The industry in Vietnam is progressively expanding.  It is not an exaggeration to say that Vietnam is emerging as a new workshop of the world.  Over the past decade, many large corporations such as Toyota, Samsung, etc., have established their presence in Vietnam.  To aid and bolster the operations of these corporations, numerous supporting industrial companies have also emerged.  Supporting industries, also known as auxiliary industries, focus on providing materials, components, and parts for various manufacturing sectors.  The significance of supporting industries is increasing, becoming a decisive factor in the actual industrialization process of Vietnam.  Supporting industries play a crucial and essential role in serving all related fields.  The manufacturing industry is closely intertwined with many other supporting industries.  As the industry is always one of the foremost concerns of every nation, supporting industries receive considerable attention and incentives accordingly.

Overview of Supporting Industries

What is the concept of supporting industries? Article 3, Clause 1 of Decree No. 111/2015/NĐ-CP on the development of supporting industries explains as follows: Supporting industries refer to the sectors that produce materials, components, and parts to supply complete products in manufacturing.

According to this, the concept of supporting industries is understood as the sectors producing input materials, and auxiliary industrial products in Vietnam, which play a supporting role in the production of main products.  Specifically, these include components, supplies, parts, packaging, materials for painting, dyeing, etc.  It can also encompass intermediate products and semi-processed materials.  Or in a narrower sense, supporting technologies can mean the production of components and parts to serve the assembly of finished products.  All these sectors contribute to producing product components as well as machinery, equipment, or other material elements that make up the final products.  Each type of product has its characteristics and requires varying levels of support elements, which is why the field of supporting industries is highly diverse.  Supporting industrial products are often produced on a small scale, carried out by small and medium-sized enterprises.

Supporting industries are classified in two directions: According to the production sector: heavy industries and light industries.  Heavy industries involve the production of raw materials and components.  Light industries include product design, purchasing, international marketing, telecommunications, transportation, energy, and water supply.  There are industries serving domestic needs such as steel, chemicals, paper, cement, etc. From the enterprise perspective: Foreign suppliers of components, equipment, and machinery.  Foreign suppliers of components, equipment, and machinery in the domestic market.  Domestic suppliers of components, equipment, and machinery.

The Role of Supporting Industries in Industrial Development

The role of supporting industries is evident from its name itself.  Supporting industries serve as the foundation for all other industries.

  • Enhancing the competitiveness of main industrial products and accelerating the industrialization process. Supporting technologies directly drives the creation of value-added for the industrial sector.  The quality of the final output of industrial products depends on the quality of the detailed components and parts produced by the supporting industries.  Therefore, if the supporting industries are underdeveloped, the main industries will lack competitiveness, and their scope will be limited to a few sectors.
  • Promoting technology transfer and the application of advanced techniques in production. Under competitive pressure, enterprises within the supporting industry tend to specialize in certain stages or product components that have strengths, resulting in producing quality complete products at competitive prices compared to imports.  Labor in the supporting industry also exhibits innovation and creativity, with opportunities for improvement and access to scientific and technical progress to keep up with technology.
  • Serving as a basis for attracting foreign direct investment. The attractiveness of cheap labor is no longer the primary factor in attracting foreign investment; it’s the supporting industry. This is especially true for assembly industries.  The supporting industry paves the way by establishing the infrastructure to supply necessary input products for the assembly industries.  These items often consist of hundreds or thousands of components and parts across various layers, from simple to highly advanced technologies.  For foreign companies investing in manufacturing, a higher degree of localization is advantageous.  In reality, the cost of components, parts, and intermediate products in machinery industries constitutes over 80% of the total cost, with labor accounting for only 5-10%. Hence, the potential for localization decisively influences the business outcomes of enterprises.
  • Providing a foundation for global industrial integration. Leading multinational industrial corporations increasingly have a coordinating and regulating role with broad-ranging influence over the global economic system. Developing countries, being in a subordinate position, also experience this coordination and regulation; their development cannot leapfrog but must undergo a step-by-step, suitable, cooperative, and integrated process.  This can only be effectively achieved through the supporting industry.  Supporting industrial products are part of the existing whole, inseparable, and constitute the products of leading multinational industrial corporations worldwide.
  • Contributing to economic and social stability and expediting the industrialization process. When enterprises are capable of producing their own components and product parts, it implies reduced reliance on imports.  This impact limits trade deficits and increases foreign exchange revenue.  The development of the supporting industry has the effect of increasing localization rates, reducing industrial production costs, and driving the industrialization process.  This creates a cascading effect, accelerating the development of other industrial sectors, addressing employment concerns, adding value to the economy, and contributing to growth and economic stability.

The Current State of Supporting Industry Development in Vietnam

In the era of industrialization and economic development, supporting industry has become a crucial factor contributing to the long-term growth of businesses.  However, the current state of development of the supporting industry in Vietnam falls short of meeting the market’s expectations.

  • The supporting industry is still nascent and weak. While Vietnam boasts several strong industries, such as textiles, footwear, automobile, and motorbike assembly, the supporting industry remains underdeveloped, lacking the necessary capacity.  This reliance on imported materials leads to passive production processes and high production costs.  Recent statistical data reveals that about 80% of Vietnam’s import value is allocated to input materials, equipment, and machinery for domestic production.
  • Concentration in foreign-invested enterprises. The supply of supporting materials in the country is concentrated in foreign-invested enterprises. Local enterprises often fail to meet the quality standards required for export orders.  The number of Vietnamese enterprises participating in the supporting industry is limited.  Enterprises providing components and products mostly originate from Japan, and South Korea, followed by Taiwan, with Vietnamese enterprises being in the last position.  Additionally, due to current inflation rates, labor costs in Vietnam are gradually becoming less competitive, leading to a loss of home-field advantage.
  • Quality disparity compared to foreign products. A significant quality gap still exists between domestic and foreign suppliers of supporting industrial products. This disparity is the most noticeable aspect.  The substantial quality difference compels consumers to choose imported products with better aesthetics and higher quality.  In reality, the domestic supply rate of raw materials and components for key sectors such as automobiles is around 20-30%, while for leather and footwear, textiles, it is just above 10%. This leads to low value-added and weak competitiveness for businesses.

The potential for developing Vietnam’s supporting industry is considerable, especially in sectors with export potential, such as oil, processed agricultural products, maritime economy, automobiles, and information technology.  Let’s learn more about this topic in upcoming articles.  Do not forget to follow and stay updated with useful information on our website.   Whenever needed, feel free to contact us for more detailed information and guidance: