A Honda motorbike engine on display at an exhibition in Ho Chi Minh City. Vietnamese firms are able to meet only a very small part of the demand from Japanese investors for spare parts and accessories.
Vietnam faces a reduction in foreign capital inflow even as it implements free trade agreements with its partners because its underdeveloped supporting industries will be a discouraging factor, experts say.
The Japan International Corporation Agency (JICA) has said Vietnam would not be a choice for foreign investors interested in the ASEAN region to set up factories over the next five years, if the supporting industries developed very slowly.
ASEAN members including Vietnam will complete the Common Effective Preferential Tariff, cutting import taxes on most items to zero in 2015. Some tariffs will be removed three years later.
JICA expert Katsumata Teruhisa said investors would house their factories in countries where supporting industries are highly developed, and only consider the others as potential markets.
Vietnam's supporting industries were far less developed than other ASEAN countries like Thailand, Malaysia and Indonesia, he said.
Vietnamese firms are at present able to meet only a very small part of the demand from Japanese investors for spare parts and accessories in the automobile, motorbike, electric and electronic industries.
The local content ratio was about 5 to 10 percent in automobiles, 20 to 40 percent in electrics and electronics and 70 to 80 percent in motorbikes, Teruhisa said.
Half the content in local motorbikes was provided by foreign traders or investors who've set up factories in the country, he added.
Le Tuan Anh, managing director of Cathaco, said it was not easy for local firms to start up supporting industries because of the capital and skilled labor force required. Moreover, those entering this business need to be patient about getting returns on their investment, he said.
Cathaco, one of pioneers in the industry since 1999, manufactures parts and components of television sets or computers for foreign-invested businesses.
Anh said many local firms were not patient enough to run supporting industries which require producers to take care of details. They typically wanted to see their profits very quickly with minimum trouble, he said.
"That is the reason why only a small number of small- and medium-sized enterprises are involved in the (supporting) industries and why they have developed slowly in the country," he told Thanh Nien Weekly.
Anh said his company was seeking foreign partners in Singapore, Thailand, Malaysia or China to join a new project which aims to increase its capacity and competitiveness because it was difficult to find local partners.
More time needed
Viroj Sirithanasart, managing director of Thai Tool and Die Industry Association, said it takes at least 10 years for a country to develop its supporting industries and Vietnam would need more than that.
Government support with favorable development policies and the supply of skilled labor was necessary for this development, he stressed.
Sirithanasart said Thailand had started developing supporting industries for electronics, plastics and steel over 10 years ago and now the country is focusing on the automation industry.
Thai supporting industries mainly serve the automobile industry and their capacity, with about 50,000 firms in the fray, exceeds its export demand.
Vietnam should utilize support from France and Japan, he said, adding the latter has also helped Thailand to develop is supporting industries.
Thai businesses are looking to collaborate with Vietnamese partners to develop the industry in the country, he added.
JICA has said it is developing a project to help increase local content in products made by Japanese businesses in the automobile, motorbike, electrical and electronic industries.
The project, which will work with 100 businesses over four years from 2010, was surveying requests from local businesses in three main regions of the country, the agency said. It said 21 businesses have been selected so far to receive support from Japanese experts in the technical aspects of plastic production and die-casting as well as management activities.