Rapid Expansion of Supporting Industries
As we look towards the close of 2024, Vietnam’s industrial landscape has seen a remarkable transformation. The nation’s supporting industries have experienced substantial growth, with over 6,000 active enterprises emerging in key sectors. These include textiles and garments, auto manufacturing and assembly, footwear, mechanical engineering, and electronics. This diversification has not only stimulated job creation but also contributed significantly to the overall economic resilience of the country.
A Surge in Trade Surplus
This industrial development has had a notable impact on Vietnam’s trade dynamics. According to Mr. Vu Ba Phu, Director General of the Vietnam Trade Promotion Agency (VIETRADE), the nation’s trade surplus skyrocketed from just $2 billion in 2017 to over $28 billion in 2024. This impressive leap underscores the effectiveness of Vietnam’s trade strategies and its position as a rising star in the global marketplace.
The Challenge of Local Production
Despite the progress, a critical challenge persists: Vietnam’s supporting industries currently meet only 10% of domestic demand for components. This precarious situation forces the country to import billions of dollars’ worth of components annually to fuel domestic production. Mr. Phu pointed out that this heavy reliance on imports not only impacts economic independence but also raises questions about sustainability and self-sufficiency in the future.
Japan: A Key Investment Partner
Within this context, Japan continues to stand out as one of Vietnam’s primary investment partners when it comes to manufacturing and high-tech industries. As of 2024, Japanese direct investment in Vietnam has reached an astonishing $3.5 billion, placing it fifth in terms of total investment value. This partnership is not only a testament to the robust bilateral relations but also highlights the potential for further growth in the region.
Localization Rates: Progress and Setbacks
However, recent surveys by the Japan External Trade Organization (JETRO) reveal a mixed picture regarding localization rates among Japanese enterprises operating in Vietnam. The latest data indicates a localization rate of 36.6% for these companies, which is commendable but indicates room for improvement. When focusing solely on Vietnamese enterprises supplying Japanese businesses, the supply rate is significantly lower at 15.7%, down by 1.5 percentage points from the previous year. Unfortunately, this figure has remained fairly stagnant over the last decade, placing Vietnam behind competitors like Indonesia, Thailand, and Malaysia.
Investment Expansion Trends
On a more optimistic note, the survey has shown that 56.1% of Japanese companies in Vietnam plan to expand their investments in the next one to two years. This figure is notably higher than the ASEAN average of 37.7%, demonstrating a robust confidence in Vietnam’s market potential. The country may lead ASEAN in investment expansion, signaling optimism amid global economic uncertainties.
Increasing Demand for Local Suppliers
Moreover, the aspiration among Japanese firms to increase procurement within Vietnam stands at 50.9%, the highest rate in ASEAN. Industries such as electrical equipment and electronics, textiles and garments, and machinery are among those expressing robust demand for local suppliers. This demand presents a tremendous opportunity for Vietnamese enterprises to stake a claim in the local supply chain and contribute to greater self-sufficiency.
The Path Forward: Strategies for Growth
To tackle these challenges effectively, Mr. Phu emphasizes the need for Vietnamese businesses to be proactive and adapt to evolving market trends. He advocates for the adoption of modern governance and internal control models in line with global standards. “Embracing trends such as digital transformation and green transition will be essential to meet the requirements set by foreign enterprises,” he states.
In addition, incorporating key strategies like automation, embracing new technologies, and optimizing processes will be pivotal in enhancing productivity and meeting international quality standards. These steps are not just about improving local production; they are about positioning Vietnam as a competitive player on the global stage.
Improving the Business Environment
Lastly, JETRO’s leadership underscores the importance of enhancing Vietnam’s business investment environment. By creating more favorable conditions for enterprises, the nation can ensure higher profitability and drive sustainable economic growth. A crucial part of achieving this goal is through the enhancement of Vietnam’s localization rate, which remains a pivotal focus for both the government and private sectors.