Executive Briefings

Vietnam Supply Chain 'Weakness' Keeps Export Costs Up

Weaknesses in Vietnam's manufacturing and agricultural supply chains have prevented the country from lowering export costs and capturing much needed value addition, said Pham Minh Duc, senior economist at the World Bank.

Vietnam Supply Chain 'Weakness' Keeps Export Costs Up

There are major constraints in manufacturing supply chains in Vietnam, such as being reliant on primary supply chain structures from which very low value addition is captured, heavily dependent on feedstock, weak sourcing capacity, weak cluster arrangement, lack of working capital, and dependent on intermediaries for both sourcing and marketing, Duc said.

The economist said in a report titled "Trade Facilitation, Value Creation, and Competitiveness: Policy Implications for Vietnam's Economic Growth", that the predominance of government-to-government rice exports discourages high quality and positive response to market signals, which is one of the major constraints in the agricultural supply chains.

The report also blamed Vietnam's small scale of farming, saying more than 70 percent of rural households farm less than 0.5 hectares and use backward farming methods.

Price and seasonal fluctuations, ineffective enforcement of health and sanitary conditions at all stages from the fish farm to the market and lack of working capital are other constraints, said the report.

The report recommended several policy changes to restructure supply chains to capture value and participate proactively in global chains, including making a prioritized list to reflect Vietnam's comparative advantages, consultation to develop an action plan to facilitate strong supporting industries to increase local value and availability and attract foreign direct investment, introducing agro-industrial production towards improving quality and scaling up successful contract farming for large scale agro- industry development.

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There are major constraints in manufacturing supply chains in Vietnam, such as being reliant on primary supply chain structures from which very low value addition is captured, heavily dependent on feedstock, weak sourcing capacity, weak cluster arrangement, lack of working capital, and dependent on intermediaries for both sourcing and marketing, Duc said.

The economist said in a report titled "Trade Facilitation, Value Creation, and Competitiveness: Policy Implications for Vietnam's Economic Growth", that the predominance of government-to-government rice exports discourages high quality and positive response to market signals, which is one of the major constraints in the agricultural supply chains.

The report also blamed Vietnam's small scale of farming, saying more than 70 percent of rural households farm less than 0.5 hectares and use backward farming methods.

Price and seasonal fluctuations, ineffective enforcement of health and sanitary conditions at all stages from the fish farm to the market and lack of working capital are other constraints, said the report.

The report recommended several policy changes to restructure supply chains to capture value and participate proactively in global chains, including making a prioritized list to reflect Vietnam's comparative advantages, consultation to develop an action plan to facilitate strong supporting industries to increase local value and availability and attract foreign direct investment, introducing agro-industrial production towards improving quality and scaling up successful contract farming for large scale agro- industry development.

Read Full Article

Vietnam Supply Chain 'Weakness' Keeps Export Costs Up