_The Global Information and Communications Technology Industry: Where Vietnam Fits in GVCs_ that the party has decided that ICT is a propulsive sector with the potential to transform Vietnam’s economy. Below we offer a number of recommendations that aim to support Vietnam’s ICT push in the coming years.

# **Part III: Policy Recommendations**

## **Develop Local Suppliers to Support Global Hardware Exporters**

As the trade, production and FDI data indicate, Vietnam has become a production base for a number of lead ICT hardware firms, platform leaders and contract manufacturers looking to leverage the country’s low wages and favorable institutional profile to improve profit margins on global sales. While lead firms like Samsung and Nokia (Microsoft), platform leaders like chip maker Intel, and global contract manufacturers such as Foxconn and Jabil have large manufacturing facilities in Vietnam, linkages to the local supply base remain extremely weak across the board. Local suppliers mainly supply paper and plastic packaging and in many cases, even these very basic products are provided by foreign-owned suppliers. Because these firms have global suppliers, it is difficult for local firms to participate in the GVC in any meaningful way. This is not unique to Vietnam; it is true in many countries that serve as production platforms in GVCs, including China, where Foxconn’s 11 subsidiaries accounted for an astonishing 17.3% (USD 79.3bn) of the aggregate export value of China's top 200 exporters in 2012 (Grimes, 2015).

However, given the scale of recent and planned investments, these global firms have indicated a willingness and desire to develop the local support industry. **We see a short but very significant window of opportunity for supplier development, inclusion, and upgrading. This opportunity will exist only while Vietnam remains a favorable manufacturing location for these global firms. Interviews with key lead firms indicate that government efforts to foster development of supporting industries for ICT hardware have been ineffective so far.** We believe that efforts by global firms have also been half-hearted. For example, Samsung’s strategy for growing its Vietnamese supply base has been to organize workshops in which it explains the components it would like made locally, and audits the quality of specific suppliers. The first of these workshops was a fruitless endeavor. It quickly became clear to Samsung that local suppliers lacked the capabilities to meet the company’s requirements. But we could not detect any aggressive follow up or outreach to help local suppliers overcome these capability deficiencies.

To develop a cadre of competent local suppliers in the short time horizon that exists, we recommend the following steps. First, a committee composed of members from the Ministry of Industry and Trade, the Vietnam Association of Foreign Invested Enterprises (VAFIE), the Ministry of Planning and Investment, the Foreign Investment Agency and the Vietnam Association of Mechanical Industry (VAMI) should identify top potential suppliers through transparent and competitive means. The committee should have access to lists of components that key global firms like Samsung, Microsoft and Intel would like to source locally. The committee should use these lists to match local suppliers with specific global firms on a one-to-one basis. These firms should then provide their potential partners detailed instructions and hands-on assistance in regard to fulfilling requirements related to business systems, process technology, machine selection and financing. Other company-specific considerations, like environmental or social requirements, should also be transmitted to the Vietnamese suppliers as well. The government should then set up a dedicated fund from which it can draw capital to subsidize investments in facilities, equipment and training.

Subsidies from the “National Support Industry Fund” should be tied to firm performance. Subsidies should be given for up to five years, at which point they should be withdrawn. If companies do not meet annual performance targets set by the new “Committee for Support Industry Development,” they should have subsidies revoked. When the five years of state support have 28