Host-site institutions, regional production linkages and technological upgrading: a study of automotive firms in vietnam

Abstract

Using technological capabilities as embodied in machinery, organization, processes and products, this study examines the links with host-site institutions and regional production linkages. The statistical results show no relationship between these variables. In-depth interviews complement the quantitative findings. Overall, the result shows that the government’s localization efforts failed because too many joint-venture assemblers were approved in the 1990s when the domestic market was small. The lack of economies of scale also affected the growth of national suppliers. Hence, national producers are confined to low value added segments and lack the quality to compete in export markets.

Keywords:

• automotive industry
• regional production linkages
• technological upgrading
• Vietnam

Acknowledgements

We would like to thank the Economic Research Institute for ASEAN and East Asia (ERIA) for its financial support. We are grateful to comments from anonymous referees, and to the research project leadership of Prof. Rajah Rasiah and Dr. Sothea Oum.

Notes

1. Quoted from official statistics from the Ministry of Planning and Investment, from 1987 to the April 2014 total FDI inflows to Vietnam were approximately US$237 billion in terms of commitments.

2. Examples include just-in-time (JIT), Kaizen, quality control circles (QCC), the international standards organization (ISO) series, total preventive maintenance (TPM), and total quality management (TQM).

3. Before this, the only automobile factory was Hoa Binh Auto, which has operated since 1951 mostly undertaking repair of military vehicles. The two joint-ventures are Motor Company (VMC) and Mekong Auto.

4. Between 2001 and 2010 the number of employees working in component producing firms increased by 4.2 times, while it increased by 6 times in lead firms.

5. The questionnaire was originally designed Rajah Rasiah but was later modified and adapted for Vietnam by the authors. We use a random sampling strategy to select firms for inclusion in the study. The sampling frame was constructed using the Vietnam Enterprises Census 2012 conducted by the Vietnam Government Statistical Office.

6. RL = percentage of firms’ imports from ASEAN countries

7. Median summary statistics are not provided here due to space constraints but can be provided upon requests.

8. Decision No. 117/2004/QĐ-TTg by Prime Minister on the Master Plan of Vietnam Automobile industry until 2010 and vision to 2020. According to this Master plan, local value added for trucks, vans and cars shall reach 60 percent (50% for engines and 90% for gears and shifting) and the industry would meet 80 percent of domestic demand.

9. To put things into perspective, Vietnam has a vibrant motorcycle industry with a lot of technological upgrading in local firms, and the linkages between foreign firms and local suppliers is very strong, which is a consequence of economies of scale achieved from Vietnam’s large market.