Mechanical industry stuck in assembly mode

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A worker polishes granite slabs at a factory in Ho Chi Minh City. Photo by Nghia Pham

Nearly a decade after being singled out as a key growth industry for Ho Chi Minh City, the mechanical industry is nowhere near to fulfilling its promise.

The industry still largely depends on imported component and functions more as an assembler than a manufacturer.

Insiders said that the industry, which was expected to boost others, has recorded no manufacturing breakthrough yet, a Tuoi Tre report noted.

Tu Minh Thien, a city councilor, said at a recent meeting with the Department of Industry and Trade, "We are still looking for some key products from the industry."

The director of a leading provider of pharmaceutical machinery in the city, only identified as T., said the industry is yet to produce even its own nails and screws.

"It is only doing a great job in importing components and putting them together."

He said to make fluid bed dryers, primary equipment in pharmaceutical process that dries materials by fluidization with hot and/or dehumidified air, his company had to import everything.

"My products are labeled "˜made in Vietnam,' but actually only the labor, the selection and assembling of components happen here."

Things are not much different at the Saigon Transportation Mechanical Corporation (Samco), its general director Nguyen Hong Anh said.

The corporation has a specialized machinery factory, but still has to import main components including tappets, deceleration control apparatus, gear boxes, engines, and the frames.

Anh said the vehicles are only 43 percent Vietnamese, thanks to local components such as wires and batteries.

The industry was expected to make use of modern technology to create high added value, but that has not happened as well.

The annual growth rate for manufacturing value in the industry has dropped from 22.6 percent in the 2001-2005 period to 16.6 percent in the next five years and 13.4 percent between 2011 and 2012, according to figures from the Department of Industry and Trade.

Do Phuoc Tong, vice chairman of Ho Chi Minh City Mechanics Association and director of a local company, said the industry just does not have money to generate more money.

Tong said most companies in the industry are small and medium scale with capital of up to VND20 billion (US$950,000), and are unable to invest in specialized equipment for production, let alone mass produce one for high added value. 

"They are caught in the loop of assembling and repair."

He said there might be fewer than five companies in the city that have made proper investments to earn themselves the prestige of being a genuine manufacturer.

He said even with assembling, local companies are not making enough to meet local demand or compete with foreign counterparts.

Samco, for example, assembled around 450 buses in 2012, compared to the annual local demand for thousands.

Tong said "unreasonable" tax policies have "killed" the competitiveness of local manufacturers, as tariffs for components are higher than for complete products.

He said his products face "very harsh competition" with imports from Taiwan, South Korea, Japan and China, though they meet high quality standards to export to picky markets like Europe.

Other insiders said the industry could have used more government support, particularly with an automobile machinery industrial zone planned nearly ten years ago.

The project, with Samco as one of the three shareholders, was expected to become a center producing automobile components and new vehicles.

But after more than VND200 billion ($9.5 million) was spent on ground clearance including relocation, the area is a mess.

Anh of Samco said once a Japanese business intended to invest in an airbag production facility at the zone, but now it has gone to Thailand.

"It has taken too many procedures to turn the area into an industrial zone."

Mechanical industry is among four key industries for  the city, the others being chemical, food processing, and electronics information technology.

Anh said none of the other three key industries are doing any better.

He said instead of paying attention to all the four industries at a time, the city administration should focus on them one by one.

"Otherwise, the city would still keep looking for one product that can compete against foreign counterparts."

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