Vietnam needs to have more effective policies on technology transfer of foreign invested enterprises (FIEs) as global experiences showed that the FDI source only contributes to economic growth of countries which are capable of taking over and mastering the transfer, experts said.
Technology will be among top priorities in Vietnam’s new FDI attraction strategy
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Reports showed that Vietnam has lagged behind other countries in the region in terms of foreign investors’ technology transfer to domestic firms. Specifically, the country’s ranking in this field is the 103rd place, far behind that of Malaysia (13th), Thailand (36th), Indonesia (39th) and Cambodia (44th).
Only 20% of firms use high-technology in Vietnam, lower than Thailand’s 31 percent, Singapore’s 73 percent, Malaysia’s 51 percent, while the standard rate of high-technologies for industrialization and modernization is 60 percent at least.
Han Manh Tien, chairman of the Vietnam Association of Corporate Directors, told the media that 3,000 firms of the association have not received any technology transferred from FIEs.
Deputy Minister of the Ministry of Planning and Investment Vu Dai Thang admitted that attracting and using FDI in Vietnam has some shortcomings. FDI capital hasn’t created a breakthrough compared to other sources of capital and hasn’t met expectations in technology transfer, linkages and spillover effects.
Experts attributed the shortcoming to ineffective policies. FDI in Vietnam has been substantively driven by low labor costs and generous incentives including tax holidays, concessionary rates and import duty exemptions.
While the incentive regime is clearly facilitating “first-generation investment”, it is misaligned with the goal of attracting more innovative, technologically advanced FDI requiring higher skilled labor, earning higher wages and fostering increased innovation and entrepreneurship.
According to Nguyen Mai, Chairman of the Association of Foreign Invested Enterprises (VAFIE), the country’s incentive policies on FDI attraction are not associated with technology transfer, but mainly related to tax and land.
Policy changes
Vietnam is formulating a new national FDI attraction strategy, in which technology-related issues, including technology transfer, are one of top priorities.
Wim Douw, senior private sector specialist of International Finance Corporation - World Bank’s arm on the private sector in developing countries, highlighted some recommendations to serve as key inputs for the Vietnamese government to device the new strategy.
According to Douw, an immediate priority is the adoption of concrete policies that increase FDI linkages and spillovers, with a focus on targeted supplier development programs.
Besides, Vietnam should create and implement an integrated national skills development plan to accelerate Vietnam’s transition from low to skilled labor, which will enable the country get technology transfer from FIEs.
Nihad Ahmed, senior economist at global provider of economic analysis and forecasts Focus Economics, said that one of Vietnam's weaknesses is the lack of qualified workers, emphasizing that Vietnam is far behind China, Singapore, Malaysia and Thailand in this field while developing a highly skilled workforce is critical to attracting FDI into value-added industries.
Head of the Delegation of the European Union to Vietnam Bruno Angelet also said that a human resource with high technical expertise is the important factor that European investors require.
Besides bringing in opportunities of jobs with high income and international standard working environment, a skilled workforce will help Vietnam learn governance skills and get technology transfer, Angelet said, adding however, this is a challenge for Vietnam's education system in meeting the demand for human resources.
