Opportunities are on the horizon for enterprises in Vietnam’s supporting industries as the country increasingly attracts buyers seeking an alternative market and supply chain expansion partners.

RX Tradex, a company specializing in consulting and connecting industrial enterprises in Vietnam, has noted a significant uptick in partners seeking suppliers in supporting industries in 2022. Excluding those who were merely studying the market, more than 100 partners had specific objectives in mind and were actively seeking Vietnamese enterprises to source goods. Over the past five years, the number of enterprises looking for suppliers in Vietnam’s supporting industries has been steadily rising. Vietnam is now seen as an ideal destination, particularly in light of the growing tensions between the United States and China, coupled with concerns about overreliance on China in the supply chain, especially following the Covid-19 pandemic. This presents a valuable opportunity for supporting industries in Vietnam. However, despite intensive efforts to seek and negotiate with partners over an extended period, RX Tradex reports that only 30% of their partners have been successful in purchasing goods from Vietnam. According to Nguyen Trong Tai, general director of RX Tradex Vietnam, this suggests that while there is potential, there are still challenges to overcome in tapping into these opportunities. Necessity of transformation The challenge of finding reliable partners for the supply of parts and materials in Vietnam has persisted for years. Vietnamese supporting industries enterprises have often been labeled as capable of producing only simple components like nuts and bolts, falling short of the technological requirements needed to become higher-level suppliers in the value chain. In a press conference on a supporting industries exhibition in late 2022, Matsumoto Nobuyuki, chief representative of the Japan External Trade Organization (JETRO), expressed Japanese enterprises’ interest in seeking partners in Vietnam. However, they encountered difficulties in identifying those capable of ensuring quality requirements. Vietnamese enterprises could handle sample requests and trial production, but only 10% of the products met the standards. “Japanese enterprises ask for accuracy of 99%. To join the Japanese supply chain, Vietnamese enterprises must solve the problem of unevenness in quality,” Nobuyuki said. In the supporting industries process, buyers typically approach enterprises in a specific area to provide technical specifications for a product. Partners capable of producing products meeting the required standards at a reasonable cost are then selected. Conversely, situations in which supporting industries producers have suitable products ready for offer are rare. In such cases, collaboration between the two sides is often necessary to create a suitable version. Buyers typically place orders and make payments only when they are confident that their partner enterprises can produce products meeting the specified standards. However, enterprises must make initial investments in technology, machinery, workshops, and personnel to ensure quality. They often worry about receiving orders after making these investments. Yet, without investing in trial production, small enterprises with low-quality products struggle to supply larger partners. “The fundamental issue facing Vietnamese enterprises is the “chicken-and-egg” problem of investment,” said Tai. In contrast, buyers have numerous options, with China offering competitive prices, while rivals like India and China continuously invest in development. “The competition is very fierce. If Vietnamese enterprises are not willing to move forward, it will be tough for them,” he said. Supporting industries have long been a priority sector for development in Vietnam. The Government has introduced various mechanisms, policies, and financial support for research and innovation. The Ministry of Industry and Trade recently proposed a 3% interest rate subsidy for lending to supporting industries enterprises over a maximum of 10 years until 2030. HCMC, approved to pilot special mechanisms by the National Assembly, continues to use the local budget to support interest rates for lending to stimulate investment. This program ran throughout the 2015-2020 period, with over 30 projects gaining access to preferential credits totaling VND1.3 trillion. “While accessing credit may require planning and approval processes, it is not overly difficult for supporting industries enterprises with well-structured plans and investment strategies,” said the leader of an enterprise making parts for semi-trailers in the Hiep Phuoc Industrial Park in Nha Be District, HCMC. The strength of connectivity Sabrina Anh Tran, the purchasing manager of TTI Vietnam, an electrical equipment enterprise, highlighted the primary challenge faced by enterprises in Vietnam when it comes to procurement: cost. Most suppliers import components from overseas, making it difficult to optimize costs effectively. TTI has found some separate parts in Vietnam, such as those for cutting and welding. “We are actively seeking complete suppliers capable of producing parts from start to finish. This approach would enable them to control quality and provide technological support for suppliers’ development,” said Anh Tran. Drawing on years of experience working with foreign partners, Tai emphasized the Chinese approach when receiving a request for a set of parts—connection. Chinese enterprises, upon receiving orders, proactively seek partners capable of manufacturing various parts of the set for collaborative selling. The comprehensive ecosystem for component supply, along with the ability to connect and foster mutual trust among enterprises, ensures product quality and competitive pricing. This strategy aligns with the Vietnam Association of Supporting Industries (VASI) as well. Duong Huu Phuc, a member of VASI’s management team in the south, explained that the association is working on forging connections to establish a cooperative chain for joint sales. Most existing customers’ demands revolve around purchasing complete products or sets of components. However, the supply chain of VASI in the south currently faces disconnection due to the absence of enterprises in certain industries like plating and thermal treatment. In the north, VASI has been more successful, with joint sales projects in the plastic and mechanical engineering industries resulting in finished products and price offers to customers. The main challenge for these cooperative sales groups lies in the lack of mutual trust and understanding and the uneven capacity among members, especially when orders may not be sufficient for all participants. Phuc noted that addressing this issue involves enhancing support, training, exchanges, and sharing among members. All members are working together to secure new orders for the group. Collaboratively producing high-quality products is the path toward establishing sectoral connections and advancing individual members amid the opportunity for deep involvement in the global supply chain.