Producing support industry products at FUTU1

State support needed

Vietnam has many advantages in developing the automobile support industry in particular and the auto industry in general, with many local mechanical enterprises capable of joining these sectors’ supply chains. However, Vietnamese enterprises mainly produce steel for the construction sector and have not yet developed manufactured steel, which is the main material used in support industries. That means they have to import materials, making their products less competitive.

According to Hoang Van Minh, Director of Song Cong Diesel Co., Ltd. (DISOCO), the problem does not lie in Vietnam's production capacity but in the market’s purchasing power, investment capital and technology. The local automobile market offers only a few hundred thousand cars of various brands and types, while other countries manufacture millions of vehicles, mainly popular vehicles, presenting the automobile support industry there with many development opportunities.

Nguyen Duc Dung from the Machinery Spare Parts No. 1 Joint Stock Company (FUTU1) said domestic mechanical enterprises need state support in addition to their expertise, a skilled workforce and machinery investment in order to join supply chains. The high investment cost makes the sector less attractive to investors, he said.

According to Dung, Indonesia has developed the biggest Southeast Asian support industry, followed by Malaysia and Thailand. They have all been investing in support industries and the automobile industry for a long time, Dung said. Meanwhile, Vietnam only started investing in support industries several years ago, and inadequate investment has resulted in limited production of components along with welding, painting, assembly and quality control, he added.

Domestic mechanical enterprises need state support in addition to their expertise, a skilled workforce and machinery investment in order to join supply chains

Joint ventures

Almost 500 Vietnamese enterprises are certified level-1 automobile component suppliers, but are hampered by small production output that leads to high costs and less competitive products.

The state needs to facilitate manufacturing and use of popular automobiles to help carmakers cut costs through reduced import tax on raw materials and stronger business connectivity and supplier capacity. The government should enable truck buyers, which are mainly production and trading businesses, to access preferential bank credit, the FUTU1 representative said.

Dung suggested that Vietnam focus on developing its support industry’s strong segments but not spread investment throughout the sector. Domestic support industry businesses are advised to enter joint ventures or cooperate with established brands.