Missing in action: FDI-local firm linkages in Vietnam

A marked failure to forge close links between foreign-invested companies and domestic firms for over three decades has been detrimental to the latter’s progress, expert say.

While the FDI firms contribute about 25 percent of total capital investments and about 20 percent of GDP, a synergy between them and local firms that policymakers had banked on remains elusive.

Vu Tien Loc, Chairman of Vietnam Chamber of Commerce and Industry (VCCI), put it this way. He said Vietnamese companies were still “lonely” and “unable to tie the knot” with FDI businesses.

Both sides of the equation have been blaming each other for the status-quo.

While local enterprises complain about FDI firms’ unwillingness to cooperate and “guide” them on joining global supply chains and sharing mutual benefits, the latter blames the lack of cooperation on the former’s limited capacity, Loc told VnExpress.

To strengthen linkages between the two, there must be a way to help domestic companies grow big and become suppliers to major FDI firms like Samsung, because it has the resources to improve technological adaptation and business management skills of local companies, he said.

But more importantly, Loc said, the Government should undertake thorough institutional reforms and improve the business climate.

“This is something that we can do within our control, thus it would be feasible, cost-efficient and very effective, given that we are promoting import-export activities and taking advantages of new opportunities from trade and investment deals,” he told the midterm Vietnam Business Forum (VBF) 2018 held in Hanoi last week.

Echoing Loc, Planning and Investment Minister Nguyen Chi Dung said linkages between the FDI sector and the domestic business sector to join global value chains have not been as good as expected, resulting in a poor technology transfer and slow development of supporting industries.

According to the Global Competitiveness Index 2017-2018 edition compiled by the World Economic Forum, Vietnam ranked 93rd out of 137 in firm-level technology absorption and 89 in FDI and technology transfer.

VBF Chairman Tomaso Andreatta said Vietnamese companies were mainly operating on a small scale, thus have limited knowledge and experience in sales of high quality products and services for reasonable prices on the global market.

“That is why FDI enterprises still have to bring in suppliers from outside instead of working with Vietnamese suppliers,” he said.

Vietnamese companies need international-standard management capacity and assistance from training schools, service, banking, insurance and technology companies; however, it is not easy due to legal barriers, he said, adding that the Vietnamese Government could do a lot to ease these problems.

Dung said domestic enterprises should work harder to change their business mindset, adopt new technology, and improve labor skills and productivity to become more competitive and create better quality products.

They should not just rely on the Government to create enabling conditions for them to participate in global supply chains, he added.

However, Dung also admitted that the Government should adopt practical measures to tighten links between domestic and FDI enterprises.

According to data from the Planning and Investment Ministry, 128 countries and territories have invested in about 26,000 FDI projects so far, accounting for a total registered capital of over $326 billion.

The FDI sector has taken over 70 percent of Vietnam’s export value, generating 3.6 million direct jobs and 5-6 million indirect jobs.