Vietnam electronics industry: stuck with assembly

Just one year ago, Sony announced to close its Vietnam assembly plants, causing more than 200 workers to lose jobs. That was the prelude for a series of retreats of electronics joint ventures in Vietnam – a business form of joint foreign and local investments.

Many experts had warned of this inevitable outcome of the Vietnamese electronics industry. When the opportunity has passed, the Vietnamese electronics industry is messed up with poor-quality fasteners, low-end assembled products and accepts very thin added value margin.

Fumbling about starting point

The heyday of the Vietnamese electronics industry was in the 1990s.

High demand in couple with high protection policies created a fertile ground for the mushrooming of electronics companies. It was normal to see the strong development of electronics industry in Hanoi or Ho Chi Minh City, largest economic centres in the country but it was abnormal to witness electronics companies in mountainous sparsely populated provinces. The country had more than 100 electronics companies – a good news at that time but a burden after 20 years as they are fumbling about assembling activities – the starting point of the industry. Each year, the country rakes in more than US$1 billion from electronics exports but when we look at a TV set, most other items alike, possibly only the paper box is made in Vietnam. The Southeast Asian nation used to dream of making Vietnamese branded computers.

Domestic electronics only assembled, using outdated technologies and small scales. They easily lost ground when foreign companies made presence. Japanese Sony made a debut in 1993, followed by other world-known names like JVC, Toshiba, Sanyo, and LG, Samsung and TCL. Joint ventures led by these firms quickly outperformed on their capital and technological advantages. They decided to what to be manufactured and which technological level to be invested. Domestic assemblers became industry outsiders. But, what had these foreign firms contributed to the development of the Vietnamese electronics industry? They merely took full advantage of their old factories to produce low-end products like CRT TVs or disc players while they import high-end items.

Loophole in strategic planning

Thanks to high protectionist barriers, electronic joint ventures legally bagged hundreds of millions of US dollars. Although they made huge profit in Vietnam, they never trained any product designers. As a result, after 15 years of business cooperation, the Vietnamese electronics technology was only still simply assembly which contributed mere 2 percent in production costs thanks to labour cost advantages. Imported components accounted for 80 percent of cost price.

When Vietnam joined the World Trade Organisation (WTO), tariff barriers would soon be abolished and this was also the time for joint ventures to shift business methods. Sony’s pioneering factory shutdown clearly defined the integrating capability of the Vietnamese electronics industry. When protectionist policies came to an end, the value of joint venture was over. This was a big loophole in strategising electronics industry development in Vietnam.

Many economic experts pointed out that protectionism had a pernicious effect on the economy because the Vietnamese electronics industry remained fledging, like a toddler walking first steps, after 30 years. Among current more than 100 electronic enterprises, most are still struggling with capital and technological shortages which result to uncompetitive products. Although this is a priority industry, insiders got stuck in development orientations because they lacked clear general development strategy. Long-time disoriented, unplanned development resulted to simply operations of Vietnamese electronics companies, which basically assemble consumer goods. And, that is the least-profit stage in the production process.

Seeking solutions

The first matter is investment capital. To accomplish the goals of US$6 billion of revenues and US$5 billion of export turnover in 2010, Vietnam needed an investment of some US$2 billion. In the current context of global cooperation, this is not a very difficult problem. A lot of electronics corporations have sought investment opportunities and are willing to cooperate with Vietnamese enterprises. Recently, Intel Corp, the world’s largest computer chip manufacturer, has invested in a chip assembling and testing plant in Vietnam with a total capital of over US$1 billion. Many big companies also did the same way as Intel. After a year joining the WTO, Vietnam had been a world’s largest manufacturer of printers and electronic chips.

The remaining issue is to capture opportunities. To avoid the failure path, the Vietnamese electronics industry needs a clear development strategy from the improvement of human resources to R&D activities to enhance the competitiveness of electronics products. Besides, companies should be encouraged to shift from manufacturing civil electronics products to producing specialised items, from assembling products to manufacturing parts and software products. Local firms need to have more conditions to turn out products of higher high-tech content. The final work is planning. To avoid ineffectively unfocused investment, Vietnam needs to work out electronics development zones where electronics companies will locate their factories.

The Vietnamese electronics industry is expected to make US$4-6 billion of revenues and US$3-5 billion of export turnover by 2010, with annual growth of 20-30 percent, and create 300,000 jobs. – VCCI

Tags: Vietnam Electronics Industry