Mar 18, 2018 / 09:08

Automobile supporting industries remain underdeveloped

The Vietnamese supporting industry is still underdeveloped, causing domestic automobile manufacturing and assembling enterprises having to mainly import spare parts, experts said.

Nguyen Thi Xuan Thuy from the Ministry of Industry and Trade’s Institute of Industrial Policies and Strategies said that Vietnam is one of the five ASEAN nations manufacturing vehicles, besides Thailand, Malaysia, Indonesia and the Philippines.
Vietnam has 20 automobile assembling firms
Vietnam has 20 automobile assembling firms
Among the five, Vietnam ranks third in population after Indonesia and the Philippines, but its automobile production output ranks fifth, with a yearly output of 300,000 vehicles.
The country has 20 automobile assembling firms, with 84 Tier-1 part suppliers and 145 suppliers of Tier-2 and 3. Meanwhile, Thailand has only 16 assembling companies, but the number of Tier-1 suppliers amounts to 690, and that of Tier-2 and 3 suppliers is 1,700.
The underdeveloped supporting industry has forced domestic manufacturing and assembling enterprises to import automobile spare parts from various sources, including Korea, Japan, China, Thailand and Indonesia.
Due to the small scale of Vietnam’s automobile market, the costs for producing auto parts or components are high. Therefore, demand for domestically made parts is relatively low, constraining the development of the local supporting industry.
As a result, automobile assembly firms choose to use imported parts, creating a vicious cycle that remains unsolved, she told the seminar on Supporting Industry in Industry 4.0. 
Because the number and capacity of Vietnamese firms is still modest, entering the ASEAN production chain continues to be difficult.
This year the tariff on complete-built-in (CBU) units on automobiles imported from ASEAN nations was reduced to zero per cent under the ASEAN Free Trade Agreement, causing competition among domestically made products.
To untie the vicious cycle, Thuy proposed creating a larger market scale through importing CBUs in the first years and forcing manufacturers to find domestic spare parts with cheaper prices, thus stimulating the local supporting industry.
Businesses should also choose advantageous spare parts and products so as to gain access to the ASEAN production chain, she added.
The automobile market in Vietnam has good prospects, she said. The potential of the country’s automotive market is assessed based on factors such as the size and structure of the population, per capita income, the number of vehicles per 1,000 people, and infrastructure development.
Vietnam has over 90 million people and a growing middle class, with per capita income estimated to reach US$3,000 by 2020.
The country’s automobile market is expected to soon have an automotive consumption rate (known as motorization) of 23 vehicles per 1,000 people, Thuy said.
Road traffic systems are expanding with intercity connections through a network of highways, creating more favorable conditions for private cars, she added.
Delegates at the seminar also spoke about the impact of the so-called fourth industrial revolution on the automobile industry.
New technology will help firms increase productivity, but it will also expose challenges for local firms. Because of the weak capacity of the industry, firms might lag behind others, they said.
Nguyen Duong Hieu, chairman and general manager of LIDOVIT Trading and Industrial JSC, said the impact of the fourth industrial revolution was still new to many Vietnamese.
“I think local producers firstly need to invest in upgrading their technology, and integrate management systems to better manage their production and approach the market,” he said.
He said that management agencies should provide local part suppliers with specific requirements of foreign firms so they can prepare to meet their standards.
Delegates also suggested that the government set up a website for businesses in the parts industry so they can update their information, which would make it easier for downstream producers, including foreign ones, to find parts suppliers.