For development of support industries 

Ministry of Industry and Trade (MoIT) figures put the number of companies in Vietnam supplying components for the automotive and mechanical sectors at about 5,000. Of these, 70 per cent supply domestic manufacturers, 8 per cent supply exporters, and 17 per cent supply both. Some 30 per cent of Vietnamese companies in support industries are therefore involved in global supply chains.

Limited supply capacity

Companies in support industries currently account for about 4.5 per cent of the total number of enterprises in the manufacturing and processing sector. Localization rates have improved in several industries, such as textiles and footwear, reaching 45-50 per cent, and mechanical engineering, exceeding 30 per cent.

The Vietnam Industry Agency at the MoIT has noted that the production capabilities of domestic companies in support industries have improved, with rising productivity and efficiency, and their competitiveness has increased significantly. Many have become direct suppliers of manufacturers, assemblers of complete products, and multinational corporations, participating in regional and global production networks and value chains.

However, the development of support industries still faces significant challenges, and integrating into global supply chains is not at all straightforward. Most local companies in support industries are of small or medium size, limiting their financial and human resources. Vietnam is also short of leading players with significant influence in industry, while research and development (R&D) and new product development are not prioritized and lack investment. Consequently, the ability to meet the demands of global value chains is restricted.

Additionally, the links between Vietnamese businesses and foreign-invested enterprises (FIEs) often remain tenuous. According to Mr. Pham Tuan Anh, Deputy Director of the Vietnam Industry Agency, this is because Vietnam’s industrial sector developed two or three generations later than in neighboring countries, resulting in a small market size that doesn’t support the production scale needed to compete on price. Moreover, policy space for industrial development is limited due to international commitments.

Another major reason is the business practices of global companies, which typically prefer to use suppliers that have previously provided industrial support products within their production chain or use businesses from the same country.

Ms. Do Thi Thuy Huong, Vice President of the Vietnam Association for Supporting Industries (VASI), pointed out that Vietnam’s manufacturing sector still holds a certain degree of standing in the global arena. However, in the “smiling curve” of global supply chains, Vietnam’s electronics industry in particular and the manufacturing sector in general are still at the “bottom”, focusing mainly on production and not yet involved in higher value-added stages such as procurement logistics and distribution logistics.

Moreover, the connectivity between Vietnamese enterprises and major brands is weak, leaving them in a passive position and at a disadvantage in negotiating orders and prices. Many government policies have not deeply reached businesses. Though Vietnam has been successful in attracting FDI and forming supply chains, due to factors such as its legal framework and policies for attracting foreign investment and developing the electronics industry, many challenges remain.

For instance, some advantages have turned into challenges, such as the workforce no longer being abundant, the impact of new-generation free trade agreements seeking green and clean production, and key export markets like the US and the EU increasingly introducing stringent regulations that create barriers. The global shift towards green and clean production is an opportunity for prepared businesses but also a challenge for small and medium-sized local enterprises that lack sufficient resources.

Legal framework

To deepen Vietnam’s support industry’s integration into global supply chains, Mr. Tuan Anh emphasized the urgent need to enhance connectivity and strengthen resilience within Vietnam’s key manufacturing sectors, such as textiles, footwear, and electronics, among others. This requires refining institutional systems, policies, and legal frameworks to serve as a solid foundation and drive industrial development.

Key focus is on creating a market environment conducive to support industries. He proposed developing downstream industries (manufacturing and assembling finished products) and attracting multinational corporations to invest in large-scale projects in Vietnam. This includes expanding into international markets to leverage existing FTAs. Additionally, there is a push for policies that promote the use of domestic support industry products and mechanical industries, particularly in sectors like automotive, agricultural machinery, and railways.

Ms. Huong underscored the critical need for State support, especially in training high-quality human resources. She suggested that the government continue its selective FDI policies under specific conditions to encourage widespread investment opportunities. This will enable Vietnamese enterprises to participate in higher-tech segments of the supply chain. Enterprises are urged to capitalize on State support, industry associations, and international projects to enhance their operational capabilities.

To meet global green standards, the Department of Industry and Trade in northern Bac Ninh province has proposed the ongoing development of smart factories and a focus on sustainable growth through green factory initiatives. Beyond productivity and quality, enterprises are increasingly prioritizing energy efficiency, emissions reductions, and environmentally-friendly practices.

The green transition is increasingly seen as a key trend and top priority in the development agendas of many countries and major corporations. This shift towards sustainability promises long-term growth for businesses while delivering sustainable benefits to society in cultural, social, and environmental aspects. Green enterprises and eco-friendly factories are poised to become critical criteria and competitive advantages for firms entering the production value chain in the near future.

In its role overseeing industrial affairs, the MoIT is focusing on researching, drafting, and proposing a Key Industrial Law to the National Assembly, which aims to establish a unified and robust legal framework to drive the development of processing, manufacturing, and support industries.

Concurrently, efforts are underway to research, develop, and implement the Supporting Industry Development Program through 2026 with a vision to 2035. This initiative targets sectors such as smart electronics, automotive, mechanical and automation industries, high technology, textiles, footwear, and leather production. It includes mechanisms to encourage and facilitate partnerships between FIEs and domestic firms, promote manufacturing alliances, establish localized supply chains, and boost technology transfer.

Moreover, there is a strategic allocation of national resources from central to local levels to prioritize the development of foundational industries, particularly support industries. This approach aims to enhance the effectiveness of incentive policies and investment support under the legal framework for industrial development, ensuring the efficient operation of the Supporting Industry Development Program.

Proposals are also ongoing to adjust FDI attraction policies through regulatory bodies, focusing on increasing domestic value-added ratios. Additionally, there is a greater emphasis on issuing credit and financial incentives to support industries and materials sectors, effectively facilitating access to credit and financial resources to drive innovation, enhance product quality, and promote scientific and technological advancements.