Mechanical industries yet to “grow up”

Despite many preferential policies, Vietnam’s mechanics industry has not made any measureable progress and has been compared by experts to the son that never grew up.

Industry behind

The business began in 1991 with just a machine producing instant noodles and now Lituda manufactures a wide range of products, including about 100 different machinery parts and accessories.

Lituda Director Vo Hoang Liet observed that the company has a wide range of clients, including those who purchase food processing production lines to those who need exhaust fume treatment systems.

“We are manufacturing products to order. We do whatever is ordered,” Liet explained.

The motto of “doing what clients order” allows Lituda to earn more money. Yet manufacturing experts say this is not the best way.

With a “too wide” range a of items, Lituda cannot make significant investment in research and development to create products and turn them into advantageous goods.

Liet claims that he has no other choice. “If we only focus on making advantageous products, we will be able to sell only a few, bringing in just small sums of money,” he observed.

Localization figures deceive

Lituda could be seen as a micro-example of Vietnam’s industry: products are made in small numbers, technologies are old, and production has low levels of professionalization.

Some people argue that Vietnam’s industry has obtained great achievements in the last many years. The export turnover of equipment, machines and accessories reached $2.5 billion, double that of 2006.

Vietnam now builds ships of up to 100,000 tonnes and equipment for production lines of cement, power and sugar plants, according to the Ministry of Industry and Trade, which consists of up to 65 percent local content.

The localization ratio, the most important thing in the eyes of policy makers, has reached 85-90 percent in motorbike manufacturing.

Still, industry experts cite Vietnam’s lagging technologies.  “With older technologies, Vietnam still cannot manufacture equipment with high durability and accuracy,” Liet remarked.

Vietnam’s technologies are estimated to be some 30-40 years behind the regional level and more than 50-60 years behind developed countries.

Statistics on localization ratios make people think that Vietnam can manufacture whole production lines for cement factories or make all the parts of motorbikes.

In fact, northern cement factories are thought to have 65 percent of their equipment made in Vietnam, 7,000 tonnes of equipment out of 11,000. But the owners had to import 4,000 tonnes of equipment, accounting for ¾ of the total investment costs.

Similarly, Vietnamese motorbike producers still have to import engines and all other important parts of motorbikes. This means that statistics that boast 90 percent locally-made content for motorbikes must be reconsidered.

What are the reasons?

Most enterprises are now expanding by trying to make multiple products, but they do not intend to professionalise these items. With such business practices, mechanical companies do not make heavy investments, in either capital or brainpower, to develop specific products.

These companies have their reasons.  Most choose not to focus on professionalization since it requires big investment capital, profitability is low and it takes long time to recover capital. Enterprises find it very difficult to borrow money from banks and they cannot seek state support.

According to Ngo Van Tru, Deputy Director of the Heavy Industry Department under the Ministry of Industry and Trade, between 1986 and 2002, the industry received a maximum 17 million, not including foreign investment.

The Government has provided many preferential credit programmes since 2002, but the credit has gone only to state-owned general corporations.

Vietnam has also set up an overly ambitious plan of development, which strives to do everything, from building ships to manufacturing agricultural products as well as food processing, producing household goods and products for many other industries with high localization ratios of 70-80 percent.

Commenting on the plan’s flaws, experts have argued that many goals are unfeasible and making products from A to Z is not a common trend in the world any longer.

VietNamNet/TBKTSG

Tags: Vietnam Mechanical industries