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Auto, spare part industries need sharper growth focus
The car assembly and component industries have languished for the last 15 years because their growth strategies have lacked both visionary and practical elements.
The current average local content ratio of vehicles assembled in the country is very low at 5 to 10 percent.
There are only a few dozen businesses supplying car components, most of which deal with batteries, electric wires and minor plastic parts.
There are two main reasons why the industries have stagnated for so long.
First, the number of cars manufactured in Vietnam is still too low to encourage businesses to invest in modern production lines. As a result, locally-made components cannot compete with imported components, in terms of quality and price.
It is impossible and impractical to set a target of increasing the local content ratio to 50 percent and then 80 percent if components are produced only to supply the local market, where just tens of thousands of cars are assembled every year.
Second, Vietnamese businesses are unable to integrate into the system of professional component providers in the world. Large automobile manufacturers tend to choose a new component provider sponsored by a member in that system. As Vietnamese businesses lack both technologies and funds, it is hard for them to attract such sponsorship.
Many preferential policies have been applied, but the industries of car assembling and making car components have faced many difficulties and failed to support each other.
Therefore, the country should now focus on developing the component industry to integrate into the international car production system.
The two major consumer groups of car components are car assemblers and spare part distributors. It is easier to set up business partnerships with the latter as assembling companies often have their own network of providers.
No matter which market car component producers aim at, the key to success is to make sure their products are of international standards. A characteristic of the car industry is high competition. In order to be accepted as a component provider, a business has to meet three main standards: product quality; price and delivery terms; conditions.
Products should be of high quality and have a 1-3 year warranty period. Management and technology must be improved to lower prices by 2-5 percent every year. The number of late deliveries can not exceed the limit agreed upon in contracts.
It is worth noting that about 2 percent of component providers in Europe are disqualified from the system of parts providers after failing to meet these standards.
The Vietnamese car component industry should research the possibilities thoroughly and identify which components it can produce in accordance with international standards. Key products should be chosen based on four criteria: technological capabilities of the country, managerial abilities of each business, assemblers’ support and government support.
The governmental support I allude to is not necessarily preferential treatment. The support can be favorable conditions created to help local businesses learn new technologies, meet foreign partners and promote their products.
The government should also have policies that will facilitate the businesses in gaining well-trained human resources.
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Weak parts production dissatisfies auto industry’s demand
Vietnam’s auto components manufacturing industry has been under-developed, with only 60 component suppliers while the country is now home to 50 car assembly companies.
Phan Dang Tuat, director of the Industrial Policy and Strategy Study Institute, says these numbers compare with around 14 car manufacturers and 24,800 parts suppliers in Japan.
As carmakers need between 20,000 and 30,000 parts for each car, Vietnam’s 10-year-old auto industry is using far more imported components than locally-made ones.
M.J. Pease, General Director of Ford Vietnam, said his company was currently cooperating with more than 30 local parts makers and hundreds of parts suppliers from many other countries.
As a result, Ford Vietnam’s local content ratio in terms of value has stayed at around 20 percent.
Toyota Vietnam, which currently holds the top position in car sales, also has the highest ratio of local content, 33 percent.
In August, Toyota put its US$5 million bodywork production factory into operation.
The company says the factory helped raise the local content ratio to 37 percent for the Innova series.
Ngo Van Tru, deputy head of the Heavy Industry Department under the Ministry of Industry and Trade, noted Vietnam’s automobile industry had only 10 years ahead to prepare as the country would officially open its car market by 2018.
Under the Common Effective Preferential Tariff (CEPT) commitments, import duties on cars imported from ASEAN countries will be removed by that year.
According to Tru, Vietnam’s car consumption volume is expected to hit around 600,000 units per year by 2025. |
Thanhnien
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