Business Services and Institutional Support for Industrial Development in Vietnam

By Scholtes, Philippe R. | Journal of Southeast Asian Economies, August 1998 | Go to article overview

Business Services and Institutional Support for Industrial Development in Vietnam


Scholtes, Philippe R., Journal of Southeast Asian Economies


This study measures the current and prospective reliance of Vietnam's industry on a detailed list of supporting services, identifies the binding constraints, and proposes practical measures for the government to overcome them. Particular categories of services that are found in short supply can be provided either by the public sector through the creation of new, or the strengthening of existing, institutions or by private businesses. In the latter case, a proactive role of the government entails the adoption of specific policy measures - or "functional" interventions - to entice private agents to move into particular segments of the service sector.

Double-digit manufacturing growth rates no doubt herald a considerable achievement in Vietnam's development. Yet with capacity utilization already hovering above 70 per cent, overstretched infrastructures and slow progress in the human resource build-up, the industrialization process faces a looming threat of over-heating in the years to come. New investment and an increasing market size notwithstanding, the country could not sustain the current growth rates for more than five years before meeting its limits marked inter alia by a painful slowdown in production and a fast-deteriorating current account position.

Massive investment programmes, whether public or private, domestic or foreign, are urgently called for to meet the simultaneous expansion requirements of infrastructures, productive capacities, and human capital. The recently concluded Eighth Party Congress appropriately focused the policy-makers' attention on these central issues.

Similarly, evidence from other developing areas world-wide suggest that the fast pace of manufacturing growth in the future will absorb an increasing amount of service inputs. A large gamut of services in process engineering and technological development, management of accounts and human resources, industrial finance and insurance, transportation and training, will prove critical to support the industrialization drive.

The transition process triggered by the doi moi policy radically alters the mechanisms of manufacturing growth in the country. Indeed to flourish in a market environment, industrial firms must continuously upgrade their factor productivity and efficiency, until they can successfully face the increased competition of domestic and international suppliers.

Yet to a significant - and increasing -- extent, the performance of an industrial firm in a market system hinges upon adequate access to a wide range of services. The purpose of this study is to assess the market of such services as it stands today and the prevailing dependency of manufacturing firms on out-sourced services. In the absence of an adequate body of readily available research on the subject, primary data was collected through a field survey. The operational approach that was eventually retained features a differentiated coverage in the survey of the demand, and of the supply, sides of industryrelated services. Under that two-step scenario, the survey of manufacturing firms is rather broad in its coverage. It determines the demand for external services, and highlights particular categories of services that constrain manufacturing growth in view of their short or inadequate supply. The subsequent survey of the suppliers of industry-related services then focuses on those categories of services where a binding constraint is observed. Based on these premises, it was suggested to follow the ISIC (Rev. 03) four-digit classification and consider in particular: transport (by railways, road, water, air), communications and courier services, industrial finance, insurance, real estate, engineering services including research and development, legal, accounting and tax consultancy, packaging, printing, advertising, sewage and refuse disposal, recycling, repair and maintenance including spare parts.

1. Economic Aspects of Industry-related Services

A study by UNIDO (Dash 1995) analysed the linkages between manufacturing and services in Singapore. …

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