Supply chain disruption: Opportunities in difficulties

Trường Lăng

June 9, 2022


Supply chain disruption: Opportunities in difficulties

Trường Lăng

June 9, 2022

Weaknesses revealed from difficulties

Recently, China has been blocking many localities to fight Covid epidemic, resulting in the disrupted global supply chain. As a big textile enterprise, weekly Viet Thang Corporation ought to import 3 containers of raw materials from Chinese market with a value of more than USD 80,000 to serve production. Material sources from China account for about 30-40% of total corporate imported materials. Over the past 2 weeks, raw materials could, however, not be imported. 

Viet Thang Corporation leader said that Chinese partner could not notify the official delivery deadline, resulting in a lack of raw materials for production. 

In the same situation, Metect (Hung Yen) Joint Stock Company currently had an order of special stainless steel imported from China, the delivery was delayed for more than half a month. The reason is that the supplier of raw materials had to temporarily stop working to prevent from the epidemic. If raw materials cannot be imported for production, the company’s order will not be delivered on time, and the contract may be cancelled by the customer, said Metect Leader.

As the global “factory”, any export disruption from China, will also result in a serious shortage of raw materials. Vietnam is suffering these impacts. Statistics results from the Ministry of Industry and Trade show that China is Vietnam’s largest import market, with a turnover of USD 36.78 billion in the first four months of 2022. The most source of imports from China is raw materials for production. Therefore, the supply disruption from this market makes it difficult for enterprises.

In addition, Russia-Ukraine conflict and the global impact of Covid pandemic have made many other supply chains interupted and un-recoverable. While Vietnam is a nation importing raw materials to process export products, the input is much dependent on foreign countries, resulting in difficulty and a sharp increase in prices.

Reported the Ministry of Industry and Trade, in the first 4 months of 2022, around 89% of Vietnam’s total import turnover is raw materials for production, with a value of USD 106.6 billion, 16.8% increase over the same period. The data on the electronics industry is shown from The General Statistics Office, in the first quarter of 2022, exports gained USD 29 billion, but imports gained USD 26 billion, mainly input materials and components. By this time, the non-initiative input materials is still serious dependent on imports, has negatively affected on production development and economic growth of Vietnam.

cong nhan giay da lam nhung gi

Talking to Pham Minh Chinh, the Prime Minister during his recent visit to Harvard University (USA), David Dapice, the economics professor assessed that Vietnam becoming an international trade agreements is a great success. One of the disadvantages of Vietnam’s economy is, however, most production materials imported from China. When Covid epidemic occurs, the closed border or trade tension will affect Vietnam’s import and export of commodities. Therefore, Vietnam should develop domestic inputs, diversify supply sources for export, suggested Mr. Dapice.


Opportunities in difficulties

The Department of Industry (Ministry of Industry and Trade) leader also affirmed that it is necessary to take the long-term solutions to develop the supporting industry and some important basic material industries, to overcome the dependence on imported input materials and components.

The Government’s Decree No. 111/2015/ND-CP issued on November 3, 2015 defines that supporting industry as “manufacturing industries of raw materials, materials, components and spare parts to supply finished product manufacturing”. With this definition, in terms of the overall industry from upstream to downstream, the supporting industry is the upstream and midstream industries, providing inputs for the production of finished products in the downstream region and thus, the supporting industry is an important part of the supply chain and value chain.

Basing on this definition, the survey result of the General Statistics Office shows that there are around 5,000 enterprises operating in the supporting industry sector nationwide. These enterprises supply raw materials, spare parts and components to the producing enterprises of finished products. In terms of scale, 88% of supporting industry enterprises are small and medium sized, with 300 or fewer employees. 

Judged economic experts, Vietnam’s supporting industry is underdeveloped. Enterprises’ scale is small, their resources are limited, the technologies are outdated. The policies of development encouragement are not attractive enough, and there are many difficulties, so Vietnamese enterprises mainly engage in commercial business, most enterprises run after short-term profits, want to get rich fast, they jump to invest in real estate, stocks to earn money. Currently, Vietnam needs a lot of medium-sized enterprises to participate in the production of raw materials, to increase the competitiveness of industries, instead of depending on imports.

Said Mr. Nguyen Hoang, the Chairman of the Association of Supporting Industry Enterprises in Hanoi, we have a very large market for supporting industry in the manufacturing and processing sector, up to hundreds of billions of dollars a year, but it is ignored. If the supporting industry makes a great contribution, and if the enterprises are manufacturer and supplier of raw materials and components, they will not only help increasing the localization rate and creating the developed manufacturing industry, but also help improving the country’s self-reliance, self-power, autonomy and independence, being able to compete in the global market, gradually get rid of the dependence on external resources, get rid of the medium income trap, aim at the prosperity.

Suggested economic experts, in the face of current difficulties, there are many opportunities for Vietnam to develop the supporting industry. In order that the supporting industry can grow well, it is necessary to establish a State-level Steering Committee to resolve difficulties and promote the supporting industry, to set up the specific planning for each economic region to develop the supporting industry; to provide an urgent and specific solution package on preferential funds for the supporting industry, to provide the supporting industry enterprises the support high-quality labor training, technology support, to link FDI enterprises with Vietnamese enterprises to participate in the supply chain, to take the encouragement policies for FDI enterprises to increase localization. It is necessary to take the attractive incentive policies for the start-up people to target their investment in production instead of trading land and engaging in securities.

Source : VietNam.Net (Premium)

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