Vietnam is strengthening its position as a key player in the global supply chain. The latest EuroCham Business Confidence Index Survey shows that over one-third of FDI enterprises rank Vietnam among the top three global investment destinations. However, challenges remain. Many FDI enterprises note that Vietnamese companies often struggle to meet international standards, conditions, and delivery times.
In a recent episode of “Connecting the Global Supply Chain” on Hanoi Radio & Television Broadcasting, GBA Chairman Mr. Alexander Ziehe shared strategies for enhancing participation in the global supply chain and making Hanoi and Vietnam more attractive to FDI enterprises.
Watch the full interview (in Vietnamese) here>>> and below is the English script.
MC1: The recent report shows that to make Vietnam a global supply chain hub, besides the investment environment, Vietnamese enterprises must also improve their quality to meet international demands and standards. How do you assess the current state of global supply chain connectivity in Vietnam?
Answer 1: It can be seen that the environment in Vietnam is improving. Foreign investment is flowing in, the growth rate is strong, and you can see industrial clusters forming around Hanoi, Ho Chi Minh City, and Da Nang in particular, and even in provinces bordering China, we see improvements in FDI. The supply chain itself is also improving. We see companies coming in, adding production facilities to the global supply chain network. Importantly, other companies follow them. They are suppliers to leading FDI companies. For example, you see electronics companies around Hanoi being established, followed by many suppliers moving to the North and increasing their production capacity here. Thus, we see an increasing trend and Vietnam participating more in regional competition.
MC2: Vietnam has a lot of potential to become a global supply chain hub. Can you share the advantages and challenges in connecting the global supply chain currently? What factors does Hanoi need to improve to become a global supply chain hub, in your view?
Answer 2: Vietnam’s central location in ASEAN and numerous free trade agreements, including with Australia and the EU, boost cross-border trade and the global supply chain. The open-door policy adds further advantages.
Connections with China, Thailand, Cambodia, and Singapore are strong, but procedural improvements are needed. Key areas for development include:
1. Infrastructure: Despite improvements, traffic jams, overcrowded airports, and congested ports persist. Both short-term fixes and long-term plans are necessary.
2. Energy: Power outages, especially in the North, need addressing to ensure stable production.
3. Regulations: Simplifying customs, licensing, and labor laws is crucial.
4. Financial Transactions: Simplifying foreign exchange transactions and tax payments is essential.
Therefore, I emphasize the need to simplify, to ensure that companies can smoothly conduct currency transactions and pay taxes. As a foreign company, we need to support our suppliers to provide accurate information. I believe that Vietnam has certainly made changes and efforts to overcome challenges.
We, GBA, cooperate with our Vietnamese partners to help them understand the importance of investing in education and their understanding to participate in the supply chain.
MC3: In your opinion, what are the factors for foreign FDI enterprises to choose a locality like Hanoi in particular and Vietnam in general as a strategic destination in the global supply chain?
Answer 3: Previously, many German enterprises chose to invest in the South, but now many have shifted to the North, around Hanoi and Hai Phong. There are many reasons for Hanoi’s strengths, such as its proximity to China. Clearly, Hanoi’s proximity to China is an advantage. The highways connecting Hanoi with provinces like Hai Phong are a strength, facilitating the flow of goods. A good airport is another strength. Hanoi’s proximity to Hai Phong is an advantage because there is a newly completed deep-water port. Not only do large FDI companies come here, but also small businesses follow. Additionally, Hanoi has a good university system, making it easy for us to find talent. Hanoi and Hai Phong also need to establish industrial clusters to attract investment.
MC4: There are many factors to make Vietnam a central hub in the supply chain. However, do you think there are still some barriers in this matter in Vietnam?
Answer 4: Different industries have different priorities. Vietnam has many competitive advantages, such as labor costs increasing more slowly compared to other regions. For example, in the furniture industry, wood is readily available here. Agriculture is also an important sector in the supply chain and is a strength of Vietnam. Nowadays, price is not the only important factor; quality is also necessary. For the automotive industry, for instance, safety is paramount. Suppliers here adapt well and are very open to cooperating with investors, so we are also very interested in collaborating with them.
MC5: Currently, what percentage of Vietnamese domestic enterprises participate in the global supply chain of German enterprises? What criteria do FDI enterprises, including German enterprises, usually choose for their supply partners?
Answer 5: Different industries have unique requirements. Our company prioritizes criteria like price, quality, safety, goods flow, production speed, adaptability, and flexibility. European companies must follow regulations like the Supply Chain Act, while American companies adhere to customs laws. Local partners with good records and speed compliance offer more cooperation opportunities. It’s encouraging to see such companies emerging, though it varies by industry.
In the automotive sector, local supply chains are still small, with participation increasing from 8% to 15%. This is significant due to high industry standards. Consumer goods industries have higher localization rates, ranging from 30% to 100%. For German companies, localization is at a beginning to mid-level. Not everything can be localized, but we evaluate suppliers based on price, quality, and efficiency.