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Vietnamese businesses warned about ‘outsourcing trap’

More than 70 percent of Vietnam’s total export turnover belongs to foreign-invested enterprises (FIEs), while Vietnamese enterprises still cannot join the global value chain. 

Vietnamese businesses warned about ‘outsourcing trap’




According to the General Statistics Office (GSO), Vietnam exported $175.9 billion worth of products in 2016, an increase of 8.6 percent over the year before. FIEs alone exported $126 billion, or 70 percent of total export turnover.
Vietnam’s exports have been witnessing stable two-digit growth rate over many years. In 2001, the country exported $15 billion worth of products, while the figure soared to $96.9 billion 10 years later. In 2016, export turnover climbed to $175.9 billion.
However, 70 percent of the export turnover belonged to FIEs, while Vietnamese enterprises could only pocket ‘small change’.
Le Dang Doanh, a renowned economist, said economists began warning about the modest contribution by Vietnamese enterprises to the country’s exports many years ago, when FIEs’ export turnover accounted for 50 percent of total export turnover. 
However, the situation has not improved, while the figure has increased to 70 percent.
Ngo Duc Hoa, president of Thang Loi Textile & Garment, said all the products for domestic consumption are designed, produced and distributed by the company. However, for export products, it only does outsourcing for foreign partners.
More than 70 percent of Vietnam’s total export turnover belongs to foreign-invested enterprises (FIEs), while Vietnamese enterprises still cannot join the global value chain. 


Hoa said the biggest problem for Vietnam’s garment producers is that they have to import input materials. Since Vietnam’s fashion design industry is still weak, Vietnam’s products cannot attract customers. 
And since Vietnamese companies only do outsourcing, they cannot earn big money. An export shirt is priced at $10, but Vietnamese companies have to pay $8.5 for the input material to make the shirt. Of the $1.5 left, exporters have to pay transportation fees, labor costs and other expenses, which means a modest profit of 10 percent for garment makers.
“It is reasonable to say garment companies can only pocket small change,” he said.
The same thing is occurring in hi-tech industries. Vu Thanh Tu Anh from FETP said a survey conducted by FETP’s team found that Vietnamese only make up 3 percent of Intel’s export value, including catering service, gift boxes and security service, the products and services which Intel cannot import. High technology does not always mean high added value.
Anh warned that the national economy would fall into the ‘outsourcing trap’ of low added value if the situation does not improve. 
At a recent roundtable conference on Vietnam’s economic development between the PM and international experts, Tran Van Tho from Waseda University also warned that as Vietnam tries to integrate more deeply into the world, avoiding the outsourcing trap when joining value chains will be a great challenge.

Mai Thanh