Vietnam Mechanics – Current status and economic solutions to promote the mechanical industry
1. Current status of development of the Mechanical industry
Vietnam’s Mechanical Industry has made important progress after the innovation process. Many businesses and fields of mechanical manufacturing have made breakthrough developments. The economy’s mechanical production capacity is enhanced with a number of pioneering enterprises, such as the Military Industry and Telecommunications Group, Truong Hai Auto Joint Stock Company, and Manufacturing and Communications Limited Liability Company. Vinfast business, Vietnam Engine and Agricultural Machinery Corporation, Industrial Machinery and Equipment Corporation, Construction Electromechanical Corporation,… However, in this period there were also many mechanical enterprises. Vietnam’s manufacturing gas industry is gradually lagging behind, even making heavy losses like Vinashin, and facing many difficulties like Gia Lam Train Mechanical Joint Stock Company (formerly Gia Lam Train Factory).
The fact that some once-famous mechanical factories and enterprises had to change models or even disband like Vinashin was due to their products not meeting market requirements… Mechanical manufacturing enterprises Most of them have not mastered their capital sources, most of them lack capital, have to borrow to invest at high interest rates and are bound by unfavorable conditions of sponsors or financial partners.
Besides, the technology is outdated and simple, lagging about 2-3 generations behind other countries in the same region, along with poor management leading to a situation where mechanical products are still mainly just steel structure processing, without advanced equipment capable of designing and manufacturing high-tech machines and equipment capable of competing internationally; Cannot develop domestic consumption market, let alone export. In addition, the connection and aggregation of mechanical enterprises is still very limited, making it difficult to form specialized mechanical industry groups that bring investment efficiency.
Visible weaknesses of the Mechanical industry such as low technology level and poor competitiveness; Domestic products have little or no usefulness, resulting in many businesses gradually “running out” of capital and losing direction in accessing the market.
Market dependence on foreign mechanical products is also a difficult problem. The Mechanical industry is diverse in products but competition from imported products is relatively fierce. Market expansion still faces many difficulties due to lack of market information and the competitiveness of domestic enterprises is not strong enough. Even in the domestic market, it is difficult for mechanical enterprises to participate in investment projects to install equipment in the Steel, Chemical, and Energy industries, mainly due to the lack of a quality inspection system. product quality according to international standards. Domestic mechanical businesses and products have not yet built their brands and become known to many potential customers. Furthermore, free trade commitments also create pressure on domestic mechanical enterprises when tariff barriers protecting domestic production are removed.
The lack of output for mechanical enterprises for the above products means that the industry has no opportunity to accumulate and invest in technological innovation. While the 4.0 industrial revolution (Industrial Revolution 4.0) takes place, new technologies have completely changed current production methods and methods, creating an urgent need to innovate and update trends. technology for mechanical businesses
The report of the Ministry of Planning and Investment shows that the rate of using high technology of mechanical enterprises is mainly backward, compared to other countries, Vietnam is at a very low level. This causes mechanical enterprises to face many challenges in improving technology, keeping up with trends, improving labor skills and infrastructure quality to be able to participate in the global supply chain and the pressures Great competition comes from countries in the region as well as around the world. We need to frankly admit that currently, there are not many mechanical enterprises in the city participating in the global supply chain.
Regarding raw materials of the industry: raw materials for the Mechanical industry are mainly iron and steel and non-ferrous alloys. Most of these raw materials cannot be produced domestically so they must be imported. This makes the industry dependent on other countries, especially China.
Regarding human resources: Human resources in Vietnam’s mechanical engineering industry are lacking and weak in both quantity and quality. The number of highly skilled mechanics has decreased, and professional workers lack international vocational certificates and foreign language skills. The research and implementation force, first of all the design consulting team, is not qualified to meet the requirements of works and projects on synchronous mechanical equipment.
Besides, the role of industry associations has not been effective. Industry associations have not yet promoted their representativeness in gathering opinions and common actions. The participation of mechanical enterprises has not been attracted and member enterprises have not been closely linked together. Currently, the Vietnam Mechanical Association has only attracted the participation of more than 100 enterprises out of a total of over 21,000 mechanical enterprises.
2. Solutions for developing the domestic mechanical engineering industry
Firstly, to sustainably develop the domestic mechanical industry, the State needs to have a special policy, because if businesses invest in mechanical engineering with equipment of technology level 3.0, 4.0, they must borrow with interest. productivity like other economic sectors, it will be difficult to achieve the goal of improving the internal resources of Vietnamese mechanical engineering, let alone competing with other countries. Some other important issues that need to be strongly directed and implemented by the State are the use of technical barriers, origin of goods, etc. to properly protect the domestic market, like countries around the world. The world has been proactively implementing it. It is necessary to consider equality of investment incentives between domestic mechanical enterprises and FDI enterprises.
In addition, the State needs to create many orders for Vietnamese mechanical enterprises, especially public investment projects. At the same time, investors of large-scale projects (regardless of capital source) in Vietnam must have an appendix, separating tasks for domestic enterprises participating in bidding to perform. In addition, to help Party leaders, the National Assembly, and the Government promptly direct the construction and development of the domestic mechanical industry, Vietnam needs to immediately form a focal point to research policy and management mechanisms. State financial resources for the development of Vietnam’s mechanical industry, excluding FDI enterprises as in the long-standing cumulative calculation.
Second, there needs to be strict regulations on reasonable proportions in project volume and value to ensure domestic mechanical enterprises participate as international practice, with the goal of not having to buy the entire project from foreign countries, which encourages receiving technology transfer to do it yourself. When surveying at Truong Hai Automobile Joint Stock Company and Gia Lam Train Joint Stock Company (Vietnam Railway Corporation), these units confirmed that, in addition to passenger cars, freight cars for the national railway , the factory can completely build its own light carriages for urban railways (metro) if required. In addition, it is necessary to strictly control the issuance of certificates of origin for Vietnamese/ASEAN exported goods in association with the localization rate in both the FDI enterprise sector as well as domestic mechanical engineering, avoiding transfer pricing and raising prices. Inflating production value when it really does not meet the requirements to enjoy preferential policies.
The Government needs to introduce specific policies, such as regulations and strict implementation supervision for investment projects in Vietnam regardless of capital sources from the state budget, private budget, FDI, etc. If the The mechanical manufacturing work that can be produced domestically must be assigned to domestic enterprises to perform. This must be considered and approved right from the planning and investment project approval stage.
Third, turn the challenge from significant disruptions in the supply chain due to the impact of the Covid-19 epidemic into a driving force for Vietnamese businesses, especially those in the mechanical engineering industry, to change production methods. Transform supply chains to be smarter and better connected. Therefore, in the coming time, mechanical engineering enterprises need to invest in human resources, training human resources in management, technology and skills; Focus on activities, services and products with high added value, reestablish production and business processes based on applying techniques, methods, productivity and quality tools. Businesses and related organizations build value chains and supply chains to create competitive advantage and sustainable development.
Fourth, improve the capacity of the industry and the whole enterprise. That means improving the current state of mechanical products of domestic enterprises. Along with that, in order to develop, it is necessary to develop manufacturing clusters, linked together to coordinate production functions, supply of machinery, spare parts, infrastructure,…
Fifth, must innovate thinking about mechanical production, fight against subsidies, but create all policy conditions, including input and output for Vietnamese mechanical products. We must define the market more clearly, identify domestic and foreign market segments, and then have accompanying macro policies, especially tax and credit policies for the Mechanical industry.
In addition, it is necessary to improve the quality of trade promotion activities, attract investment from famous mechanical enterprises in the world to gradually form a domestic supply chain and seek to expand export markets for domestic mechanical enterprises. Implement business connection programs to strengthen links and joint ventures between domestic enterprises and large enterprises around the world in the value chain to access technology and standardize products.
In addition, it is necessary to improve the quality of trade promotion activities, attract investment from famous mechanical enterprises in the world to gradually form a domestic supply chain and seek to expand export markets for domestic mechanical enterprises. Implement business connection programs to strengthen links and joint ventures between domestic enterprises and large enterprises around the world in the value chain to access technology and standardize products.
At the same time, the Government needs to supplement policies and measures to maximize control over the import of machinery, production technology lines, means of transport, and used goods to protect the purchasing power of the market. domestically like other countries have been doing this drastically to protect domestic production.
Sixth, it is necessary to promulgate a number of incentive policies and specific support mechanisms for taxes and fees. Specifically, consider reducing corporate income tax with a roadmap until 2035; Reduce tax rates on exported shipments and products to 0% by 2025, 5% from 2025 – 2030, 10% after 2030; Personal income tax exemption for mechanical enterprises operating in the field of agriculture and rural development. In addition, consider exempting and reducing land rent with a roadmap for mechanical manufacturing establishments.
Along with that, it is necessary to accelerate connection and technology transfer from advanced technology suppliers in the world and pay attention to new technologies of Industrial Revolution 4.0, because this will be a huge opportunity for Vietnamese businesses. Vietnam has made breakthrough changes in technology, thereby helping to improve competitiveness and participate more deeply in the value chain.
Source: tapchicongth