VietNamNet Bridge – The EU-Vietnam Free Trade Agreement (FTA) is set to offer great opportunities for the Vietnamese export market. However, opportunities may be missed if supporting industries are not prepared quickly enough to take advantage of them.

MOIT Minister Vu Huy Hoang and EU Ambassador Franz Jessen at the press conference on August 4, 2015

Knowing others and ourselves is key to remaining relevant

The EU imports huge quantities of components and parts from around the globe each year. In 2013, for example, this amounted to a hefty €375 billion ($427.7 billion), of which imports from the ASEAN members were €13 billion ($14.8 billion), or 3.5 per cent of the total. However, the percentage of Vietnamese exports of components and parts to the EU market remain modest. The portion of imports from Vietnam was a mere €812 million ($928 million), or 0.22 per cent of the EU’s total import volume of components and parts.

The reasons for this are manifold, but fault is attributed mostly to deficiencies and challenges in terms of finances, technology, input materials (mostly acquired through imports), high production costs, among others. The key factors, however, are mostly on the domestic side, within parts and components manufacturing firms, known technically as the “supporting industries”, and can be solved quickly if these companies improve their quality management systems and trade capabilities.

The question is how to convince supporting industry players to invest if they do not see the opportunities themselves, and do not have the necessary information about the requirements, demand, and potential of external markets? In addition, what should be done to help them enter the global supply chain for parts, while also staying connected with one another for mutual support in the process of production and market expansion?

These are some of the key questions that supporting industry firms in Vietnam, a majority of them being small and medium-sized enterprises (SMEs), are struggling to find answers for.

Even for a large supporting industry firm like 4P Co. Ltd., which has been present in the Vietnamese industrial sector since 2001, with various major customers, including LG and Canon, these problems may prove insurmountable were the company to attempt to solve them alone.

Nguyen Thi Kim Oanh, head of 4P’s Public Relations Department, said that one of the main challenges comes from the fact that information from the EU market was often in short supply and is rather vague. Businesses mostly approach this market through online channels, information from which does not often reflect the correct trends and taste of EU consumers. In addition, 4P does not get access to information about the current requirements, quality standards, guidelines, and certificates needed for this market, where businesses often lack sufficient experience of the cultural differences between Europe and Asia. Despite having been an exporter to the EU for some time, 4P’s sales remain small.

However, as EU–Vietnamese business and trade ties are increasingly strengthened and the EU–Vietnam FTA becomes a reality, the potential for commercial exchanges have become more and more promising.

With the EU importing hundreds of billions of euros worth of components and parts each year, what stands between Vietnamese supporting industry firms and their attempt to increase their percentage share of this market? To make this a reality, the Vietnamese industry not only needs incentives, but also real actions.

Jean-Jacques Bouflet, former Minister Counsellor and Head of Trade and Economics at the EU Delegation to Vietnam, put the case bluntly: “Vietnamese SMEs should research the EU market and its consumers, while actively engaging with the EU distribution system.”

Realising dreams through actions

In June 2014, the EU initiated action to make this happen through the project "Vietnam supporting industries to Europe" which aims to improve the capacity of supporting industries in Vietnam to comply with EU requirements. As part of the EU-MUTRAP, this project is financed by the EU to upgrade the capacity of Vietnamese supporting industries to meet the standards and requirements of the EU and other major importers. Target groups include local supporting industry firms producing metal, plastic-rubber parts, and electric-electronic components that have the capability and demand for export to the EU and other world markets.

The EU-funded EU-MUTRAP project works to strengthen Vietnam’s integration into global and regional trade systems, as well as facilitate the country’s sustainable trade and investment in the long-term with not only the EU, but also the rest of the world.

The Institute for Industrial Policies and Strategies(IPSI) implementing the EU financed grant project "Vietnam supporting industries to Europe"  not only helps firms to upgrade their capacities, it also connects component and part makers with EU markets through various activities.  This  includes the provision of reports and news on EU market demands, the development of websites on Vietnamese supporting industries, the publication of the Vietnam supporting industry yearbook, facilitating firms attending trade and industrial fairs, and connecting related associations with businesses and EU associations. The project also proposes policies for supporting industry development that align with international trade practices.

Following the project launch, the first training courses took place in November 2014 and January 2015, and focused on building export marketing strategies, developing and applying standards that meet European taste and demand, current technology and consumer trends in Europe, issues related to contracts, use of publicity instruments, improving the user friendliness and effectiveness of websites, the development and maintenance of customer relationships online, and others.

“The training workshops were welcomed by the business community and drew in hundreds of participants. Post-training feedbacks from participants were very positive and there is a need for more in-depth training on market research tools, EU standards, and customers’ needs, quality control, skills for participation in trade fairs in the EU, and so on,” said Truong Thi Chi Binh, Director of the Supporting Industry Enterprise Development Centre (SIDEC) at the Industrial Policy and Strategy Institute.

According to Nguyen Thi Kim Oanh, “in terms of technology and governance, 4P has adopted common international practices, the company is also looking to adopt ISO and TS 16949 standards to meet EU customers’ requirements”.

The question now is about market entry and networking. The recent training offered by the project was necessary and effective. In addition, technology plays a key role in the electronic industry for the development of firms and companies like 4P hope to receive further support in technology transfer, especially in soft technologies (hi-tech know-how), to become more efficient.

VIR