International Finance

Vietnam runs chances of higher benefits from global value chains

Confirms two new World Bank Group reports

Higher value added activities and boosting linkages between domestic firms with foreign markets and investors can help Vietnam move up global value chains, says two new World Bank Group reports.

Launched at a conference jointly organized by Vietnam’s Ministry of Industry and Trade and the World Bank, with support from Australia, the reports – entitled Vietnam at a Crossroads: Engaging in the next Generation of Global Value Chains Report and Enhancing Enterprises Competitiveness and SME Linkages Study – showcase the growth potential of the country’s industries should policy reforms continue.

“Foreign Direct Investment, or FDI, has brought enormous gains to Vietnam in terms of growth, exports and jobs,” said Mr Vu Thang Hai, Vice Minister of Industry and Trade at the conference. “The discussion today and recommendations from these two reports offer many ideas on how Vietnam can participate in the next generation of global value chains, and promote linkages between domestic and foreign firms.”

Several domestic electronics and automotive companies in Vietnam have successfully integrated into global value chains. But in general, Vietnam has specialized in end-production assembly activities that are largely run by foreign firms with weak domestic linkages.

Vietnam can now choose to diversify, says the report, and foster the growth of innovative local firms that can potentially lead to products ‘invented in Vietnam’. A policy framework that aims to strengthen the capabilities and technology of local enterprises is expected to facilitate linkages with FDI firms, and enable them to enter foreign markets.

“Vietnam has successfully integrated into a few global value chains, which has created jobs, propelled economic growth, and reduced poverty,” said Ousmane Dione, World Bank Country Director for Vietnam. “But the country can move further up and strengthen its value addition with policy reforms and initiatives in areas such as transport, services, border procedures and regional integration.”

According to the reports, some key recommendations that can take Vietnam closer to its goal are to improve inter-ministerial coordination, facilitate information flows and contacts between domestic and foreign-owned firms, and to provide targeted support to strengthen domestic suppliers.

A higher place for Vietnam in global value chains will help attract more large scale foreign investment into the country, which can create more jobs and more opportunities for local suppliers.

But achieving this goal requires a solid package of reforms and initiatives, such as:

  • Closing the infrastructure gap through greater mobilization of private financing and a more integrated approach to developing transport corridors;
  • Developing competitive services markets and liberalizing regulations on foreign direct investment;
  • Streamlining border procedures to make them more transparent and predictable; and
  • Leveraging engagements with developed countries to ensure strong demand and technology-related investment.

Lessons from international and national experience presented at the conference outline the common elements of good programs that link domestic and foreign sectors. These include high-level political commitment and ownership, complemented with sound governance and institutional set-up, as well as an evidence-based strategy to foster linkage programs, a good supplier data base and business-to-business match-making services, and demand-driven supplier development programs.

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