Depth report

　　

Manufacturing is one of the key industries in the Vietnamese government's development strategy. However, Vietnam's low-skilled, labor-intensive manufacturing sector is mainly involved in the lowest value-added link in the global value chain or in the last stage of the production process. Therefore, the manufacturing industry should speed up the upgrading of capacity and enter the higher stage of the global value chain.

According to KPMG, an accounting firm, Vietnam is in the second of four stages of participation in global value chains. This is the stage where the level of production is restricted. Specifically, the value added of domestic exports comes from production activities and accounts for 60 to 80 percent, mainly using raw materials. In export value, the value of localization is at a medium level; The reason why the production is in the low value-added link is that the profit is low; Industrial infrastructure and supplier systems are developing. At this stage, the countries concerned focus on labor-intensive industries and produce low-technology products.

Entering the higher stages of global value chains not only enhances national capacity, but also creates more development opportunities. Among them, the main benefit is the higher profit margin. This gross profit is derived from the use of advanced technology and effective management of products and production links. At the same time, diversifying the national economy into new industries opens up new business opportunities to achieve growth and expand market participation.

The higher stage of the global value chain has promoted Vietnam as an attractive destination for diversification and re-establishment of the supply chain in the context of well-developed infrastructure, policies and mechanisms related to trade and investment attraction, customs and other elements of the global value chain. By reducing participation in labour-intensive phases and focusing on the development of quality workers, this has also contributed to improved employment, in particular through better jobs, better wages and better working conditions.

At present, due to good macro index, competitive labor force, gradually improving labor efficiency, and strong support from the Vietnamese government and free trade agreement, Vietnam's economy is still attractive to foreign enterprises. But infrastructure, the capacity of enterprises and the quality of workers remain challenges for Vietnam as it moves up the global value chain.

Vietnam's economy depends on foreign direct investment, but has yet to establish a robust and standard system or connect with the domestic market, says KPMG, an accounting firm. The integration of Vietnamese smes into the global production system is low. This is reflected in the following aspects:

The first challenge is infrastructure, logistics and supporting industries. At present, the connection between various modes of transport is weak, because the transport infrastructure has not yet realized comprehensive development from the perspective of value chain connection. Some 3,000 companies are engaged in the logistics business, but the cost of transporting raw materials to finished products is very high due to the scattered situation. This leads to higher costs and is one of the factors holding back economic growth. At the same time, Vietnam lacks a mass production and human resource base, making it a big challenge to move up the global value chain. Compared with China and India, Vietnam's localization ratio is even lower, at 36%. This has an impact on weaker supporting industries. In addition, the proportion of domestic component purchases is also very low.

The second challenge is to improve management and technology. The development and management of value chains are weak, so it is difficult to compete in terms of the costs of developing a value chain that can meet demand. In addition, the management practices of Vietnamese enterprises have not been effectively implemented, specifically the low proportion of independent audits of private enterprises. However, these elements are essential for deeper integration into the global value chains of the new FTA. At the same time, product and process innovation capacity and research and development efforts remain constrained.

The third challenge is quality talent and skilled labor. Skilled labor plays an important role for manufacturers with complex production processes. Hiring employees who can meet the needs of the local market is also a big challenge.

In the face of these challenges, understanding future production trends and focusing on digital transformation and environmental, social responsibility and corporate governance (ESG) are Paramount to achieving sustainable growth and moving up the global value chain. Manufacturers should establish necessary transport capacity in supply chain management and use it as the basis for international integration. This is reflected in the following six typical links of the entire supply chain:

The link of innovation, reform and art design covers the process of product research and development and the transformation of scientific and technological achievements, from the formulation of ideas to the completion of product manufacturing.

Planning process, including supply chain planning process, such as: demand planning, supply source planning and implementation of sales plan. This should also be done in collaboration with customers and suppliers, as well as with financial planning at a higher stage of development.

Acquisition process: The process of collecting and purchasing goods or services from other entities. These activities include developing basic requirements, finding sources of supply, researching the market, selecting suppliers, negotiating contracts, etc.

The production process includes all activities and processes related to production, such as assessing production capacity, developing production plans and implementing strategies, maintaining assets and manufacturing products to the required quality.

Transportation management of goods, commodities and other resources, including the collection, preservation and transportation of resources to different places, to the hands of customers and other activities.

The last link is advertising, promotion, distribution and sale of goods or services, such as: implement the strategy of selling goods promotion, establish a stable distribution system, take good care of large customers, etc.

According to KPMG, implementing these six processes with a flexible mindset is the highest level of assessing the maturity level of necessary transport capabilities in the supply chain. By then, companies are well positioned to move up the global value chain.