Processing for foreign traders: A double-edged sword

With the advantage of a stable politics, abundant human resources and cheap labor costs, Vietnam is a destination for outsourcing of many multinational companies in the world. However, it is also a double-edged sword to the Industry.

Processing contributes a significant amount to Vietnam's import 

According to the results of the 2017 Economic Census of the General Statistics Office, in 2016, there were 1,740 enterprises carrying out processing activities for foreign countries, of which 1,687 enterprises received processing goods for foreign trades. The value of imported raw materials for processing and assembling of enterprises that process goods for foreign traders accounts for about 12% of Vietnam's total import turnover. The total processing fees received in 2016 were USD 8.6 billion.

Processing goods for foreign countries have made contributions to the export and import of Vietnam goods. In 2016, the export turnover of the enterprises that process goods for foreign partners accounted for more than 18% (32.4 billion USD) of the total export turnover of the whole country, at the same time. The import turnover of raw materials from foreign partners of these enterprises accounted for 11.5% (US $ 20.2 billion) of total import turnover of Vietnam. Goods processing activities are mainly concentrated in FDI enterprises with the value of post-processing goods reaching 25.6 billion USD, accounting for 78.9% of the total value of goods after processing. The import of raw materials reached USD 16.3 billion, accounting for 80.5% of the total value of imported materials.

Meanwhile, the value of post-processing goods of non-state enterprises reached 6.7 billion USD, accounting for 20.6% and material imports reached 3.8 billion USD, accounting for 19%; The value of post-processing goods of state-owned enterprises is about USD 150 million, accounting for 0.5% and importing materials reaches USD 99.6 million, accounting for 0.5%.
This shows that outsourcing activities of Vietnamese enterprises are still mainly hired by foreign partners, because Vietnamese enterprises are only received fees from the assembly and processing. The majority of input materials are supplied by foreign partners

The two main processing industries of our country are textiles and footwear, with the revenue from processing these two products accounting for a large proportion in processing and assembling goods for foreign traders in Vietnam. According to the survey results, in 2016, the processing of goods with foreign-owned input materials brought Vietnam $ 8.6 billion in processing fees. In which, foreign-invested enterprises accounted for the highest proportion with 81.7% (7 billion USD), non-state enterprises accounted for 17.4% (1.5 billion USD), state-owned enterprises accounted for proportion of 0.9% (77 million USD).

Outsourcing of textile and garment group tops with USD 4.1 billion, accounting for 48% of the total processing fee; followed by footwear with revenues of 2.7 billion USD, accounting for 32% of the total processing fee; computer electronic assembly collected 63 million USD, accounting for 0.7%; assembling phones with 268 million USD, accounting for 3.1%; Other goods processing earns USD 1.4 billion, accounting for 16.2%. For textile processing, Korea, Taiwan (China), the United States, Japan, China and Hong Kong (China) are the main partners with US $ 3.5 billion in processing fees, accounting for 85% of the total processing fee earned from this industry. In particular, traders from South Korea outsourced most from Vietnam with processing fee were nearly equal to the remaining partners with nearly 2 billion USD, accounting for 48.1% of the total processing fee from textiles; followed by Taiwan, the United States, Japan, China and Hong Kong.

Footwear processing activities with materials input from foreign partners stood at second position with the amount of 2.7 billion USD, accounting for 32% of the total processing fee. The major partners for outsourcing this item are: South Korea 1.2 billion USD, accounting for 43.9%; Taiwan 678 million, accounting for 24.8%; China 322 million USD, accounting for 11.8%; Hong Kong 165 million USD, accounting for 6% and the United States 149 million USD, accounting for 5.4%. In 2016, Vietnam made shoes for the five major partners with the proceeds accounting for 92% of the total proceeds from footwear processing.

Proceeds from the assembly of phones with components owned by foreign partners accounted for a modest proportion of 3.1% (268 million USD), mainly from the Chinese market with the number of Vietnam 's money earned 142 million USD, accounting for 53.1% of the total processing fee collected from processing telephone assembly; revenue from Japan 84 million, accounting for 31.4% and from South Korea 32 million, accounting for 12%.

Processing fees earned from the assembly of computer electronics account for a relatively low proportion with 0.7% (63 million USD) of the total processing fee that Vietnam has earned. In particular, processing fees collected from a number of partners accounted for a high proportion in the total of electronic computer processing fees such as: South Korea 39 million, accounting for 61%; Japan 10.4 million, accounting for 16.4%; Taiwan 7 million USD accounting for 10.5%; China 3.6 million, accounting for 5.6%.

Processing other commodities (solar modules, life buoy, floating board, heat sink, ...) for foreign partners with their materials input has earned USD 1.4 billion, accounting for 16.1%. Processing fees obtained from some countries such as Korea USD 439 million, accounting for 31.8%; China USD 230 million, accounting for 16.7%; Taiwan USD 211 million, accounting for 15.3%; Japan USD 209 million, accounting for 15.3%. Compared to the Compared to the value of goods after processing, the amount of that Vietnam earned from processing and assembling goods with inputs supplied by foreign owners accounts for 26.4%.

Processing activities for foreign countries have brought about social benefits, contributing to creating jobs for over 1 million employees in 2016, reducing unemployment rate and increasing income for people. In addition, processing activities also play a huge role for businesses in learning advanced management experience of developed countries, enhancing business management capabilities, helping businesses operate more effectively.

However, because raw materials for processing and assembly are mostly provided and owned by foreign parties, Vietnamese enterprises can hardly be active in the production process and have not really mastered the work. technology, so the added value from this activity is not high.

The rate of revenue from processing activities compared to the value of goods after processing is low. The survey results show that in 2016, the total amount of Vietnamese enterprises earned from processing activities compared to the total value of processed goods accounted for only 26.4%. In particular, the rate of processing fees on the total value of post-processed goods of mobile phones reached the highest level with 32.4%, higher than the general rate (26.4%), and computer electronics reached 30.9%, shoes 27.3%, textile 24.5%, lower than the general rate, other items are 30%, higher than the general rate.

In addition, the value of imported raw materials for processing and assembly on the total value of processed goods is quite high at 62.3%, showing that the localization rate of Vietnam is still low... The ratio of the value of imported raw materials to the value of goods after processing is highest in the group of phones with 78.9%, computer electronics products 76.4%, textile groups 67.1%, 47% of footwear group and 74.7% of other commodity groups.

On the other hand, goods after processing and assembly sold in Vietnam account for a low rate. According to the survey results, in 2016 the total value of goods after processing and assembling with foreign-owned inputs is 32.4 billion USD, in which goods after processing and assembly are sold at Vietnam is 1.3 billion USD, accounting for a modest proportion with 3.9% of the total value of goods after processing and assembly. In terms of each group of processed goods, this rate of computer electronics reached the highest value with 23.3%; followed by footwear, textiles and telephones with 7.9%, 1% and 0.2% respectively.

Meanwhile, the value of post-processing footwear products sold in Vietnam is owned by partners: Cambodia with USD 665 million, China USD 80 million and  Samoa USD 34.6 million. The value of this product after processing is owned by the above three partners compared to the total value of post-processed goods of this item sold in Vietnam are 69.2%, 8.1% and 98.5%. Value of textile and garment products after processing with input materials owned by Australian and Taiwan partners are left for consumption in Vietnam with the highest value with 77 million USD and 65 million USD. However, considering the proportion of post-processed goods sold in Vietnam compared to the total value of goods after processing of this item, goods owned by Australia and Philippines account for the highest proportion: 28.2% and 27.5%.

For mobile phones, only Korea-owned goods are sold in Vietnam with 1.6 million USD, accounting for a modest rate of 0.2% of the total value of goods after processing, assembly. For other commodity groups, the proportion of goods sold in Vietnam is mainly due to Taiwan owning input materials, with the sale value in Vietnam accounting for 23.1% of the total value of goods after processing of the group. Other ownership partners such as Korea, the sale rate in Vietnam accounted for 3.2%, this rate of China and Japan were quite low at 1% and 0.4% respectively. It can be seen that the results of the economic census in 2017 reflected quite clearly the picture of goods processing activities with foreign enterprises of Vietnamese enterprises.