Vinaxuki's demise reflects problems in economyMonday, March 20,2017
Ninety-six percent of Vietnam’s enterprises are small businesses, with the majority having 10 workers or less. Only 2% of enterprises are large in size, while another 2% are medium size.
Vu Thanh Tu Anh from Fulbright Economics Teaching Program (FETP), speaking at an international workshop on industry development in 2025-2035, emphasized the underdevelopment of supporting industries, saying this is a barrier that hinders the development of Vietnam’s industry.
The car maker Vinaxuki and other enterprises had to close because of the lack of supporting industries.
In the automobile industry, for example, the localization ratio is surprisingly low, though Vietnam has been developing the sector for the last two decades. Engines make up 40-45% of car value, but still cannot be made in Vietnam.
Vinaxuki is a typical example which shows that having aspirations is not enough to create cars. The goal needs to be empowered with resources, favorable conditions and reasonable policies. It needs an ecosystem of businesses, including manufacturers and supporting industries.
Established in 2004, Vinaxuki was a ‘made-in-Vietnam car dream’. However, the company had to sell workshops and machines to pay huge debts of up to trillions of dong.
A report released in May 2015 by Hanoi inspectors showed that Vinaxuki still owed VND9.8 billion in social and health insurance premiums.
In fact, the government of Vietnam has been aware of the need to develop supporting industries for many years, but no proper solution has been found.
Addressing the issue, Anh said the problem is the lack of medium size enterprises.
“The development of supporting industries needs to be associated with the development of an ecosystem. And one of the important factors of the ecosystem is the existence of medium-size enterprises,” he said.
Anh stressed that medium-sized enterprises play a very important role in the economy. They have resources and capability to connect to bigger enterprises, and they can help small enterprises join supply chains.
“How the 2% of medium size enterprises can connect with the 96% of small enterprises and the 2% of remaining enterprises in the economy is the question that Vietnam’s industry needs to solve,” he said.
In related news, members of the Vietnam Automobile Manufacturers’ Association (VAMA) sold more than 17,600 cars in February, down 13% from the previous month. This is the second month this year that the association has witnessed a drop in sales, although its members continuously reduced prices of their products.