Jun 2006

Industrial Policy Formulationof Vietnam
To become a reliable partner in integral manufacturing
Kenichi Ohno （GRIPS/VDF））

Vietnam Development Forum(VDF)
Established in Feb.2004 with Japan’s COE budget(MEXT) Joint research project with National Economics
University (NEU) Objectives: (1) Research innovation(2) Policy impact & networking(3) Mobilizing young talented Vietnamese Conducting and supporting research in broad areas
related to Vietnam’s development
Industry, trade, investment, environment, social changes,macroeconomy, ODA, etc.

1Jun 2006

HERE（（4th floor)

Vietnam Development Forum (Hanoi)
WorkshopWork area

VDF’s Support for
Industrial Strategy Formulation
Research on electronics, motorbike, automobile,
supporting industries, steel, power, etc
 Joint missions with Ministry of Industry (MOI) toThailand, Malaysia, Japan—studying policy method,comparing master plans, business involvement
 Supporting Industry Master Plan—assisting MOI tovisit Japanese companies Motorbike Master Plan—official coordinator among
MOI, Japanese producers, experts (implementing a
new drafting method) Cooperating with Japanese embassy, METI, JICA
experts, VN-JP Joint Initiative, Japanese researchers
2Jun 2006

Current Situation in Vietnam
 Firmly committed to integration, in principle
WTO this year? AFTA finished, other FTAs, legal preparation
 Building competitiveness of Vietnamese

enterprises???--lagging
Virtually no preparation or concrete action in last ten years
 High growth, accelerating FDI
Foreigners always love VN; breeding complacency?
 Policy is improving, but still very primitive andinconsistent by East Asian standard

10

Real Growth%

8642
2003

2004

2005

2003

2004

2005

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

0

FDI Inflow

USD billion

108Appr o ve d

6Im ple m e n t e d42
2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

03

Jun 2006

Broad Policy Direction?
 Laissez-faire is out of question Planning is no longer possible
 Infant industry protection is not OK (cf. Japan/Koreain old days)

 FDI-led growth of Thailand/Malaysia cannot becopied
They used tariff protection, import bans, localization requirement inparallel with FDI absorption for long; this is no longer permissible

 What should be the industrial strategy for alatecomer country in the 21st century?
--Very bold opening and liberalization--Building domestic capability (by linking with FDI & foreign buyers)--Mastering integral manufacturing

Motorbike Industry in Three Countries
Duration of import bans, localization requirement, high tariffs differs
VietnamThailandIndonesia

1960
1964 Vietnam War
1970
1975

1964 Yamaha
1965 Honda
1967 Suzuki
1971 Local content restriction(over 50%); ban on construction 1971 Hondaof new asembly plants
1974 Yamaha Suzuki
1977 Local content restriction
1977 Local content restriction(more than 70%); lifting of ban onwith penalty
new assembly plants of 1971
1978 Ban on importing CBU
Increasing tariff for parts

1980
1986 Doi Moi
1990
1993 Local content restriction
with incentive
1996 Suzuki
1997 Honda, ban on importingCBU
1999 Yamaha
2000
2003 Import Liberalization ofCBU

1996 Import Liberalization of1997 Abosolution of local
content restriction
1999 Import liberalization of
CBU

Source:Kohei Mishima in
VDF industry
book (2005)

4

Jun 2006

Two Fundamental Problems of
VN’s Policy Formulation
 Lack of business involvement--Officials draft with limited information--Producers are allowed to comment later or only whenproblem arises--Unrealistic analysis & targets not supported by firms
 Lack of inter-ministerial coordination--Listing policies without details--No policy decision in areas where MOI has no authority
These problems are unique to Vietnam; they do not exist
in Japan, Thailand or Malaysia

Examples ofInconsistent Policies
Businesses ignored, lack of inter-ministerial coordination,
purpose unclear, sudden implementation

Decision to raise domestic car taxes in steps (2000),soon after JAMA & MOI jointly studied ways to promote car industry

Sudden imposition of import quotas on motorbikeparts (2002)
 Reverse tariff structure emerged in electronics(finished product tariffs < parts tariffs) inviting assemblers’protest (2004 to present)
 Liberalization of second-hand car imports, withunclear purpose or detail. So far few imported due
to high taxes and uncertainty (2006)
5

Jun 2006

Motorbike Master Plan:
MOI sample & VDF’s proposal
MOI’s common framework

Review world & E Asia
Review domestic situation
Master plan

Vision, orientation, targets
Demand forecasts & otherfactors
Discuss products, parts,R&D, standards, etc.



VDF’s tentative issue list

Solutions & responsibilities
of various ministries

Decide budget and assign writers first.
Collect data and draft M/P by thegovernment deadline.





Social roles of motorbikes
Industrial structure &competitiveness
Demand forecasts & output
Supporting industries &industrial human resources
Traffic/environmental issues
Intellectual property rights
Policy measures

Brainstorm on these issues for a few
months. Agree on direction, thendecide chapters, data and writers.

VDF’s Support Strategy Work with policy makers rather than criticize

them from outside.
 After identifying problems, try to find concretesolutions.
 Propose bright future and foreword-looking
policies, not just fixing problems.
 Patience. Have long-term vision. Don’t giveup after one or two failures.

6Jun 2006

The Way Forward for Vietnam
 Open up trade and FDI boldly
Step-by-step liberalization no longer works; create freest
business environment in E Asia, and use it to market Vietnam

 Promote local-FDI linkage vigorously
Analyze why other ASEAN countries are slow to link up withFDI and foreign buyers

 Learn integral manufacturing andbecome Japan’s reliable partner
This strategy is needed to avoid direct clash with China and toovercome the “glass ceiling”

Lessons fromThailand & Malaysia
（Success））Effective government-business
relations and inter-ministerial coordination inpolicy making

Vietnam must design its own mechanism, by selectively
importing systems abroad with amendments（Failure））Supporting industries & industrial
human resources still weak after many decades
Inability to send foreigners home (cf. Taiwan, Korea)
 Is this due to policy or people’s characteristics?
 By contrast, VN has bad policy and diligent people—ifpolicy becomes better, performance may improve greatly

7Jun 2006

Stages ofCatch-up Type Industrialization
Technologyabsorption
Agglomeration

STAGE ONE
Simplemanufacturing
under foreign
guidance

Creativity
STAGE THREE
Technology &management
mastered, canproduce highquality goods

STAGE TWO
Have supporting
industries, but still
under foreign
guidance

STAGE FOUR
Full capability ininnovation andproduct design as
global leader

Japan, US, EU

Korea, Taiwan

Thailand, Malaysia

VietnamGlass ceiling for
ASEAN countries

Coping with China It is unwise to directly compete with China
 Many countries want to move up to “high-tech” industries—is it feasible? desirable?
 Decide VN’s strategic positioning from theperspective of business architecture, notproduct selection (cf. Thailand’s leading industries)
 To cope with China, go integral rather thanmodular (for assembly-type manufacturing only)8Jun 2006

Modular manufacturing

Integral manufacturingPartsinterface

Parts are common and canbe used for any model

Each product has uniqueparts, specifically designed

MeritsQuick results and flexibility

Endless pursuit of qualityDemerits

No differentiation, excess
entry, low profit, lack of R&D

It takes much energy andtime to achieve results

Institutional
requirement

Openness, quick decision
making, flexible outsourcing

Long-term relations, building
internal skills & knowledge

PerformanceTimeTime

Partnership Possibilities
Business architecture viewpoint
From the viewpoint ofbusiness architecture
matching, Japan=ASEAN,
USA=China can form
effective partnership

Source: compiled from Prof.
Takahiro Fujimoto’s explanation
to the Joint VDF-MOI mission,June 2005.

9Jun 2006

What Must Be Done Is Clear Promote industrial human resources
Training centers, Meister system, Curriculum reform at industrial
univs. & colleges, overseas educ. & training, incentive for brain
return, using AOTS & JODC schemes, etc.

 Promote supporting industries
SME promotion (HRD, technology, finance), inviting FDI parts
makers, industrial standards, quality standards and testing, factory
doctors, local-FDI matching service, promoting SME networking,trade fairs & reverse trade fairs, database, using JETRO services

HOW, not WHAT—policy list can be the same as in othercountries. Key is good implementation.

No different from Japan’s traditional tech.assistancebut setting clear goal is important (to become integral partner)

Japan: Ageing Problem
 Japan has high technology, high wages, andageing population
 “The 2007 Problem”—Postwar baby boomers(born 1947-49) with high skills will retire soon Merit of integral manufacturing cannot be fully
exploited by using simple labor in LDCs
 Japan needs a young & low-wage developing
country as a reliable partner in integral
manufacturing

10Jun 2006

Population PyramidsMaleJapan2005

FemaleUnit: million

Vietnam2005MaleFemale

Source: US Census Bureau, International Database.

Monozukuri Workers in Japan
0%

20%

40%

60%

80%

100%

Designing
Plastic and other injection
Pressing
Boring (cutting)
Grinding and polishing
Textile industry skills
Welding
Painting
Production process management
Repairing and adjusting equipment
Shorta g e
i n qua nti ty Shorta g e
i n qua l i ty

Shorta g e
i n bothA dequa te

Surpl us

No a ns w er

Source: White Paper on Monozukuri, 2005.

11Jun 2006

Hollowing Out of Japan？
？
Japan’s next generation is too small to sustain
vigorous integral manufacturing—technology mustbe transferred both inside and outside Japan Overseas expansion of integral model should bestrongly welcomed, not feared China, Korea vs. ASEAN (incl. Vietnam)
Specific technology flows to non-integral countries→Copied and used to compete with Japan
Fostering integral architecture in foreign countries→Becoming indispensable partners of JapanConclusion
ASEAN countries, such as Vietnam and Thailand,should learn integral manufacturing as a matter ofnational priority. This will raise their industrial
capability and prevent direct clash with China.
 Japan should strongly support their effort throughprivate and official channels (promote industrial HR and

SI more effectively and intensively than before)
This can be Japan’s new industrial strategy
combining Japanese monozukuri, global positioning,
and ageing.

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