Trade policy and the role of foreign companies

The manufacture of electronics, as it currently exists in Vietnam, could be used as a starting-point for building up the country's industrial capacity. However, in the short term, it is realistic to assume that most of the advance- ments in Vietnamese electronics production will come through links with foreign companies. Foreign companies can supply the necessary capital and highly-specialized technology. They may also have good access to the global market both for the procurement of advanced parts and the distribution of final products. Establishing beneficial linkages with the international elec- tronics supply-base and gaining access to foreign markets are two crucial elements for the rapid development of electronics production in Vietnam that foreign companies can help with.

How can government encourage foreign companies to establish manu- facturing facilities inside of Vietnam? The limited size of the local market will require that these types of investments be oriented toward the export market. Trade policy in general, and import/export tariffs in particular, can be powerful tools to foster foreign investment in manufacturing.

Low tariff schedules for parts will allow foreign and domestic compa- nies alike to obtain components from abroad at world-market prices. Import tariffs placed on finished goods can foster domestic manufacturing activity (as is now the case in consumer electronics in Vietnam). But when import tariffs are too high, the flow of badly needed goods (such as advanced com- puters and telecommunications equipment) could easily be impeded, creating extremely negative consequences. But if even 5-10 per cent of all advanced electronic equipment sold in Vietnam during the next five years were manu- factured inside the country, domestic manufacturing capacity would be vastly improved from its current state.

A proper mix of government policies should help create an environment ripe for innovation and entrepreneurship in software, electronics-related services, and hardware production. Policy-makers should take into account the tight linkages between the production and the use of electronics products by encouraging their simultaneous development. Domestic electronics production in Vietnam should be encouraged through both general or specific policies. Together higher-education and specialized training represents such a mix of both general and specific programs. The development of a supportive environment for entrepreneurship and the selective procurement of comput- ers and other IT products by government is another mix of general and specific means.

As we read the draft national policy for electronics production by the Ministry of Heavy Industry, it does not provide effective tools for cross- sectoral coordination of the kind discussed above. Electronics production is not related to the demands by Vietnam's principal IT users. Nor does the policy statement conceive the industry's development along with the changing market for IT products and services.

One illustration: More advanced needs among professional IT buyers in Vietnam could help differentiate and advance the market for microelectron- ics. This might stimulate local production including an active involvement of the private sector.

The government should address the user-producer relationships, which may be difficult to penetrate in detail but which have to be tackled, if an original policy for industrial development should become successful.

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