HCM City (VNS/VNA) - Vietnam is among the topcountries attracting foreign direct investment in the Asia-Pacific region, butthe rate of domestic small- and medium-sized enterprises (SMEs) participatingin the value chains of foreign-invested companies is rather low, according tothe Investment and Trade Promotion Centre of Ho Chi Minh City (ITPC).

Speaking at the workshop on “How to become a qualifiedsupplier to foreign firms” in HCM City on June 4, ITPC Director Pham Thiet Hoasaid: “This is a paradox. Currently, SMEs account for 98 percent ofbusinesses in Vietnam but only 21 percent of them are linked to foreign supplychains. This rate is lower than in many countries in the Southeast Asian regionsuch as Thailand at 30 percent and Malaysia at 46 percent.”

The application of poor technologies, low labourproductivity, financial shortcomings, and lack of experience in working withforeign enterprises and high-quality and experienced workers were the mainbarriers preventing Vietnamese SMEs from entering the global supply chains, hesaid.

According to experts, manufacturers come to Vietnam for lowwages, but productivity in Vietnam is also low at 1/18th ofSingapore's, 1/16th of Malaysia's and 1/3rd of Thailand andChina's.

Frank Weiand, FF linkage director, USAID LinkSME project in Vietnam,said: “Global firms look for total cost to market.”

Low labour cost is only one factor of production whereas thetotal cost to market includes all costs including labour, materials, cost of capital(both investment and working capital), transport and logistics, duties, taxesand fees (both formal and informal), and others, according to the director.

“The inadequate local supply chain raises all costs otherthan labour, and also minimises local labour participation.

“Locating for low labour cost is the wrong reason for Vietnam’seconomy – a race to the bottom,” he said.

Domestic enterprises must make efforts to find ways toaccess and supply raw materials and equipment to foreign-invested firms,according to experts.

They could participate in the global value chain becausemany foreign investors have invested in the country and the country has freetrade agreements with many countries.

The most important thing is that they need to actively seizeopportunities.

To deeply participate in the global value chain, Vietnameseenterprises must innovate, analyse their strengths, weaknesses, what buyersneed, and ability to supply, among others.

Tran Quang Vu, customer advisory of KPMG Vietnam andCambodia, spoke about what SMEs should know while working with FDI firms,including how to prepare an effective meeting, how to introduce theirbusinesses professionally and convincingly, principles to build a sustainablecustomer relationship, and others.

Participants also acquired information about the journey asupplier has to make to become part of an international organisation’s supplychain.

Hoa said the workshop, which sought to share experiences ofexperts to help local enterprises find solutions to improve theircompetitiveness and gradually enter the global value chain, was the first in aseries of co-operative events between the ITPC and USAID.-VNS/VNA