Phát triển công nghiệp hỗ trợ trên địa bàn thành phố hà nội LA tóm tắt tiếng anh

MINISTRY OF EDUCATION AND TRAINING – MINISTRY
OF PLANNING AND INVESTMENT
VIETNAM INSTITUTE FOR DEVELOPMENT STRATEGIES

DO THUY NGA

DEVELOPMENT OF SUPPORTING INDUSTRIES
IN HANOI CITY

Major: Development Economics
Code : 9 31 01 05
SUMMARY OF DOCTORAL DISSERTATION

Hanoi – 2018


This dissertation has been completed at
VIETNAM INSTITUTE FOR DEVELOPMENT STRATEGIES

Supervisors: 1. Assoc Prof., Ph.D. Bui Tat Thang
2. Ph.D. Duong Dinh Giam

Reviewer 1: Prof., Ph.D. Nguyen Dinh Huong
Reviewer 2: Ph.D. Tran Hong Quang
Reviewer 3: Assoc Prof., Ph.D. Nguyen Van Huan

The dissertation will be presented in front of the Doctoral Dissertation
Evaluation Committee at Vietnam Institute for Development Strategies.

Dissertation copy can be found at
National Library;

Library of Vietnam Institute for Development Strategies.


INTRODUCTION
1. Problem Rationale
Economic globalization and cooperation are expanding trends, along with rapid
development of global science and technology revolution, countries in different regions are
working together under a global network of labor division. Every country wishing to
develop should allocate the national labor force into international labor division network.
With high levels of international labor division and production fragmentation, few industrial
products are produced in a single space, place or company of a country. Production process
is divided into several stages, performed by subdivisions of companies in different
localities, countries or continents. Supporting industries (SIs) have been established as a
necessity stemming from the need of new industrial production based on a fundamental
principle that profoundly specializes stages in the production process [34].
Supporting industries in Vietnam contemporarily focus on some sectors such as
automobile parts with localization ratio about 5-20%; electronic products about 5-10%;
leather footwears about 30%; textiles and apparels about 30%; SI for high technology about
1-2%; other machineries about 15-20%. From low level of localization ratio of the SIproducts, the value of parts imported annually to Vietnam for assembly, manufacturing and
production for export was several billions of US$ (electronics and automobiles only around
US$ 30 billion) [22].
Supporting industry of Hanoi city has proved its independent roles by creating
economic efficiency, income livelihoods, budget contribution, technological innovation, etc.
Some well-known SI-products made in Hanoi are automobile parts, motorbikes, electrical
materials, packaging, mechanical parts of cement industry, mining mechanics, thermal
power, hydropower... which have contributed to increase localization ratio and replacement
of spare parts, creating competitiveness for industrial products nationwide. In order to have
more SI products to replace imported products, to reduce import of raw materials,
development of SIs in Hanoi city is necessary. Recently, localization ratio of motorcycle
parts reached over 80%. Some difficult SI-details such as engine gears, motorbike

crankshaft were produced by Japanese FDI firms in Hanoi instead of imported ones.
Electronic components for information technology sector meet not only the demand of
domestic market but also significant amount for export [47].
However, production value of Hanoi SI-companies only accounted for about 10% of
the total industrial production value in the city [8]. Although automobile parts and
motorbike industries are among the most developed supporting industries as large market in
Hanoi, the percentage of revenue accounted for only 26% of the industry. Electronics and
informatics products were lower at only 10%. While electrical industries in Hanoi have
wide range of product categories as well as many different sub-categories, the industries
including electrical appliances and tools, mechanical supplies, mechanical parts, etc. only
accounted for 29.16% of the industries revenue [14]. The SI group for textiles and leather
and footwear is a special group, which accounted for a relatively low proportion of the
industries revenue due to being discouraged to develop in Hanoi after the year 2020.
The development of Hanoi supporting industries was also spontaneous and fragmented,
without the strategic orientations which concentrate on some key sectors and strengths of the
city to develop, overlapping products and uneven quality. Production capacity of the
enterprises was still limited and especially the enterprises have been unable to find solutions

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for coordinating and linking together to achieve better business performance for individual
enterprises as well as the development of supporting industries in Hanoi city [54; 47]. One of
the biggest challenges for development was lack of qualified human resources, making SI
development more disadvantageous. The level of technology in SI-enterprises is at an average
level, with the number of technologically advanced firms being comparable to those of other
countries in the region (about 20%) [12]. Foreign invested enterprises (FDI firms) have
equipped with more advanced machining technology, but the capacity is sufficient to meet the
internal needs of its parent companies. Competitiveness of Hanoi SI-enterprises is low, lack of
coordination, lack of specialized allocation between production facilities, and weak linkages

between main producer with subcontractors, between subcontractors, between FDIenterprises and local firms. While SI-products are mainly used for domestic production
(satisfying about 10% of demand), export of SI-products is limited because of difficulties in
accessing to large markets or efficient scale of production capacity.
Previous studies in Hanoi have focused on some specific problems of industrial
development such as Nguyen Ngoc Dung (2011) [16] studied on "Development of
synchronous industrial zones in Hanoi"; Nguyen Dinh Trung (2012) 71] studied
"Infrastructure construction for industrial clusters in Hanoi"; the industrial development
plan of Hanoi city to 2020 with vision to 2030 [84]; project on "Developing SI in Hanoi city
from 2017 to 2020, orientation to 2025" [87]; the project "Development of major industrial
products in Hanoi to 2020, orientation to 2025" [88] of the People's Committee of Hanoi,
but there is unavailable research on supporting industries in Hanoi. This is a great challenge
for development of the city supporting industries. Based on the facts mentioned, the topic
"Development of supporting industries in Hanoi city" is selected for this dissertation.
2. Objectives
a. General objective
Based on clarification of theoretical issues on development of supporting industries,
the dissertation analyzes and evaluates current situation of supporting industry development
in Hanoi city. Thereafter, it is to propose solutions for promoting development of supporting
industries in Hanoi city in the following years.
b. Specific objectives
- To systematize theoretical and practical issues related to development of supporting
industries, thereby to propose constituents and criteria for evaluating development of
supporting industries in Hanoi city;
- To analyze and evaluate current situation of supporting industry development in
Hanoi city as well as comparing with the national development;
- To analyze the factors influencing development of supporting industries in Hanoi city
and achievements and limitations in the development of supporting industries in Hanoi city;
- To propose orientations, ideologies and solutions to promote development of
supporting industries in Hanoi city, the period up to 2030.
3. Research object and scope

The object of this dissertation is all components of supporting industries in Hanoi
city in terms of economic development. It is a process of mobilization and development of
supporting industries that aims to support the city's supporting industries to develop towards
sustainability and green growth.
- Spatial scope: The dissertation analyzes enterprises of supporting industries in Hanoi city.

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- Time scope: The dissertation studies and evaluates current situation of supporting
industries development in the period of 2010-2017 and proposes measures to promote
development of supporting industries in Hanoi city by the year 2030.
- Constituents scope: The dissertation focuses on theoretical and practical issues of
supporting industries development (scale, quality and efficiency) in Hanoi city.
4. Research methodology
a. Research approach
- System approach
- Institutional approach
b. Method of data collection
- Collect data through documents, published reports.
- Method of investigation, field survey.
c. Methods of synthesizing and processing data
(1) Search and synthesize scientific papers and reports by international organizations
related to SI development in general and SI for specific sector.
(2) Collect research papers by scientists, administrators, research institutes and
universities in Vietnam, which have been published and discussed aspects of SI
development in the provincial or city and nationally level.
(3) Study doctoral dissertations, master theses which have studied issues related to
development of SI in the whole country and in Hanoi city.
d. Data analysis methods

- Dialectical method;
- Integrated approach;
- Comparative and historical methods;
- Exploratory Factor Analysis (EFA).
5. Dissertation’s main contributions
- The dissertation has clarified theoretical issues and perspectives on development of
SI in a locality, especially the theoretical issues of concept, content, influencing factors and
criteria used to evaluate the development of SI in Hanoi, focusing on three groups of
indicators: scale, quality and efficiency of SI development. This is a theoretical contribution
to further research on development of SI in general within a province or region.
- The dissertation described current situation of SI development by employing SI
development criteria for measuring increase in size of the SIs (number of SI enterprises,
number of workers participating in the industries, production value, etc.); quality of SI
development (SI growth rate, the ability to apply science and technology, product quality,
etc.); and efficiency of SI development (contributions of the SIs to industrial development
of the city, to the production value, to linkages among SI enterprises, etc.).
- The dissertation analyzed in depth the factors affecting development of SI including
policy mechanism, global economic linkage, market, human resources, infrastructure. At the
same time, the Exploratory Factor Analysis (EFA) model was used to determine impacts of
each factor as a basis for debate and perceptions from practical research.
- Based on projections of domestic and international contexts that may affect SI
development, the dissertation proposed a system of ideology, orientations and solutions to
accelerate the development of SI in Hanoi city, the period up to 2030.

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CHAPTER 1. LITERATURE ON SUPPORTING INDUSTRY DEVELOPMENT
1.1. Studies on supporting industry development
1.1.1. International studies

a. Studies related to attracting investment in supporting industries
Prema-Chandra Athukorala and Do Manh Hong emphasized an increasingly
important role of SIs for economic development in developing countries. In order to
promote sustainable development, developing countries need to create conditions to attract
FDI, and attractiveness for FDI and effective use of FDI depend sustainable SI development
as well as how much an economy can absorb FDI that, in turns, brings efficiency and
sustainable development to the economy.
b. Studies related to supporting industry development policy
Porter; Ratana; Asia Productivity Organization; Goodwill Consultant JSC and VDF
have shown an important role of policies by focusing on analyzing the role of attracting
foreign investment in SI development.
c. Studies related to supporting industry development
JBIC; McNamara; Thomas Brandt pointed out that in order to develop SI, it is
important for SI to link with each other, to link up with MNEs, and to join the global value
chain to promote SI.
1.1.2. National studies
a. Studies related to supporting industry development for specific sector
There are many papers focusing on SI development of specific industries such as
automobiles, motorbikes, textiles, electronics, footwear, etc., but without focusing on
overall development of SI.
b. Studies related to supporting industry development policy
The main research focuses on proposing policies to develop SI for each specific
sector and draw lessons learned for SI development in Vietnam.
c. Studies related to supporting industry development
These studies focus mainly on development of industries, SIs, and policies, tools and
development for comprehensive industrial development, SI in Vietnam.
1.2. Overall assessment of previous studies
A number of studies have initially described an overall situation of SI development
for some typical industries such as motorbike, automobile, electricity, household electronics,
textile... These studies have pointed out advantages, achievements, limitations and causes

related to SI development, then confirmed limitations and weaknesses of SI, not only to
reduce competitiveness of industrial products in particular, the national economy in general,
but also impact on deficit of Vietnam's trade balance in international integration, affecting
the goal of sustainable development of socio-economic of Vietnam.
These studies also deal with SI development in Vietnam in general and in Hanoi in
particular, in the context of international integration, highlighting advantages and
disadvantages in development. Based on those discussions, policy implications, and
solutions for SI development in the process of socio-economic development and show the
directions for developing SI for some industries in Vietnam. It emphasized that industrial
zones, export processing zones, SMEs and business linkages in SI development are
important factors to promote SI development in the following years.

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1.3. Limitations of previous studies and issues that need further study
- Fundamental of SI in terms of economic development.
- SI roles of the national economy in general and specific industry of Vietnam in
particular.
- Advantages, difficulties and new factors affecting the SI development in Vietnam in
general, and in Hanoi in particular.
- Assessing the situation of SI development in some industries such as motorbike,
textile and electronics, etc.
- Previous studies could analyze factors influencing on SI development for specific
industry, but quantifying the factors by econometric models has not been conducted.
- Solutions for SI development of automobile, textile and electronics industries.
CHAPTER 2. THEORETICAL AND EMPIRICAL LITERATURE
ON SUPPORTING INDUSTRY DEVELOPMENT
2.1. Theoretical foundation for supporting industry development
2.1.1. Concepts of supporting industry development

a. Concepts of development
Under different perspectives, development is understood to be multidimensional.
Development is the process of growing up, advancing all aspects, namely, satisfaction of
increased elements, both qualitative and quantitative changes, better institutions, product
types, organizations, market changes, law and enforcement, social security [98].
Economic development is an increase in economic activity (in terms of size and
quality) of a country (or region, province, district, enterprise, family) for the needs of its
people. Or, in other words, economic development is one or more of a number of actions
[49] to achieve development of economic system.
In economic development, industry plays an extremely important role. Industrial
development is expansion of the economy’s productive capacity through diversifying
commodity production as a part of overall socio-economic development [36, 37].
b. Concept of supporting industry and supporting industry development
SI is understood to be a technical and economic sector, including production of
intermediary products, supply of machinery parts and accessories, processed materials and
services and production support services under certain processes to assemble the final products.
The development of SI is development of scale, including increase in production
value, increase in number of SI enterprises, labor force involved in the SI industries; quality
development, including quality of products, quality of human resources in SI industries;
efficiency improvement of SI development, including growth rate of SI, VA/GO ratio,
applications of science and technology and localization ratio of SI products.
Constituent of SI includes: (1) As a specific economic and technical branch of the
industry, arising from labor division, high level and popular of production specialization.
(2). (2) SI plays a role as entities producing intermediate, attached and dependent products
with major industrial products. (3) High level of connectivity and support for development
of the main industry.
Based on that, the author outlined constituent of SI development in this dissertation as
followings: (1) increase in value of SI production, increase in number of enterprises
producing supporting products for the main industry; creating jobs and moving toward more
reasonable labor market structure; (2) improving quality of intermediate products that support

the main industries to produce better quality and more efficient products; (3) improving

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efficiency of business activities of SI, including growth rate, application of science and
technology, human resources development to improve quantity and quality of products.
2.1.2. Roles of supporting industry development in socio-economic development
Supporting industry development has the following roles: (i) As foundations for
industrialization and modernization, stimulating the economy to grow in the long-run; (ii)
Ensuring economic autonomy and reducing trade deficit; (iii) Promoting development of
small and medium enterprises; (iv) Increasing competitiveness of major industrial products;
(v) Expanding possibilities of attracting foreign direct investment.
2.1.3. Factors affecting development of supporting industries
Factors affecting development of supporting industries include: (i) Policy
mechanisms of the State; (ii) Regional and global linkages, influence of multinational
corporations; (iii) Markets of supporting industry enterprises; (iv) Scientific and
technological progress; (v) Financial resources; (vi) Human resources; (vii) Infrastructure;
and (viii) Cultural and political environment.
2.1.4. Criteria for evaluating the development of supporting industries
2.1.4.1. Criteria for assessing the scale of supporting industries
Change in the size of SI is reflected in four basic indicators: an increase in SI
production value, increase in number of participating firms and SI sectors, number of
workers employing in SI enterprises. However, when using this criterion, it should be noted
that there is unavailable evidence to prove large scale enterprises associated with high
development level of SI. SMEs also have their own advantages and suitable for SI.
Characteristics of SI are mainly attributed to participation of SMEs. Therefore, size of SI
enterprises is just one aspect of the ability to meet requirements of major industrial
enterprises.
2.1.4.2. Criteria for assessing the quality of supporting industries

Evaluating quality of supporting industry products: Benchmarking is inherent quality
of every product. It must strictly adhere to technical specifications, technology and product
operation at general level. Superiority means that the product is always innovated to make a
difference, compared to other competitive products.
Assessing quality of human resources in supporting industries: analyzing
comprehensive and sustainable development of SI, it is necessary to analyze high-skilled
workers in enterprises, index of trained level, ability to manage and use machinery and
technical equipment; ability to use labor skills and technology for producing SI products.
2.1.4.3. Criteria for assessing the effectiveness of the supporting industry
- Growth rate of supporting industries: This is an indicator reflecting an increase in
speed and scale of output of SI for a given period. The growth is compared by the original
time, reflecting growth rate.
- VA/GO ratio: efficiency of SI production is expressed in VA/GO ratio, in which, VA
(Value Added) is an increase in new creative value and GO (Gross Output) is production
value of the sector. If ratio of VA/GO is high, meaning the growth rate of GO is lower than
that of VA. It shows that the SI sector develops in depth, producing raw materials, creating
large amount of added value. In contrast, VA/GO ratio is low, the growth rate of GO is
higher than that of VA. This shows that the SI sector is expanding in width, outsourcing, and
hiring. A rise in GO without an increase in VA, which economists call the phenomenon
"impoverished growth", should be avoided.

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- Ability to apply science and technology and localization ratio of SI products: With
modern technology system, SI companies meet all quality requirements, delivery time for
customers. It is flexible, ready to meet all requirements of customers when any change
occurs. In particular, in the context of globalization, international economic integration also
helps SIs to improve their competitiveness in exporting products to foreign markets and
exist as a satellite of MNEs.

- Criteria for assessing linkage of supporting industries.
2.2. Experiences and lessons learned from supporting industry development
Experiences in SI development from several countries such as Japan, Korea,
Malaysia, Thailand and reality of SI development in Vietnam such as Ho Chi Minh City,
Dong Nai province, there are some lessons learned for SI development in Hanoi as
followings: (i) Implementation of policies to support the development of SI of the locality. It
is necessary to develop policies to support SMEs in terms of production sites; low interest
rate loans as well as financial support for SMEs when borrowing credits for investment in
SI production; (ii) FDI inflow should be directed into key industries prioritized for
development, associated with technology transfer and skills for domestic enterprises; (iii)
mobilizing capital to support SI development; (iv) development of SI zones/clusters; (v)
building linkages between SI enterprises and final product assemblers; (vi) Development of
human resources for SI development; (vii) Promote roles of industry associations
CHAPTER 3. CURRENT SITUATION OF
SUPPORTING INDUSTRY DEVELOPMENT IN HANOI CITY
3.1. Overview of supporting industries in Hanoi city
3.1.1. Situation of industrial development in Hanoi city
In 2016, value of industrial production in Hanoi (at constant prices in 2010) was
estimated at VND 435 trillion, an increase of 7.2% compared to 2015. Production value of
manufacturing sector was VND 423 trillion, accounting for over 97% of the total industrial
production value. In the period of 2011 - 2016, production value of the entire Hanoi
industry grew at an average rate of 8.4% /year, higher than average growth of the whole
country (8.2% /year).
Hanoi industry contributed significantly to development of Vietnamese industry. In
2016, value of industrial production in Hanoi accounted for about 8.2% of the total
industrial production value of the country.

Table 3.1. Production value of the whole industry of Hanoi in the
period 2010 - 2016
Year

2010
2011
2012
2013
2014
2015
2016
Average growth rate (%)

Whole industry
Manufacturing
Production
Continuous
Production
Continuous
value (bill VND) growth rate (%) value (bill VND) growth rate (%)
267,659
259,898
293,443
9.63
284,854
9.60
317,028
8.04
307,343
7.89
350,918
10.69
340,058
10.64

374,110
6.61
362,461
6.59
405,495
8.39
393,317
8.51
434,730
7.21
422,661
7.46
8.42
8.44

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Source: [11]
Structure of production value of major industries in Hanoi was unchanged in the
period of 2010 - 2016. The main reason is that industrial enterprises in Hanoi have gradually
come into stable operation under the industrial development plan of Hanoi city. Hanoi
industrial zones have been operating stably. However, under fierce competition of both
domestic and foreign enterprises, it is required that industrial enterprises of Hanoi improve
their competitiveness to develop.
Number of industrial enterprises in Hanoi in the period of 2011 - 2017 developed
relatively fast with an average growth rate of nearly 3% per year, number of other industrial
enterprises grew faster than 5% per year, but enterprise number was relatively small
(accounting for more than 6% of total industrial enterprises in Hanoi). Although growth rate
of industrial enterprises in Hanoi increased only 3% per year, the growth rate of industrial

production value increased by more than 8% per year.
Decline in number of industrial products was mainly due to reduction in orders from
partners and a fall in purchase of SI products which affected output of the final products.
However, production value of Hanoi's industries was still relatively good, which indicated
that industrial enterprises have invested in developing their products in order to increase
quality of their products for export.
Industrial development has created jobs for many workers in the city as well as
people from other provinces to work. In the period 2010 - 2016, the industry created nearly
01 million jobs in its industrial zones. In 2016, number of employees working in the
industrial sector in Hanoi was over 757 thousand employees, average growth rate in the
period 2010 - 2016 reached 2.1% per year. Of which, manufacturing and processing
industry employed nearly 720 thousand workers, accounted for about 95% of the total labor
force in the whole industry.
Investment in Hanoi industry was still comparatively small but increased remarkably.
In the period 2010 - 2016, investment in new industrial development increased by only over
9% per year, approximately equal to growth rate of industrial production value. Hanoi
industry has been attractive for investors. The Hanoi government implemented many
policies, creating a favorable environment for businesses to invest in the city industrial
sectors.
Table 3.2. Investment in industry of Hanoi city
Indicators
Total investment
- For industry
- For manufacturing
- For other industrial sectors

2010
148.1
38.3
19.8

18.5

2013
176.2
50.6
19.9
30.7

Unit: trillion VND (the constant 2010 price)
Average
2014
2015
2016
growth (%)
192.7
208.9
233.3
7.9
50.4
57.4
65.1
9.2
20.4
23.4
27.7
5.8
30
34
37.4
12.4

Source: [11]

Currently, the city has developed 19 industrial zones and high-tech zones with the
total area of 4,100 hectares, of which there are 8 key industrial zones. Hanoi city was
building three hi-tech zones, along with 110 industrial clusters with an area of more than
3,000 hectares. By the end of August 2016, Hanoi industrial zones have attracted 616
projects (323 FDI projects) with registered capital of USD 5.22 billion, disbursed 3.28
billion, the investors mainly from Japan, Korea, China, Singapore ... 293 domestic projects

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with registered capital of VND 11,891 billion (disbursed 7.168 billion). Among FDI
projects, many projects of leading corporations were to produce high technology products
such as Canon, Panasonic, Hoya, Meiko (Japan).
3.1.2. Policies for supporting industry development
Along with the city industrial development, supporting industry has been formed and
developed to support Hanoi industry. At the beginning of 2011, when the government
started to pay attention to SI development, a number of policies were promulgated to
promote SI development.
SI development became one of the main contents of the Master Plan for Vietnam
Electronics Industry Development up to 2010 with a vision to 2020 (Decision No.
75/2007/QD-TTg dated 28/05/2007). Decision No. 37/2007/QD-BCN approved the plan for
SI development to 2010 with a vision to 2020. Major contents of the plan included SI
sectors that needed to focus on SI development: textile, leather-shoes, electronics informatics, manufacturing and assembly of automobiles, mechanical engineering.
However, there was unavailable definition of supporting industries. Vietnam still lacks a
legal definition of SI that should be understood consistently among government agencies.
Privileged policies on taxation, credit and human resources stipulated in the Decision
was old ones, as stipulated in other legal documents. Currently, policies for SI development
in Vietnam in general and in Hanoi in particular are ample, but less practical to support SI

development.
In line with the policies to support SI development by central government, the Hanoi
People's Committee also has a number of policy programs to clarify the regulations of State,
suitable to conditions of Hanoi city. In 2011, Hanoi issued the Program 77 promulgated on
June 6, 2011 to concretize industrial development in the Resolution of the 15th Party
Congress. The program has assessed current situation and set out targets, roadmaps and
measures to develop SI in the 2011-2015 period. Hanoi was one of the few provinces to
issue a special policy. This was the Decision 143 dated January 7, 2014 by the People's
Committee of Hanoi.
Although there are a number of policies and programs for SI development in Hanoi
city, there are some limitations for the development: (i) The activities were somewhat
passive or were being integrated with other sectors. The city lacked of a comprehensive
strategy, clear orientation in key priority sectors and industries; (ii) Information and
dissemination to enterprises; (iii) There were inadequate supporting activities for enhancing
enterprise management capacity; (iv) There were unavailable activities for upgrading
technology, innovative support products not yet included in supply chains for large
assemblers in Vietnam or for export; (v) Lack of promotion activities, linking SI with
clients, especially FDI clients, and MNEs investing and manufacturing in Vietnam.
3.2. Status of supporting industry development in Hanoi
According to the master plan for SI development in Vietnam by 2020, with a vision
to 2030, Vietnam is expected to focus on developing four main sectors: (1) manufacturing
spare parts, including metal, plastic - rubber, electricity - electronics; (2) textile industry; (3)
footwear industry; (4) SI for high technology industry. Currently, Hanoi is also prioritizing
the development of the four SI sectors, as the national plan, to take advantage of privileged
policies for SI development nationwide and make use of the city potential as an economic,

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political and social center of the country, attracting investment and develop SI. Specific

priority sectors of Hanoi to 2020 are shown in the Table 3.3.
Table 3.3. SI sectors and supplying capabilities for Hanoi's industries
Sectors

Manufacturing (agricultural,
industrial machines,
automobiles, electronics, ...)

Metal components
(including molds)
Plastic - rubber
Spare parts
components
Electromagnetic
components
SI for
Raw materials (fabrics,
textiles and leather, ...)
leather Accessories (buttons,
shoes
machine only, soles, ...)
SI for high tech industries

Textiles
and leather
- shoes

High
tech
industry

X
X
X
X
X
X

X
Sources: Synthesized by the author, 2017

3.2.1. Expanding the scale of supporting industries in Hanoi
3.2.1.1. Development of supporting industry enterprises
It was estimated that in 2017 Hanoi had about 729 enterprises involved in SI,
including 568 manufacturing ones with 3 supply groups, 161 textile and garment enterprises
and 4 leather and footwear companies. Newly-started SI enterprises were engaged in
manufacturing to supply products to hi-tech industry. However, by the time, Hanoi industry
has developed below its potential, the new SI industries only focused on manufacturing,
processing simple products, which were small value-added, uncompetitive, low localization
rate, low productivity and low quality, compared to those from other countries in the region.
Average growth rate of SI enterprises in Hanoi city in the period of 2010 - 2017 was
over 9% /year, of which the fastest growth rate was the SI industry of finishing textile
products (about 15%/year); followed by knitwear and nonwovens; fiber production (over
13% per year); The number of enterprises producing spare parts grew slowly with an
increase of more than 7% - over 9% per year. Leather - footwear industry also increased
more than 10% per year, but number of leather enterprises was very low (only 4 companies
involved in leather industry - shoes). Number of SI enterprises involved manufacturing
spare parts accounted for large proportion (78%). Textile and garment and footwear
enterprises accounted for only 22% of the total number of Hanoi SI enterprises.
Number of enterprises involved in manufacturing spare parts was relatively large, so

this sector played a major role in development of Hanoi supporting industries. The products
of mechanical, electrical and electronic components, plastic and rubber have been widely
supplied to industries manufacturing automobile, motorbike, and electronics in the city.
Also, products of the industries were exported, contributing to improve value, processing
and manufacturing techniques as well as changes in structure of exported products in Hanoi
city. Some sectors such as producing spare parts, components and materials have developed
considerably in Hanoi, especially in domestic production of molds; components, spare parts
for bicycles and motorcycles; standard mechanical components; electric cables, tires and
tubes of all kinds. These products were good quality, meeting the requirements of FDI

10


companies and domestic demand as well as simultaneously exporting to East Asia, ASEAN
and EU countries.
However, SI companies in Hanoi were mainly SMEs. The SI has been transformed
moderately in terms of scale. Currently, large-scale, large enterprises in the city were
unavailable. For that reason, it was difficult for SI enterprises to access to new production
technologies, to improve their competitiveness in terms of capital and products with large
companies because Hanoi SI enterprises were generally weak at capital, finance, human
resources, product quality, science and technology, etc.
Table 3.4. Production scale of supporting industries in Hanoi

Unit: firms
2011
Indicators
Total
1. Production of spare parts
- Mechanical components
- Electronic components

- Plastic - rubber components
2. Textile and garment industry
- Yarn making
- Production of woven fabrics
- Finishing of textile products
- Knitted fabrics and non-woven
fabrics
3. Leather - shoes industry

2017

Small
firms
308
248
143
68
37
58
23
11
13

Medium
firms
115
100
49
30
21

15
6
4
3

432
322
194
79
49
107
42
19
27

Medium
firms
297
246
104
93
49
50
19
12
10

11

2

19

9

2

0

4

0
Sources: [12]; [85]

Small firms

In industry, current level of development or advancement is divided into five
different levels. Level 1 is the level of enterprises, which produce the simplest products.
Level 5 is the level at which the company has produced the best quality products, which can
provide immediately its products to other industries to finish the final products. Currently,
SI enterprises of Hanoi are mainly from level 1, level 2, to level 3, and the proportion of SI
companies at level 4, level 5 is very little.

3.2.1.2. Labor force in the supporting industry
Table 3.5. Number of employees working for supporting industry enterprises in Hanoi

Unit: number of workers
Indicators

2011

2012

2013

2014

2015

2016

Total
1. Production of spare parts
- Mechanical components
- Electronic components
- Plastic - rubber components
2. Textile and garment
industry
- Yarn making
- Production of woven fabrics
- Finishing of textile products
- Knitted fabrics and nonwoven fabrics

35895
30895
11053
17103
2739

36857

31699
11422
17403
2874

37619
32303
11749
17649
2905

38765
33364
12164
18193
3007

42039
36573
13475
19985
3113

46603
41000
15000
22700
3300

Average

growth (%)
105.36
105.82
106.30
105.83
103.80

7842

8121

8382

8560

8713

8928

102.63

4983
2036
589

5139
2103
618

5293

2143
657

5372
2198
689

5435
2264
702

5568
2298
735

102.24
102.45
104.53

234

261

289

301

312

327

106.92

11


3. Leather - shoes industry

17

19

23

29

31

35

115.54
Source: [12]

In the period 2011 - 2016, number of workers working in SIs increased from 36,000
in 2011 to over 46,000 in 2016. The number of employees working in SIs accounted for
over 6 % of total employment in industry. Therefore, SIs sectors had a better quality of labor
than the general level of industrial enterprises. Proportion of SI employees accounted for
over 6% of total number of employees in the industry, but production value accounted for
about 10% of the total industry.
Most of the enterprises employed less than 100 workers. Enterprises with over 200

workers accounted for a very low proportion, focusing mainly on enterprises producing spare
parts. Although the production value was high, these enterprises face many difficulties in
finance and renovation of production technology, so remuneration and bonus system for
workers, especially high-quality workers were still limited. Retention of experienced and
qualified workers was difficult. On the other hand, it is difficult for Hanoi SI enterprises to
compete for high-quality workers with large enterprises, big corporations or FDI enterprises.
3.2.1.3. Development of production value of support industries
Although production value of Hanoi SI enterprises in the period 2011 - 2016 gained
considerable achievements, the value of Hanoi SI was still low, accounted for about 10% of
the total production value of the industry. Growth rate of production value in the period of
2011-2016 was over 9% per year, higher than the growth rate of production value of
industry (over 7% per annum).
Table 3.6. Production value of supporting industry enterprises in Hanoi
Unit: VND trillion (the constant 2010 price)
Indicators
Total
1. Production of spare parts
- Mechanical components
- Electronic components
- Plastic - rubber components
2. Textile and garment industry
- Yarn making
- Production of woven fabrics
- Finishing of textile products
- Knitted fabrics and nonwoven fabrics
3. Leather - shoes industry

2011

2012

2013

2014

2015

2016

28.84
26.62
12.39
10.45
3.78
4.35
2.19
1.78
0.24

30.92
28.6
13.56
11.03
4.01
4.71
2.29
1.98
0.27

34.11

31.73
15.12
12.49
4.12
4.89
2.35
2.02
0.33

37.25
34.76
16.43
14.01
4.32
5.19
2.45
2.17
0.37

40.97
37.94
17.55
15.8
4.59
6.37
2.98
2.68
0.48

46.41

42.9
19.5
18.5
4.9
7.25
3.45
2.95
0.56

Average
growth (%)
9.98
10.01
9.49
12.10
5.33
10.76
9.52
10.63
18.47

0.14

0.17

0.19

0.2

0.23

0.29

15.68

0.03

0.03

0.03

0.04

0.05

0.06

14.87
Source: [12]

Production of SI products requires high technology and high investment, while the
products prices increased significantly. Because the profit was low, enterprises were less
willing to invest in modern technology for SI production.

Figure 3.3. Average production value per worker of SI enterprises in Hanoi
Source: [12]

12

The average production value per worker in the supporting industry increased from
over VND 800 million in 2011 to nearly VND 1 billion in 2016. With this growth, the city's
supporting industries contributed job creation for large numbers of workers in the city and
from other localities, along with increased incomes and a stronger increase in production
value, contributed significantly to economic growth of the city.
3.2.2. Quality of supporting industry development
3.2.2.1. Product quality of supporting industries
Recently, localization ratio of motorcycle parts reached over 80%. Some complicated
parts such as engine gears, motorbike crankshaft were produced by Japanese FDI firms in
Hanoi instead of imported ones. Electronic component parts of information technology
industry meet not only the domestic market but also for export.
Some Hanoi companies have actively invested in technology to produce SI products.
As a result, the level of technology has improved. A number of SI products were able to
compete with imported products (such as the products of the Mechanic Equipment Export
Joint Stock Company, Hanoi Plastic Joint Stock Company, Thang Long Metal Joint Stock
Company, shares in East Anh chain ...). Contemporarily, there are a few companies in Hanoi
to break out of stagnation by investing in equipment, raising the scale. Competitiveness of
SI was low, there was lack of coordination, specialized distribution between production
facilities and almost lack of coordination, distribution of production, linkage between main
producers with subcontractors, between subcontractors, between FDI enterprises and
domestic enterprises. Notably, lack of qualified human resources has made the SI
enterprises more disadvantageous.
Hanoi SI companies were generally at a low-level development, with a large gap
compared to other countries in the region. Therefore, SI companies were unable to
participate actively in value chain, and if so, they can only make simple components for FDI
enterprises. FDI companies in Hanoi were difficult to find suppliers which were domestic SI
enterprises. Although it is desirable, becoming a supplier for FDI enterprises is still a
difficult playground. capacity and technology of majority Hanoi SI companies were still
limited. In Vietnam in general and in Hanoi in particular, it is necessary to develop bodies
that certify standardized products, certify safe and environmentally friendly production.

Especially, to meet the international quality standards, it is necessary to have skilled human
resources who specialize in quality control.
3.2.2.2. Human resources of supporting industries
Although there were significant number of employees working for Hanoi SI
companies, the quality of labor was a big challenge for SI development. Human resources
of the industries were both low quality and quantity.
Table 3.7. Workers' training level of supporting industry enterprises in Hanoi
Indicators
High school, unskilled
Elementary vocational training
Intermediate vocational training
College
University
Post-graduate

2011

2012

2013

2014

12266 12206 11273 10308
13048 13103 14201 15382
5403 5738 5932 6103
3204 3627 3821 4194
1943 2102 2301 2635
31
81

91
143

13

Unit: number of workers
Average
2015 2016
growth (%)
11230 11431
98.60
15983 18743
107.51
6493 6918
105.07
4680 5392
110.97
3291 3581
113.01
362
538
176.96


Sources: [10], [12]

Majority of the workers had primary education, or elementary vocational training. From
2011 to 2016, the trend of trained workers increased significantly, as shown in the Table 3.7.
3.2.3. Efficiency in supporting industry development
3.2.3.1. Growth rate of supporting industry development

In the period 2011 - 2016, production value of the Hanoi SI increased significantly.
From 2011 to 2016, production value of Hanoi SI rose nearly 10% per year. In which,
growth rate of footwear industry was the fastest, followed by textile and garment industry
and SI for spare parts industry.
Table 3.8. Growth index of industrial production value and supporting
industries, 2011 - 2016 (at constant 2010 prices)

Unit: %
Indicators
1. Whole industry
2. Whole supporting industry
- Production of spare parts
- Textile and garment industry
- Footwear industry

2011
9.63
5.34
5.41
4.32
0.00

2012
8.04
7.21
7.44
8.28
0.00

2013

10.69
10.32
10.94
3.82
0.00

2014
6.61
9.21
9.55
6.13
33.33

2015
2016
8.39
7.21
9.99
13.28
9.15
13.07
22.74
13.81
25.00
20.00
Source: [12]

Main Hanoi SI products and strengths of the city were producing spare parts, which
grew substantially. Only production value of manufacturing spare parts industry accounted
for over 92% of total production value of SI in 2011 and remained unchanged until 2016.

3.2.3.2. Proportion of value-added in production value
Another challenge is that percentage of high value-added products is low. Only from
one to 10% of the city's SI products satisfied requirements of high value-added industries
such as high technology industry, electronics, automobile manufacturing. Moreover, in
Hanoi, there was unavailable SI companies involved in high technology industries. Addedvalue created by the SI industry in the past was relatively low. Although outputs of Hanoi
SIs increased significantly, the industries lacked of high value-added, good quality and
complicated products as well as increased efficiency in SI development.
Table 3.9. Value-added ratio on production value of supporting industries in Hanoi
city, 2011 - 2016 (at the constant 2010 price)

Unit: %
Sectors
Whole supporting industry
1. Production of spare parts
2. Textile and garment industry
3. Footwear industry

2011
50.73
46.69
50.32
36.33

2012
49.90
46.26
46.48
36.67

2013

46.79
43.62
43.12
37.33

2014
2015
2016
44.24
43.98
41.87
40.94
40.35
38.88
43.03
42.24
37.64
42.50
38.00
35.17
Sources: [59], [10], [12]

3.2.3.3. Science and technology application and product localization
The technology that spare parts companies in Hanoi are using technology and
machineries mainly from Japan, China, Taiwan and some upgraded domestic machineries.
However, localization ratio of products requiring high technology, high accuracy
requirements was relatively low. In automobile industry, due to lack of auxiliary equipment,
automobile industry in Hanoi was unbale to reach its targets. Localization ratio was below
20%, especially producing cars and specialized vehicles. With the low localization ratio,

14


Vietnam's automobile industry found it very difficult to compete, survive and develop in
line with import tariff reduction schedule.
Table 3.10. Supply capacity of components manufacturing industry of Hanoi
supporting industries

Unit: %
Sectors
Motorbikes
Automobile
Synchronous equipments
Agricultural machines
Electronic appliances
Information technology,
telecommunications
High tech industry

Mechanical
components
85 – 90
10 – 20
30 – 40
50 – 60
50

Supply capacity
Electric - electronic
components

70 – 80
10
40
30

Plastic - rubber
Components
85 – 95
20
30-35

30

15

15

10

5

5
Source: [59]

3.2.3.4. Linkage of supporting industries
In order to develop Hanoi SI, the City People's Committee assigned Hanoi Department
of Industry and Trade and other relevant departments to regularly organize trade conferences,
trade promotion, exhibitions, and support for the enterprises. The IS exhibitions were to create
favorable conditions for SI enterprises to connect together or cooperate with industrial
enterprises in Hanoi or from overseas, especially Japanese, Korea, Thailand, etc. Hanoi SI

companies learned experiences from the domestic or international counterparts. Some Hanoi
SI companies joined the global value chain, creating high added value for industrial
production, such as: Hanoi Plastic Joint Stock Company provides molds for Honda Vietnam,
Toyota Vietnam, LG Vietnam, Piaggio Vietnam exporting their products to Japan; Mechanical
Equipment Export Joint Stock Company, exporting to European market; Dong Anh Chains
Joint Stock Company producing over 1,000 small metal parts for Honda, Suzuki and Yamaha
motorbikes. Besides, these companies also suppled SI products for domestic and international
markets such as Japan, Europe and other countries
3.3. Factors affecting the development of supporting industries in Hanoi
3.3.1. State policies and mechanisms
Survey results show that enterprises evaluate the State policies that support
enterprises in developing their production and business activities. It can be seen that policies
are in line with the development strategy of enterprises. Particular attention has been paid to
the requirements of environmental standards that enterprises need to meet. Businesses also
strongly agreed with economic development but must ensure good environment. With
regard to tax, capital and interest rates, businesses evaluated above average level of 4.20 on
the Likert scale of 7. The business combination between economic policy and
environmental policy was unreasonable.
Table 3.11. Evaluation policies for supporting industry enterprises
Variables
CS1
CS2
CS3

Survey questions

Mean

Policies designed are consistent with the development strategies of SIs
Rules and standards of environment are high

Business support policies are adequate (capital, interest rate, tax...)

4.42
4.55
4.20

15

Standard
deviation
1.80
1.72
1.68


CS4
CS5

Investment policies of the State are useful
4.15
1.59
Combination of economic policy and environmental policy is good
3.95
1.74
Sources: Data analyzed by the author, 2017

3.3.2. Global and regional linkages, influences of multinational corporations
One of the most concerning points for the whole manufacturing industry was lack of
linkage between large producers and supporting enterprises, between foreign invested
enterprises and domestic ones. Many businesses still think "sell what they have, not what

the markets need."
The linkage was inadequate, making it difficult for the enterprises to access many
cheap materials or expand their markets to other countries. The enterprises have paid
attention to the linkage, but limitation was that the enterprises were unable to use all the
potential of the trade relationship between Vietnam and other countries in the world.
Table 3.12. Evaluating linkages of supporting industries
Variables
QHLK1
QHLK2
QHLK3
QHLK4
QHLK5

Survey questions

Mean

Standard
deviation

Profound integration of Vietnam with the world helps businesses
4.08
1.61
access abundant, cheap, and good quality raw materials
The integration also creates opportunities for developing markets
3.87
1.59
in other countries in the region
Vietnam's participation in trade organizations helps businesses
4.67

1.58
easy to access international market information
It is easy to access opportunities to attract investment into
3.87
1.59
production
The integration process also creates competitive pressure for the
4.19
1.64
enterprises
Sources: Data analyzed by the author, 2017

3.3.3. Markets of supporting industry enterprises
Table 3.13. Evaluating markets of supporting industry enterprises
Standard
Variables
Survey questions
Mean
deviation
TT1
Output markets has stable growth, sustainable development
3.72
1.58
TT2
Enterprises are always active in finding new markets
4.04
1.74
Enterprises focus on ensuring the prestige and quality of products,
TT3
4.35

1.58
and always provide good services to the customers
The State has maintained good macroeconomic measures to
TT4
3.86
1.54
stabilize markets and create conditions for businesses to develop
Enterprises have implemented good measures to promote and
TT5
3.64
1.77
market products to expand the markets
Sources: Data analyzed by the author, 2017

Growth rate of domestic market in Vietnam was relatively low with a very small
market size. Participation in regional and international cooperation organizations and
arrangements provides Vietnam with favorable opportunities to become a strategic
investment destination for MNEs and many SMEs.
3.3.4. Technological advances
Domestic technology for SI production was outdated and slow to develop, majority
of machines and tools for SI industry in Hanoi were imported, especially technology for
manufacturing industry.
Survey results also show that enterprises have underestimated science and
technology, especially the ability of applying advanced science and technology in

16


production line of enterprises. The problem was mainly due to lack of accessing to
advanced technology. Investment costs were too large, unsuitable for investment ability of

the enterprises. In addition, the enterprises were inactive, less interested in investment for
research and application of science and technology.
Table 3.14. Evaluating technology of supporting industry enterprises
Variables
KHCN1
KHCN2
KHCN3
KHCN4
KHCN5

Survey questions

Standard
deviation
3.64
1.54

Mean

Machineries and equipment are environmentally friendly
Production line of enterprises are applied high level of science and
3.59
1.55
technology
Enterprises have invested and paid attention to application of
3.73
1.54
science and technology
Application of science and technology creates competitive
4.62

1.46
products and limits pollution
Enterprises create more conditions to access advanced science and
3.82
1.37
technology in production
Sources: Data analyzed by the author, 2017

3.3.5. Financial resources
Enterprises operating industrial sectors are facing several difficulties in accessing
formal credit. On the other hand, the related policy of the State was a motivational
propaganda, the State has not invested sufficient resources including budget and human
resources for SI development. Policy formulation in Vietnam was limited to the
government, with little involvement of donors, experts or scientists.
Table 3.15. Evaluating finance of supporting industry enterprises
Variables
NV1
NV2
NV3
NV4
NV5

Survey questions

Mean

Standard
deviation
1.41
1.51

1.40
1.52

Own capital of SI is always available
3.46
Enterprises are supported in terms of interest rates
3.71
Enterprises find it easy access to credit
4.28
Enterprises are able to mobilize a variety of financial resources
3.73
Enterprises find it easy access to information about the financial
4.58
1.58
system
Sources: Data analyzed by the author, 2017

The most disadvantage of accessing capital was difficulty in accessing credit sources
when banks were increasingly tightened in loan regulations, followed by the weak ability of
enterprises to mobilize sources diversified through many channels. This made the SI
companies, which heavily depended on formal credit resources, difficult.
3.3.6. Human Resources
Table 3.16. Evaluating human resources of supporting industry

enterprises
Variables
NNL1
NNL2
NNL3
NNL4

Survey questions
Unskilled human resources for business activities of enterprises
are abundant
General human resources for production and business activities are
good quality
Employees are enthusiastic, satisfied with the current jobs
High quality human resources are easy to be employed in
businesses

17

Mean

Standard
deviation

4.82

1.50

3.63

1.49

3.71

1.44

3.56

1.70


NNL5

Enterprises have owned initiatives to train and develop skills of
4.43
1.48
human resources
Sources: Data analyzed by the author, 2017

Enterprises found it difficult to employ highly-skilled workers, which implied an
imbalance between training of high quality and unskilled human resources. Number of
engineers working in advanced factories was limited, while students trained from
universities were unable to find suitable jobs.
Unskilled workers in Hanoi were not highly regarded in terms of qualifications,
productivity, professionalism. This shows the limited aspects of vocational training for the
workers.
3.3.7. Infrastructure
Surveyed respondents evaluated infrastructure at low level. This shows that the current
infrastructure constraints were significant, making it difficult for businesses to operate.
Table 3.17. Evaluating infrastructure environment for supporting industries
Variables
CSHT1
CSHT2
CSHT3
CSHT4
CSHT5

Survey questions

Mean

Standard
deviation
1.75

Infrastructure ensures smooth production and business
3.69
Infrastructure is favorable for customers to access and select
3.58
1.69
products
Infrastructure is invested synchronously, efficiently and receives
3.37
1.70
the attention of the state
Enterprises find it easy to meet the requirements of the local
3.85
1.62
government
Businesses always focus on favorable infrastructure factor for
3.92
1.73
doing businesses
Sources: Data analyzed by the author, 2017

In addition, there were restrictions related to satisfying the customer's ability to
access SI products. Main reason for the restrictions related was lacking of facilities to meet

the activities of advertising, product introduction in a focused way for approaching the
customers.
3.3.8. Cultural and political environment
Table 3.18. Evaluating cultural and political environment for supporting industries
Survey questions

CTVH1
CTVH2

The political environment is always stable
4.48
The macroeconomic situation is stable
4.75
Consumption habits of Vietnamese have good
3.85
1.55
impacts on business activities of enterprises
Exchange rates are always flexible
4.57
1.55
Business security is guaranteed
4.56
1.59
Sources: Data analyzed by the author, 2017

CTVH3
CTVH4
CTVH5

Mean

Standard
deviation
1.42
1.59

Variables

Along with stable political condition, cultural factors also affected development of SI
enterprises. Consumers in the country now have preferences of appreciating quality and
design of foreign goods or buying goods associated with famous brand, thus making
domestic enterprises have difficulty in maintaining the domestic markets. On the other hand,
resources of domestic companies were weak and unable to conduct marketing and
advertising activities.
3.3.9. Factors affecting the development of supporting industries in Hanoi

18


After calculating the Cronback Alpha Correlation Coefficient, all variables were
guaranteed to be run in Exploratory Factor Analysis (EFA). After running EFA, 40 variables
were grouped into 8 influencing factors, and the selected variables have factor loading> 0.5.
The TT5 variable has a loading factor of less than 0.5 and was rejected. Continuously
running the EFA with the remaining 39 variables were matched, the KMO coefficient> 0.8
for the Figen values was greater than 1, variance was 71.03%, indicating that 8 groups of
factors with 39 variables were suitable, perfectly consistent and statistically significant.
Verifying the results and grouping of 8 groups of factors are consistent with the
above analysis.
- The coefficient R2 = 0.670, which represents variation of the independent variables
in the model, accounting for 83% of SI development a good indicator showing fitness of the

model between theory and reality.
- Coefficient Sig=0.000 in the ANOVA test indicates that the reliability of the
regression analysis is consistent with the low error.
- Coefficient Sig of factors in the regression table is also lower than 0.1, which
confirms the factors that influence on the dependent variable is the development of SI.
- Residual distribution graph shows normal distributed residue, the mean value near
zero (-1.45e-15) and the standard deviation of 1 (0.984).
- Coefficients of VIF of the factors in the model are less than 2, indicating the factors
that do not occur multicollinearity.
The regression expression for this relationship as follows:
Y = 0,229 + 0,146 X1 + 0,227 X2 + 0,172 X3 + 0,129 X4 + 0,278 X5 + 0,195 X6 +
0,085 X7 + 0,110 X8 +ui

Table 3.19. Outputs of regression analysis

(Constant)

Unstandardized
Coefficients
B
Std. rror
0.229
0.238

CTVH

0.146

0.045

NNL

0.227

QHLK

Variable
Intercept
Cultural
politics
Human
Resources
Relationships,
linkange
Policy
Finance
Science and
technology
Infrastructure
Market
R2
F
Sig F

Symbol

Standardized
Coefficients
Beta

t

Sig.

0.964

0.336

0.186

3.281

0.001

0.048

0.090

1.613

0.080

0.172

0.032

0.093

2.219

0.027

CS
TC

0.129
0.278

0.043
0.052

0.020
0.202

0.433
3.432

0.066
0.001

KHCN

0.195

0.037

0.117

2.581

0.010

CHST
TT

0.085
0.110

0.050
0.044

0.269
0.141

4.458
2.504

0.000
0.013

0.670
61.959
0.000
Sources: Data analyzed by the author, 2017

All coefficients are positive, which means that the factors that influence on
management result, should improve any factor contributing to the development of SI. In
factors influencing, coefficient of financial factor is the highest (0.278), then quality of
human resources (0.227); followed by science and technology (0.195); relationship and

19


linkage (0.172). The lowest is the coefficient of infrastructure variable (0.085). This result,
in our opinion, is also consistent with the results of field surveys in the city.
3.4. Overall assessment of supporting industry development in Hanoi
3.4.1. Achievements in supporting industry development
First, in terms of output performance, Hanoi SI grew faster rate than the average of
industrial sector. Production efficiency was reflected in the following aspects: employment,
profits, and good contributions to the budget.
Second, some SI companies in Hanoi have become a part of the linkage in the product
value chain of multinational corporations. Hanoi has established industrial parks
specializing in SI, associated with FDI enterprises such as Bac Thang Long Industrial Zone,
Noi Bai, Quang Minh. Hanoi IS enterprises supplied to not only domestic markets but
increasingly exported to markets of other countries.
Third, Hanoi industry has been gradually developing. Foreign direct investment inflows
have increased, state-owned enterprises are reformed rapidly ...
Fourth, it can be said that the recent increase in the number of FDI projects was due to the
continuous improvement of the investment environment, especially as increasing awareness of
the SI importance and having paid much attention to development of this new industry.
Fifth, the state has issued a number of legal documents to promote development of SI as
mentioned from previous chapters.
3.4.2. Limitations and reasons
3.4.2.1. Limitations
First, Hanoi IS was at its early stages of development with several weaknesses. The
number of Hanoi-based enterprises was low and low level of development in terms of
quality and quantity.
Second, Hanoi SI was fragmented, underdeveloped, insufficient supporting services to the
enterprises, backward technology and weak competitiveness. Hanoi IS products was poor in
types, designs, monotonous design, and the prices were generally higher than that of imported

products. The technology level of the majority of enterprises producing supporting products in
our country has just reached average level of the region and many countries in the world.
Third, growth rate of IS spare parts in the domestic market was relatively low, especially
high-quality industries such as automobiles, electronics. Enterprises were reluctant to
import domestic SI products for assembly.
Fourth, competitiveness of SI products was relatively low. Technological and
management capacity of SI enterprises were week, applications of modern management
standards was nominal.
Fifth, there was unavailable focal point for state management of SI to propose and
implement policies to encourage SI development in a concrete and realistic manner.
3.4.2.2. Reasons for the limitations
First, the most challenged issue for SI development in Hanoi is insufficient capability of
the enterprises themselves.
Second, enterprises operating SI sectors have several difficulties in terms of accessing to
capital, technology and markets. Market size for some SI product was too small and difficult
to expand in the short-run.
Third, human resources for SI were inadequate for development in terms of quantity and
quality.
Fourth, lacking connection between large enterprises and small businesses, between
domestic enterprises and foreign-invested enterprises in producing SI products.

20


Fifth, Hanoi city was lack of inadequate databases of domestic companies, FDI companies,
electronic component assemblers and lack of information about different linkages between
assemblers and domestic suppliers. As a result, the relationships were unstable and short-term.
Sixth, shortage of skilled human resources was mainly associated with limitations of
vocational training in the country. Currently, specialized institutions for training SI
techniques are unavailable.

Seventh, programs and policies on supporting SI were abundance, but overlapping,
ineffectiveness to SI development. Abstaining the government supporting activities or
policies were inadequate, many cumbersome procedures, making it difficult for enterprises
to invest in SI.
CHAPTER 4. SOLUTIONS FOR DEVELOPING SUPPORTING INDUSTRIES IN
HANOI CITY
4.1. Contexts for supporting industry development
4.1.1. International contexts
The trend of globalization and international economic integration has been
increasingly profound and strongly affecting activities and economic sectors; Technological
development and globalization have substantial impacts on production, especially for
developing countries. Vietnam is approaching ever closer with the Industry 4.0; There is an
increasing trend of FDI projects in supporting industries to developing countries; Following
the AFTA commitment, member countries have to reduce import tax.
4.1.2. Domestic contexts
Restructuring some priority industries in Vietnam takes place on the basis of new
awareness and comprehensive content; Strategic development of cutting-edge industries
goes along with the delopment of related SI systems;
Development strategy of SI has become increasingly urgent as Viet Nam is losing its
cheap labor advantage in labor-intensive industries compared to other Asian countries.
4.1.3. Hanoi city context
After 10 years of SI development policy implementation, Hanoi currently has 59
products of 46 enterprises whose products have been recognized as the key industrial
products of the city. The city government has issued “the certificate of industrial key
products". Hanoi's key industrial sector has achieved a certain number of development
steps. The city's SI industry has not developed adequately with the city’s potentials and its
products are not diversified. The is unavailable products and absence of SI companies
involving in high technology.
4.2. Development orientations and objectives of supporting industries in Hanoi
4.2.1. Development orientations

Development orientations of supporting industries in Hanoi: (i) It is necessary to
have policies to encourage the development of Hanoi SI, especially to promote the role of
supporting development enterprises such as Hanoi Supporting Industries Business
Association (HANSIBA); (ii) Distribution of industrial space in SI has been gradually
arranged and streamlined in line with the Hanoi master plan for industrial development; (iii)
It is necessary to promote supply linkages between Hanoi and provinces in the northern key
economic region; (iv) Funding should be available to support for technological innovation;
(v) It is important to support for training and technology transfer.
4.2.2. Development objectives
Growth rate of SI is expected to increase by 10-15% annually. In the period of 2025 2035, production value of Hanoi SI is projected to account for about 25% of the total

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industrial production value of the city; Growth rate of the city SI production value is
expected to increase by 15-20%. Development of Hanoi SI will focus on three key sectors:
manufacturing spare parts; SI for hi-tech industry; and textile and garment industry.
4.3. Solutions to promote the development of supporting industries in Hanoi
Policies for supporting industry development: (i) Implementing procedures for
certification of preferences for projects, manufacturing SI products on the list of SI products
prioritized for development; (ii) The city authorities disseminate information, guidance and
review of administrative procedures to facilitate enterprises and investors in accessing
privileged policies for projects on production of SI products on the list of SI products
prioritized for development; (iii) Reviewing, adjusting, supplementing and finalizing
strategies, master plans and plans for development of SI; (iv) Reducing administrative
procedures related to investment licensing for SIs, downstream enterprises; (v) Reforming
credit mechanisms and policies towards improvement of procedures, shortening the time for
reviewing and approving loans to small and medium enterprises, ensuring transparency and
simplicity; (vi) It is necessary to continue to plan industrial parks and support industrial
clusters; (vii) There should be special incentive mechanisms (for loans, investment support,

land rent incentives) for investment in the development of hi-tech supporting industries.
- Attracting investment in industry and supporting industries: (i) The city budget will
invest in infrastructure, which provides facilities for investors and enterprises to operate their
business, build ready-for-lease workshops that are suitable for SMEs to produce SI products
in priority SI sectors; (ii) Continue to improve the investment and business environment in a
more open way, reform administrative procedures for consulting and helping enterprises,
reduce the difficulties for enterprises; (iii) Hanoi should set up a dedicated financial fund for
SIs; (iv) Encouraging the formation of industrial zones and clusters for manufacturing
components, spare parts and auxiliary materials for industries; Building industrial parks and
export processing zones in a concentrated way; (iv) Support and encourage investment for
domestic investors; (v) Encourage incubation activities, SI seed nurseries through supportive
mechanisms to facilitate land acquisition, tax exemption, investment in industrial parks;
- Enhance support for industrial enterprises to support market development: (i)
Periodically organize surveys of SI enterprises and make a list of potential suppliers, develop
SI database; (ii) The city should pay attention to allocating budget and have a better
mechanism to support businesses in terms of information, knowledge market, improve
competitiveness, better linkages between enterprises and other enterprises, business,
professional associations in the country and abroad ....; (iii) Organize fairs and exhibitions on
manufacturing products, organizing "reverse" fairs, serving as a bridge between enterprises
producing final products and producing SI products; (iv) Department of Industry and Trade,
Department of Planning and Investment regularly cooperate with related provinces in
cooperation programs between the city and provinces to form regional linkages, especially the
raw material area planning, sector development planning, IS product development planning.
- Capacity building for supporting industry enterprises: (i) Encourage, support
training by demand of employer, vocational training; (ii) Assessment of capacity, demand
and ability to apply management systems and tools of Hanoi SI enterprises. There is a need
to develop support programs and projects suitable to the needs and capacities of each target
group. It is expected that management systems and tools should be trained and consulted;
(iii) Training, consulting, technical support are to develop and apply some management
systems in SI production. SI enterprises shall be considered, partly supported the costs, the

application of advanced management systems according to international standards; (iv)

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Assisting enterprises in conducting internal audits connecting enterprises with accredited
rating agencies and issue quality certificates.
- Technology for development of supporting industries: (i) Developing a system of
product quality standards according to international standards, branch standards and basic
standards as basis for development orientation; (ii) Creating favorable conditions for FDI
enterprises to carry out technology transfer projects and encourage the transfer of advanced
technologies into production in Vietnam; (iii) Supporting the costs of research and
development, pilot production of SI products, especially SI for hi-tech industries; (iii)
Developing mechanisms to encourage technology transfer activities, strengthen the linkage
between the three houses: Business - Scientist - State.
- Improving quality of infrastructure for development of supporting industries: (i)
Focusing on speeding up investment in construction, research and implementation of
mechanisms and measures to support investment attraction, to fill the Hanoi South industrial
park; (ii) At the same time, to attract investment in SI development into specialized zones,
clusters; (iii) For some projects with favorable socio-economic conditions, priority shall be
given to the government for granting incentives for land lease term (up to 70 years), rent
exemption land (up to 20 years); To implement the pilot mechanism to allow deduction of all
compensation expenses and ground clearance of infrastructure investors who have voluntarily
entered land rents on the principle of preserving capital for investors.
CONCLUSIONS AND RECOMMENDATIONS
1. Conclusions
Through research on the topic "Development of Supporting Industries in Hanoi
City", the author draws some following conclusions:
1) SI is a technical and economic sector, including production of intermediary
products, supply of hardware, accessory of machinery, equipment, raw materials and

production support services following certain processes to assemble the final product. There
are several authors who studied SI at macro-level, which have been unable to reveal
implication of SI from an economic perspective or have focused only on SI for a particular
industry (machine, automobile, textile, ...).
To evaluate the development of SI, the authors have used the following criteria: First,
SI development was evaluated in terms of development scale as follows: (i) Evaluate
development of number and scale of enterprises in the SI industry; (ii) Evaluate
development of SI human resources; (iii) Evaluate development of SI finance; (iv) Evaluate
development of SI enterprise production value; (v) Evaluate development of the range of
products in the SI industry.
Second, SI development was evaluated in terms of development quality as follows: (i)
Evaluate quality development of SI products; (ii) Evaluate market development of SI products;
(iii) Evaluate quality of human resources development in SI; (iv) Evaluated the quality of
financial development in SI; (v) Evaluate development of science and technology application in
SI; (vi) Evaluate the localization rate of SI products; (vii) Evaluate the development of
downstream industry responsiveness in SI; (viii) Evaluate linkage for SI development.
2) It was estimated that in 2017 Hanoi had about 729 enterprises involved in SI, of
which 568 SIs manufacturing with 03 supplying groups, 161 textile and garment enterprises
and 04 leather-shoe enterprises. Newly-started SIs enterprises were engaged in
manufacturing to supply products to hi-tech industry. Number of SIs enterprises involved in
manufacturing spare parts accounted for 78%; textile and garment and footwear enterprises
accounted for only 22% of the total number of Hanoi SI enterprises. The SI has been

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