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Supply chain growth to up competitiveness

Update: April, 13/2012 - 11:19

by Quynh Hoa

HCM CITY — Officials at a seminar yesterday in HCM City underscored the urgent need for supply chain development in several sectors, including electronics, textiles and garments, electronics, leather shoes, and automobile and motorbike manufacturing.

At the seminar organised by the Ministry of Industry and Trade (MoIT) and the Multilateral Trade Assistance Project III (EU-Viet Nam MUTRAP III), Le Trieu Dung, deputy director general of the MoIT's Multilateral Trade Policy Department, said there was a need to improve the supply chain to increase added value for major export industries.

Having a better supply chain would also help negotiations in the upcoming free trade agreement (FTA) talks between Viet Nam and the EU. It would also be important for the FTAs already signed with China, Korea, Japan, New Zealand and India.

Truong Thi Chi Binh, director of Institute for Industry Policy and Strategy's Supporting Industry Enterprise Development Centre, said a good supply chain was especially needed in the auto and motorbike sector because it had seen more added value than other sectors.

"In the manufacturing sector, 90-95 per cent of added value is from the supply chain (including raw materials, research, design and manufacturing), and the support industry. Assembly for finished products only accounts for 5-10 per cent in the value chain."

When Vietnamese businesses supply products to a multinational corporation, these products will enter into a global supply chain.

"However, to meet the demands of multinational corporations, Vietnamese enterprises are advised that supply be based not only on price and quality but also production capacity in a long term," she said.

Support industries are critically important for Viet Nam to participate in the global value chain.

Like developed countries such as the US, Germany and Japan, Viet Nam needs to develop an automobile sector that can generate increased value added throughout the supply chain.

The supply chain in the manufacturing sector remains weak, partly caused by heavily reliance on foreign imports of raw materials.

For instance, the rate of local raw materials in the manufacturing sector is only about 10 per cent.

Every month, about 5,000 units of Innova automobiles are produced in Indonesia, but only 1,300 are made in Viet Nam. The price of Indonesia-sourced Innova automobiles is $4,000 less than that in Viet Nam.

Viet Nam imports more raw materials from Asean countries than Indonesia, plus there is a higher logistics fee and tax in Viet Nam, increasing the sale price.

This has lowered the competitiveness of the local automobile sector.

Viet Nam was urged to learn from experiences in Thailand and Malaysia in developing the auto and electronics sector.

For instance, Thailand offers preferential policies for locally sourced component production, while Malaysia develops zones for electronic components production.

The Vietnamese government also should pay more attention to attracting foreign-invested small- and medium-sized enterprises to meet the demand for local supply.

The Government also needs to offer financial preferential treatment to help the development of the support industry.

Dang Phuong Dung, general secretary of Viet Nam Textile and Apparel Association, said the textile and garment sector faced heavy dependence on imported raw materials.

Machines, chemical substances and dye are also mostly imported, leading to a supply chain that is not effective. There is also a lack of linkages in the distribution and retail network.

Currently, Viet Nam needs about 400,000 tonnes of cotton every year, but domestic supply can meet only 3,000 tonnes (0.75 per cent) of demand.

"Even though export turnover is high, added value would be small if there is not an effective supply chain," she noted.

Dung suggested that the Government could boost export turnover by providing financial support for a raw materials trading center and more help to the support industry.

Nguyen Thi Tong, vice chairwoman cum general secretary of Viet Nam Leather and Footwear Association, said an improved supply chain would allow companies to deal with challenges related to production, suppliers, retail, inventory, sales, product check and delivery and warehouse operation, among others. —VNS

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