The Japan International Cooperation Agency (JICA) and the Japan External Trade Organisation (JETRO) recently announced a report on investment trends of Japanese enterprises in Vietnam and a handbook on the supporting industry.
According to JETRO’s survey, in the supporting industry, although the localisation rate of Japanese enterprises in Vietnam has reached 32.2 percent, up 4.3 percentage points compared with the year before, this level is still low compared to 64 percent in China, 53 percent in Thailand, 42 percent in Malaysia and 41 percent in Indonesia. Supporting industry is considered to play a very important role in the development of Vietnamese industry and economy. But despite the fact that investment in high-quality machinery and equipment is crucial for success, many small and medium businesses have yet to overcome difficulties in this area such as accessing formal sources like bank loans.
Mr Yasuzumi Hirotaka, CEO of JETRO Ho Chi Minh City, suggested that attracting only FDI enterprises in developing supporting industry is not advisable, it’s also important to simultaneously develop Vietnamese companies, expanding the domestic market.
Regarding supporting industry, JICA also published the handbook on Vietnam’s supporting industry to aid small and medium enterprises working in Vietnam’s supporting industry.
The handbook includes the following contents: what is supporting industry; risk assessment methodology in supporting industry investment; basic knowledge in machinery and equipment investment in supporting industry and examples of marketing in supporting industry.
There are two main reasons behind the supporting industry in Vietnam having difficulty accessing bank loans. The first one comes from the banks. According to the State Bank of Vietnam (SBV), the credit risk assessment of small and medium enterprises in supporting industry is still uncommon. On one hand, enterprises of the supporting industry are subject to fluctuations in the supply chain of global and domestic manufacturing, on the other hand, the investment in support machinery and equipment requires technical characteristics and specialities which many banks right now are not confident to handle.
The second reason stems from enterprises itself. The majority of businesses in the survey share common obstacles such as lack of a good business plan, insufficient financial information and lack of collateral.
According to Mr Manabu Tsurutani, Chief Advisor of the Small & Medium Enterprise Finance Programme (SMEFP III), this situation can be resolved through coordination between banks, supporting industry enterprises and third parties such as machinery sellers.
Third parties can make up for banks’ shortcoming in giving loans to small and medium enterprises. In return, banks can help machinery companies accelerate the process of credit assessment and apply better loan conditions so that these suppliers can serve customers with better total solutions, including financial solutions. “Handbook on Vietnam’s supporting industry” provides the basis for cooperation between banks and third-parties to solve difficulties, to promote Vietnam’s supporting industry’s development. It’s assessed that the publication of the handbook during this time will be a good motivation, creating a solid ground for the innovation of Vietnam’s supporting industry.
In recent years, Japan has always been one of the leading investors in Vietnam. Accumulation by the end of 2013 shows that registered investment from Japan to Vietnam was US$34.58 billion, of which investment in 2013 alone reached US$5.747 billion.
Thanh Yen
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