Research and innovation critical to future of support industries  The Vietnam government has set a lofty target for exports of the electronics segment of the economy for both the foreign and domestic sectors operating within the country’s borders to reach US$40 billion by 2017. However, the development of the domestic electronics industry is still facing significant challenges says the Vietnam Electronics Industries Association as the segment is dominated in its entirety by the foreign sector. More than 90% of all sales – both local and overseas – are attributable to transnational electronics giants the likes of Samsung, Panasonic and LG with local companies largely non-existent in the segment’s support industry. The real challenge that lies ahead over the next decade is how to methodically go about increasing the participation of local companies in the segment’s support industry, said Le Ngoc Son - chair of the Association in a recent widely reported interview. Mr Son commented that, in his opinion, accomplishing the feat would require a great amount of international support in employee and business competitiveness training, technological investment, and refurbishing of manufacturing facilities. The problem is further compounded by the fact that the Government has given large foreign investors –especially those in the electronics segment – preferential incentives, such as it did with Intel in 2006, Samsung in 2010, and in recent years: Nokia, Bosch, and LG Group.  It doesn’t provide these same incentives to local companies, Mr Son underscored. One of the benefits often touted in favour of providing foreign transnational companies like Intel, Samsung, Nokia and LG special favours are that they would help the domestic companies in moving from low-value-added to high-value-added manufacturing. Unfortunately, that has not transpired to date as the localization rate of the domestic sector in the electronics support industry is lacklustre, said Mr Son. A new research report by the Mitsubishi Research Institute of Japan backs up Mr Son’s views on the magnitude of the lack of competitiveness of domestic companies in the supporting industries in general in Vietnam. The report found that building the support industries of the future through enhanced productivity will require increased investment in research and development, a commitment to innovation, better links between business and research, focused international collaboration and the effective training and utilization of an innovation-capable workforce. The report commissioned by the Central Institute of Economic Management found that the success of the domestic sector in future manufacturing industries will depend largely on technological innovation, a shift to advanced manufacturing, integration with services, international connectedness and enhanced participation in global value chains. The report concluded that currently even domestic manufacturers prefer to purchase their components and other intermediary goods from overseas as opposed to purchasing them from local support industry manufacturers due to quality and other concerns. The report was rather blunt in its criticism, pointing out that collaboration among manufacturers in the country is largely non-existent, noting that even simple databases of the type normally found in all advanced economies such as those cataloguing businesses by industry type is lacking. A Samsung representative has asked the Government to focus on its underdeveloped electronics supporting industry as the huge transnational electronics company has plans to further expand its operations in the Southeast Asian nation. Currently, limited production capacity hinders the development of the supporting industry, said the report, noting that domestic sector businesses have only been able to perform simple jobs such as packaging and printing service for Samsung. To overcome these difficult challenging limitations, Dr Yoichi Sakurada from the Mitsubishi Research Institute makes some very important conclusions about measures to enhance innovation and therefore productivity.  He said the report found that people and skills are key to innovation and investment in their development is lacking in Vietnam.  He noted that small business support centres provided by the Government to date have been largely ineffective. They have just provided information on policies, investment formalities, survey, organization of trade fairs and exhibitions. However, local businesses need much more support in terms of technique and technology. The Japanese expert suggested that successful innovation is driven not only by a mixture of technical and scientific skills, but also by business and entrepreneurial skills and by a culture that is conducive to innovation. Business support centres, he noted, should focus on improving their technical capacity by helping domestic sector companies in the support industries innovate, study and develop new technologies. VOV