCCI report said.

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