Supporting industry in the electronics industry: Great prospects for Vietnamese businesses
In recent years, the electronics industry and the supporting industry in the electronics industry have become one of the important drivers of Vietnam’s economic growth and exports. With a contribution of more than 30% of the country’s total export turnover in 2021 and 2022, The electronics industry is not only the pillar of the economy but also a symbol of the country’s industrialization and modernization development. However, in the context of globalization and the industrial revolution 4.0, Vietnam’s electronic support industry, especially in Hanoi, is facing many challenges and risks of lagging behind in technology. In order to maintain and enhance its position, the implementation of breakthrough solutions is necessary to strongly and sustainably develop the electronic support industry.
1. Risk of lagging behind technology – Supporting industry in the electronics industry
In recent decades, the electronics industry and supporting industries have contributed a large part to Vietnam’s export turnover, accounting for more than 30% of the country’s total export turnover in 2021 and 2022, reaching 371.85 billion USD.
In 2021, Vietnam achieved a trade surplus of 4 billion USD, of which the electronics industry contributed a surplus of up to 11.5 billion USD. In 2022, with a surplus of 11.2 billion USD, the electronics industry continues to contribute greatly to maintaining the balance of trade and foreign exchange for the country.
However, due to the impact of global economic fluctuations, the growth rate of this industry has slowed to 5.76% in 2022, compared to 13% in 2021, 9.7% in 2020 and 10.8% in 2019.
According to the Vietnam Association of Supporting Industries, most enterprises in this industry have limited capital and human resources, with the majority belonging to small and medium-sized enterprises. Businesses with a capital of less than 1 million USD – 5 million USD account for 21% to 26%.
By the end of 2022, more than 200 enterprises in Vietnam have become Tier 1, 2, and 3 suppliers for Samsung, of which 52 enterprises have reached Tier 1. Similarly, LG Vietnam and Canon Vietnam also have long-term supply chains with many local businesses.
However, the electronic support industry is facing many major challenges. Current policies have not had time to adapt to the rapid transformation of the industrial world 4.0. Vietnam needs to adjust its policies to support businesses and attract foreign investment, especially in the field of technology and innovation.
The digital transformation in Vietnamese businesses is still slow. The majority of businesses only use computers for conventional purposes, not fully prepared for deeper technology applications. Efforts to invest in digitalization currently account for only about 20% of the total number of businesses in the country.
2. Change to seize opportunities in time
A representative of the Vietnam Association of Supporting Industries (VASI) said that in 2023, the world economy is still in a period of mild and local recession. Although inflation has passed its peak, this is the time when businesses and people suffer the most. Commodity prices fell, but consumer demand, especially for electrical and electronic products, did not increase.
The Covid-19 pandemic has created significant changes in consumer habits and behaviors. Today’s customers prefer online shopping and are more interested in the practical applicability of electronic products/devices than high-end devices (flagships). “Before Covid-19, customers often changed high-end equipment, but now this demand has decreased significantly. Electronics manufacturers are adjusting their organizational orientation and production capacity to suit new consumer behaviors,” Ms. Huong analyzed.
According to economic experts, Vietnam is benefiting from these changes. This is an opportunity for Vietnam to participate more deeply in the global supply chain and increase domestic value. Supply chain changes after Covid-19 bring opportunities to increase exports to fastidious markets, as they seek to source goods from emerging markets such as Vietnam. The trend of shifting investment and production to Vietnam also creates opportunities to attract FDI, especially in the electronics sector.
The promotion of bilateral and regional economic linkages, along with the ratification of new-generation free trade agreements such as the CPTPP and EVFTA, have facilitated trade and investment in high-tech industries, especially electronics.
Mr. Vu Trong Tai, General Director of RX Tradex Vietnam, said that opportunities and challenges for electronics businesses are intertwined. “Businesses need to transform quickly to seize opportunities,” Mr. Tai emphasized.
Currently, Vietnam’s supporting industry enterprises are mostly small and medium-sized, with fragmented production and low technology, leading to limited productivity and unsatisfactory quality of customers. The supply chain is not closed and lacks synchronization, factories are not closely connected to each other, making opportunities easy to come and easy to lose. Meanwhile, India is growing strongly and wants to regain its position as a manufacturing hub from China, with the advantage of abundant human resources and cheap raw materials.
Vietnam is in a favorable period, so businesses need to change quickly to take advantage of this opportunity and accelerate the digitalization process. The Government needs to adjust policies to support businesses in a timely manner, promote Vietnamese businesses to develop strongly and actively participate in supply chains in higher technology positions.
3. Supporting industries for the electronics industry in Hanoi
3.1. The current situation of the development of the supporting industry in the electronics industry in Hanoi: Overcoming barriers to breakthrough
In more than 30 years of development, Vietnam’s electronics industry, especially in Hanoi, has mainly focused on assembling products for foreign brands. Electronics businesses in Hanoi still exploit old products with low profits, and the added value only increases from 5% to 10% per year. This leads to FDI enterprises in the electronics sector facing pressure to reduce component costs and improve the value of domestically produced products. However, due to the small number of supporting enterprises and the quality of components that do not meet standards, the majority of FDI enterprises have to import components from other countries.
The domestic supply rate for assemblers is very low and is mainly undertaken by FDI enterprises. Supporting industry products are mainly produced or imported by FDI enterprises. Domestic enterprises producing components often have low quality, high prices and outdated technology, leading to these products only being consumed internally by domestic enterprises.
Industrial enterprises supporting the electronics industry in Hanoi have made efforts in technological innovation. However, due to the fact that most of them are small and medium-sized enterprises and lack capital, the innovation process faces many difficulties. According to a survey by the Supporting Industry Enterprise Development Center (SIDEC, 2019), businesses mainly use technology from Japan, Taiwan, China and Europe, with an average level of technology.
In renovating production organizations, many enterprises have actively applied modern standards and management tools such as ISO 9000, 5S and Kaizen. However, most businesses have difficulty reorganizing production due to the quality of human resources and lack of capital.
Hanoi has developed an infrastructure system including 17 industrial parks with a total area of nearly 3,500 hectares. Industrial parks such as Thang Long – Noi Bai, Thach That – Quoc Oai, Nam Thang Long,… have an occupancy rate of over 95%. In recent years, these industrial parks have attracted many large investment projects, especially in the field of electronics and mechanics.
Despite many advances, Hanoi’s electronic support industry still faces many challenges such as:
- The number of supporting enterprises is small: Mainly small and medium-sized enterprises, with limited quality of components, most of them have to import from abroad.
- Outdated technology: Many businesses have not innovated technology in time, leading to low added value.
- Limitations in linkage: Links between businesses in the same supply chain are still weak, not yet creating a strong driving force for development.
3.2. Proposing a plan to develop an industry supporting the electronics industry in Hanoi in the near future
In order to improve the added value and develop the supporting industry in Hanoi in the coming time, it is necessary to focus on the following solutions:
3.2.1. Promoting the increase of market demand capacity
It is necessary to step up the provision and support of information, as well as the organization of introduction and trade promotion activities for industrial products supporting the electronics industry. This helps businesses access and participate in the global supply chain. Businesses need to actively research the market, approach potential customers, and capture information about needs from multinational corporations through conferences and seminars organized by state management agencies, associations, and business support centers.
Currently, many trade promotion and information support programs have been implemented through business associations such as the Association of Small and Medium Enterprises, the Association of Supporting Industry Enterprises of Hanoi City. However, there are still few businesses that can take advantage of these opportunities. Organizations and associations need to better promote their role as a bridge between industrial enterprises supporting the domestic electronics industry and assembly corporations in Vietnam and internationally.
3.2.2. Improving the quality of human resources
High-quality human resources are a key factor for the development of the supporting industry in the electronics industry. In the context of international economic integration and the trend of the Industrial Revolution 4.0, improving the quality of human resources has become even more urgent.
On the city’s side: Hanoi needs to have a policy to attract experts from developed industrial countries such as Japan and South Korea to support the construction of industries to support the electronics industry, train human resources and guide access to modern technology. The preferential personal income tax policy for experts is one of the measures that can be considered. In addition, it is necessary to improve the efficiency of training industrial human resources in Hanoi, create a core force to meet the requirements of domestic assemblers and participate in the global production chain. This can be done through cooperation between training institutions, businesses and large corporations such as Samsung and Canon.
On the business side: Businesses should take advantage of existing training institutions such as Industrial Universities, technical universities, colleges and intermediate schools to train human resources. At the same time, closely link with other businesses to meet practical needs, invite experts for further training. Businesses can also attract interns who have worked at factories in the electronics industry abroad to return to work at domestic enterprises.
3.2.3. Strengthen policy enforcement capabilities
Hanoi needs to strengthen its strong commitment to implementing policies to develop industries to support the electronics industry. In fact, without a solid political foundation, policies are prone to failure in the face of other policies. Before Decree No. 111/2015/ND-CP was issued, industrial development policies to support the electronics industry were almost ineffective due to the lack of legal basis. This Decree represents an important step forward, showing the State’s interest and commitment to the development of supporting industries. In the future, if the Government legislates supporting industry development policies, businesses will benefit more from this policy.
4. Conclusion
With great potential and policy support, the electronic support industry is facing a golden opportunity to break through and become an important part of the global supply chain. To make the most of these opportunities, businesses need to quickly innovate technology, improve the quality of human resources and promote stronger links with large corporations in the world. At the same time, effective policy adjustment and enforcement from the government will play a key role in creating favorable conditions for businesses to develop.
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