Foreign firms dominate exports, but bring little value to Vietnam

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Workers at a Singaporean-owned garment factory outside Hanoi 

With their advantages in terms of finance, technology, and markets, foreign firms contribute more to Vietnam's export revenues than their domestic counterparts, but they do not benefit the country too much since value-addition is low, critics say.

Of total exports of US$104 billion in the year-to-date, they accounted for $65.6 billion, up 31.8 percent, according to the General Statistics Office.

Tran Thanh Hai, deputy head of the Department of Export-Import at the Industry and Trade Ministry, said foreign firms mainly produce goods with high prices, while local businesses often export cheap raw materials.

Nguyen Van Nam, former head of the Trade Research Institute, said: "Many foreign-invested enterprises in Vietnam are big groups like Samsung, Canon and Intel, so the global economic slowdown has not affected their business much."

Samsung has been in Vietnam for more than a year, exporting products worth around $1 billion each month, and Canon Vietnam's export revenues topped $1.5 billion last year, he said.

"Foreign firms master their production chain, from research and design of products to survey of markets.

"They also have clear export strategies. For example, when there is an economic downturn in the US, they may cut exports to that market and increase it to others like Australia and China. So their total shipments have not been affected."

But the critics point out that actual value-addition done in the country before they export is low.

Nam said the large exports by foreign firms should help generate a lot of jobs, but it is not happening.

"All the production stages that bring the highest value-addition to a product such as designing or making the most important parts are not done in Vietnam, but abroad.

"Foreign firms in Vietnam only assemble or make packaging for the products. Thus, their added value remains low."

Nguyen Mai, former vice chairman of the State Cooperation and Investment Committee, concurred, saying: "We should be interested in the added value of our exports, as firms now still import too much to produce exports."

Foreign firms imported materials and products worth $55 billion in the first 11 months of this year, against their exports of $65.6 billion.

Domestic firms' woes

Vietnamese firms are not involved in the value chain of many products. Nam said they mainly export raw materials or implement outsourcing contracts for foreign partners.

"Coffee and rice are examples. Although we are a leading exporter of the products in the world, our export addition is still low."

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Diep Thanh Kiet, vice chairman of the Vietnam Leather and Footwear Association, said 60-70 percent of Vietnamese garments and footwear sold to global fashion companies are produced by foreign firms.

With parent companies abroad, strong distribution systems, and famous brand names, it is easier for foreign firms to find export markets, he said.

Nguyen Dinh Thu, director of a garment firm in Hung Yen Province, said local enterprises also find it hard to get loans at competitive interest rates to fund their business.

"Foreign firms have an advantage of borrowing from foreign banks at just 3 to 4 percent, so they are very competitive."

In comparison, local companies have to pay 16-17 percent.

"High interest rates make our products more costly.

"Despite the high interest rates, it is not easy to meet banks' demands in terms of mortgages and business plans to get loans," he said.

Lending rates have remained above 15 percent for more than 30 months now.

With their obvious advantages, many foreign firms are expanding their operations in the country, while on the other hand domestic businesses are forced to shut down, an analyst said.

Support industries needed

Mai said Vietnam should boost the development of the supporting industries since now they cannot meet the demands of manufacturers for parts and other inputs.

The head of a foreign electronics company in Bac Ninh Province said he can source only 20 percent of his needs locally. His company regularly launches new mobile phones which need components, but local producers cannot meet the requirement.

So the company has to import key parts which account for more than half of the total value of a phone.

"No company wants to import materials and spare parts. They want to use materials produced by local companies to cut costs."

But beside developing supporting industries, Vietnam should also offer more tax and financial incentives to support exporters since the global market is expected to remain bad next year, Nam said.

"The country's main export markets, the US and EU, have not showed signs of recovery from the economic downturn, so their demand for imports will not rebound soon."

Vietnamese companies should export to new markets like Africa, the Middle East, and Latin America, and develop products with high added value instead of depending on exports of raw materials like rice, coffee, and rubber, he added.

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