Linkages between FDI sector and domestic economy enhanced

Resolution No. 68-NQ/TW on private economic development, issued by the Politburo on May 4, 2025, outlines the need to strengthen connections among private enterprises, between private and state-owned enterprises, and between private firms and FDI businesses. The state will support consulting services and trade promotion activities to link FDI companies with local businesses. A suitable localisation rate will be applied progressively, and major FDI projects must include a plan to utilise domestic supply chains from the approval stage.

Bottlenecks in linkages between FDI and local enterprises

According to the Foreign Investment Agency under the Ministry of Finance, in 2024, Viet Nam attracted over 38 billion USD in FDI, with disbursed capital exceeding 25 billion USD —a figure considered impressive compared to previous years. As of the end of the first quarter of 2025, Viet Nam had more than 42,700 valid FDI projects, with total registered capital surpassing 510 billion USD. Cumulative disbursed capital reached nearly 327.5 billion USD, accounting for approximately 64.2% of the total valid registered investment. With these figures, Viet Nam ranks among the world’s top 15 FDI destinations.

Nichias Hai Phong Co., Ltd., a Japanese FDI enterprise that has been investing in Viet Nam since 2001, specialises in producing air filters; plastic products and accessories (PTFE, ETFE); and non-metallic mineral gasket sheets.

Kengo Iwahara, General Director of the company, shared: “We have localised many stages of our production. Raw materials previously imported have been replaced by supplies from Vietnamese enterprises. This has helped us reduce costs, inventory levels, transportation expenses, CO₂ emissions, and delivery times. This collaboration clearly demonstrates the effectiveness of partnerships between FDI enterprises and local businesses. At present, we have achieved a localisation rate of 36% (measured as the ratio of local material value to total product value).”

“We always welcome cooperation with Vietnamese businesses. However, to become part of our supply chain, they must meet stringent criteria for high and consistent product quality, strict compliance with technical and safety requirements, competitive pricing, timely delivery, and transparent management systems. Once these standards are met, Vietnamese businesses will have significant opportunities to deeply engage in our value chain,” Iwahara emphasised.

Pham Xuan Hoe, former Deputy Director of the Banking Strategy Institute, noted that most FDI corporations entering Viet Nam already have their supply chains in place. For Vietnamese businesses to join these value chains, they must first meet essential requirements in technology capability, machinery, production lines, and management levels—as well as new global standards such as ESG (Environmental, Social, and Governance). Meeting these standards demands major financial investment, which remains a significant barrier for local enterprises.

Hoe provided a specific example: “Over 10 years ago, I surveyed businesses in Ha Noi's supporting industrial zones, including Samsung, and found that to join Samsung’s production chain, a company needed machinery worth about 300 billion VND. Vietnamese enterprises needed 30% of that as equity—around 90 billion VND. At the time, very few companies could provide that much equity. Meanwhile, banks were reluctant to accept machinery and equipment as collateral due to high risks. Although equipment costs may be slightly lower now, investing hundreds of billions of Vietnamese dong remains a challenge—especially in terms of accessing medium- and long-term capital, which small and medium-sized enterprises often lack.”

“We must reconsider and adopt appropriate policies. Enterprises themselves must not shy away from addressing their own internal weaknesses. This benefits their own development, not just their integration into FDI supply chains. The larger and longer-term goal is to integrate into global value chains,” Hoe stressed.

Establishing national credit guarantee fund for SMEs

Lim Dyi Chang, Head of Corporate Banking at UOB Viet Nam, recommended that Viet Nam should shift from being a passive FDI recipient to becoming a strategic partner that co-creates value with FDI firms. Instead of competing solely through incentives and low labour costs, Viet Nam should focus on foundational development such as logistics infrastructure and energy. A stable and transparent legal environment is also essential to reassure investors.

The government is making great efforts to accelerate progress toward two critical goals: becoming a modern, upper-middle-income industrialised country by 2030, and a high-income developed country by 2045. Achieving these goals requires substantial contributions from FDI capital and the participation of local enterprises in both foreign supply chains and global value chains.

Pham Xuan Hoe emphasised the need to improve access to medium- and long-term capital for domestic firms by establishing and strengthening a National Credit Guarantee Fund for Small and Medium Enterprises (SMEs). This fund should operate under core principles: unsecured guarantees (no collateral required); unconditional and irrevocable guarantees (so that commercial banks will accept lending risks); and the ability to absorb risk and allocate risk reserves. Additionally, credit insurance should be available—part of the fees will cover the loan if a business defaults, helping reduce the lender's risk.

Regarding funding sources, Hoe suggested pooling the current 1.500 trillion VND held by local guarantee funds and reallocating 20 trillion VND from the 40 billion VND interest support package during the COVID-19 period, which has largely gone unused. Another funding source would be annual contributions from the central and local budgets, as well as from commercial banks.

“Only when SMEs receive financial support under the principle of 'controlled risk acceptance' from the government can they link into value chains with the FDI sector,” Hoe stated.

Amid volatile and challenging global context today, this is a critical moment requiring stronger collaboration than ever between the Party, the State, and the business community—including foreign-invested enterprises—to create new value. We cannot go far if we go alone. Only by walking together can we break through. Strategic trust and long-term vision in the cooperation between Viet Nam and the FDI community will be the key to overcoming challenges and creating sustainable, shared prosperity.