Vietnamese enterprises need a development strategy

Resolution No. 41-NQ/TW from the Politburo, issued on October 10, 2023, reflects a shift in perspective, orientations, and solutions to meet the aspirations of Vietnamese entrepreneurs. It affirms entrepreneurs as a “core force” and emphasizes their role in advancing the country’s industrialization, modernization, international integration, and economic independence, while also ensuring national defense and security.

The Resolution also fosters and enhances the role of Vietnamese entrepreneurs in the new era, and outlines breakthrough policies to develop national-scale enterprises. These large-scale businesses are expected to lead critical industries, play a pivotal role in supply chains, and be key players in global value chains.

Lacking sufficient strength

At the “Vietnamese Entrepreneurs and their Role in Spearheading Key Industries” seminar, held on September 24, Mr. Pham Tuan Anh, Deputy Director of the Department of Industry at the Ministry of Industry and Trade (MoIT), said Vietnam has witnessed the emergence of “flagship” enterprises capable of driving the economy forward, such as Vingroup, THACO, and Hoa Phat. However, their number remains inadequate to meet the demands of economic development. The current development of Vietnam’s industrial sector still heavily relies on external factors.

Approximately 25,000 mechanical engineering companies are now operating nationwide, with the market size of Vietnam’s mechanical engineering sector projected to reach $310 billion by 2030. Mr. Vu Van Khoa, Deputy Director of the National Research Institute of Mechanical Engineering at MoIT, noted that in industries like automobile and motorcycle manufacturing and hydropower there are strong corporations such as VinFast, Truong Hai, THACO, and Hyundai, along with research institutions like the Institute of Mechanical Research and corporations like VEAM (the Vietnam Engine and Agricultural Machinery Corporation) and the Song Da Corporation. These entities have created significant job opportunities for satellite companies and workers.

However, he continued, Vietnam still lacks enterprises strong enough to lead the manufacturing sector. “Most companies only handle basic technologies; they are not fully capable of industrial autonomy and remain highly dependent on foreign businesses for technology,” he told the seminar. “For example, in energy projects and the development of infrastructure such as railways and highways, we are heavily reliant on FDI enterprises, resulting in low added value and minimal technological advancement.”

One of the greatest challenges is evaluating contractor capabilities, which must be addressed. According to experts at the seminar, to accurately assess the role of Vietnamese entrepreneurs in the development of key industries, it is essential to properly position the current state of Vietnam’s industrial sector. Frankly speaking, Vietnam’s industrial level remains relatively low. The country mostly operates on outsourced production, with limited advancement in automation and digitization.

Moreover, the industrial structure is out of balance. Foreign-invested enterprises (FIEs) dominate, representing 22-23 per cent of GDP, while domestic companies contribute just 10 per cent. The industrial supply chain also remains underdeveloped. Vietnamese industrial businesses and entrepreneurs have not yet established strong links between domestic and global companies, nor have they successfully attracted global corporations to Vietnam. Furthermore, the process of industrialization and modernization within Vietnamese businesses remains sluggish. While the size of some enterprises may be significant, their progress is slow.

Policies to support growth

To foster more “leading” enterprises in key industries, Mr. Anh emphasized that Vietnam urgently needs major domestic players that can compete globally, build strong brands, and lead the industrialization and modernization process. Achieving this goal requires supportive policies that empower these entities to drive growth and create ecosystems that help small and medium-sized enterprises (SMEs) expand and reach international markets.

Echoing this sentiment, Mr. Khoa stressed the importance of addressing the bottlenecks and challenges that hinder business growth. For industrial manufacturers, it is essential to set long-term goals and implementation plans. Gradually adopting technology and establishing in-house research centers to drive innovation and transformation is also crucial. “From cars to clothing, many products are rapidly changing based on consumer preferences,” he noted. “The term ‘flexible manufacturing’ is therefore more suitable than ‘smart manufacturing”, as it highlights the ability of machinery to produce a variety of goods.”

Moreover, building a brand with a commitment to quality, not only domestically but also internationally, is key for market expansion. Entering foreign markets bolsters sales volumes, which in turn lowers production costs and enhances competitiveness.

“Private enterprises are currently following trends, resulting in overlapping investments and redundancy,” Mr. Khoa added. “The government needs to establish policies that guide businesses and industry associations, similar to the tiered production systems seen abroad, where each company specializes in a specific product. The government should create mechanisms that allow businesses to naturally integrate into supply chains rather than mandating that FIEs work with domestic firms. We need fair competition, as profit drives business operations.”

For domestic mechanical companies, when they have the resources to handle complex tasks in major projects - which are traditionally dominated by foreign firms - such projects should be awarded locally. This requires trust in the capabilities of domestic companies, along with appropriate policies that allow them to take ownership of their work.

Based on his company’s experience, Mr. Hoang Manh Tan, Deputy General Director of the Son Ha International Joint Stock Company, supported the MoIT’s recommendations and emphasized the need to build greater trust in Vietnamese companies by assigning them projects that match their capabilities and reduce any over-reliance on foreign enterprises.

There must also be long-term, consistent policies for industrial infrastructure. Growing businesses into industry leaders takes many years, so sustained policies are needed to create favorable conditions for businesses to thrive in the long run.

Adopting models from major markets

Emphasizing the significance of human resources, Mr. Tan highlighted this as a crucial element in business development. While companies are taking the initiative to train numerous engineers, there is often a gap in practical application, and the availability of high-quality talent remains insufficient.

“We should learn from larger markets like China and South Korea,” he continued. “Vietnam is increasingly becoming an attractive destination for global investment and a key manufacturing hub. To capitalize on this, businesses must not only rely on policies and mechanisms from authorities but also proactively create strategies to seize opportunities and position themselves as key drivers of national development on the global stage.”

Experts added that for Vietnam to cultivate a strong group of enterprises capable of driving rapid industrial growth, more industrial policies are needed to establish local-led industrial chains. There should also be opportunities made available for SMEs to integrate into the value chains of FIEs.

Vietnam currently lacks a strategy that aligns business growth with practical reality. The focus has generally been on increasing enterprise numbers without a comprehensive strategic framework being considered. Experts recommend that Vietnam adopt Japan’s multi-tiered business model, which includes large corporations, mega-enterprises, and micro, small, and medium-sized enterprises (MSMEs). Such an approach would enable the country to define and develop growth strategies tailored to each business level while fostering innovation and entrepreneurship. And by doing so, it can revitalize the business community and the economy, paving the way for new billionaires and business leaders that will propel economic growth.