Mechanical businesses are caught in the dilemma between capital and market

Inadequacies in mechanisms, policies to support businesses, and a lack of focus in selecting investment products have made many enterprises worried about losing the domestic market.

As one of the few mechanical enterprises willing to invest time and resources into producing heavy-duty mechanical products weighing several thousand tons for hydropower projects, Mr. Nguyễn Tăng Cường, Chairman of Quang Trung Industrial Group, said he was "willing to play" not only because of his passion but also due to the desire to take advantage of government policies in the sector's development strategy.

However, after many years of real-life experience, he expressed that he was starting to feel "discouraged." Speaking at the workshop on the Strategy for the Development of the Vietnamese Mechanical Industry earlier this week, the business leader stated that while he understood the limited resources of the government, struggling to secure external capital was a difficult challenge for enterprises.

"We’ve had to go back and forth 30-40 times just to modify documents as required by the bank. A project that takes years just to complete the loan procedure means investment opportunities can’t wait for businesses," he lamented.

According to a report from the Heavy Industry Department (Ministry of Industry and Trade), the manufacturing and business activities of the mechanical industry have been evaluated as improving year by year. However, as of 2014, the domestic supply capacity only met over 32% of demand, which is below the target set by the Strategy at 40-50%. Although export values have exceeded targets, the value of imports has also reached over $26 billion, twice the export value. Mechanical enterprises believe that if the Ministry of Industry and Trade does not change its policies, the industry’s position will continue to decline.

Mr. Nguyễn Chỉ Sáng, Director of the Institute of Mechanical Research (Ministry of Industry and Trade), said that the support policies for the industry have not been focused on the right sectors, leading to difficulties in implementing set goals. He argued that the mechanical industry needs to distinguish between two types of goods: those that operate according to the market and those that require the "helping hand" of the government.

"Take the hydropower mechanical sector as an example. Instead of offering low-interest loans, the government should grant the market to enterprises so they can develop. In fact, most companies in this sector are capable of making significant investments on their own without requiring any government funding," he said. However, for some products related to nuclear industries or chemicals, where contracts can reach billions of dollars, the support of government agencies is crucial for capturing the market, as businesses alone cannot achieve that.

According to him, diversifying funding sources for businesses might not be necessary because, once the market is available, enterprises will naturally invest. In reality, many small businesses designing molds are already investing their own capital while waiting for the government to fund software or training.

"Once a business masters technology and designs the production line, plant, and equipment, other parts of society will naturally follow and invest," he said.

Agreeing with this view, Mr. Cường said that to produce a mechanical product that can be commercialized, seven essential steps must be followed: design and manufacture molds, create raw materials, machining, heat treatment, assembly, and testing. However, in Vietnam, only the assembly phase is given attention, while the other stages are neglected. "With limited resources, we should focus on key areas. If we do not invest in these seven fields, we cannot create a market or an attractive mechanism. The industry will never succeed," he said.

Concerned about the product output for enterprises, Mr. Trần Văn Quang, Chairman of the Board of Directors of Đông Anh Electrical Equipment Corporation, also stated that businesses need the market the most at this time. "Without a market, even if businesses have capital to invest, they will eventually fail or lose interest in investing," he said.

In reality, according to him, although many local businesses produce their own products, similar products have still been massively imported. One reason could be the uneven capacity of local producers, but he believes this does not mean local products should be inferior to imported goods. Therefore, he suggested imposing mandatory standards on businesses when importing products, and if local products meet these standards, imports should not be allowed.

"Strict sanctions are necessary for the mechanical industry to have a market. We started from a low point and, while competing with developed countries that have more favorable policies, Vietnam will inevitably lose, even in its own domestic market," he expressed.

Admitting that Vietnam's mechanical industry is in a low position in the economy and still faces many limitations, Mr. Trương Thanh Hoài, Director of the Heavy Industry Department, stated that the most important issue now is the market for the entire industry.

According to him, the mechanical industry requires large investments but has low-profit margins and long payback periods. Recently, the development of the industry has encountered several obstacles stemming from macroeconomic factors. While the industry has grown compared to the period before Vietnam’s accession to the WTO, compared to many countries, the market size is still too small. This is considered a key issue preventing the industry from developing as planned.

In the near future, through bilateral and multilateral free trade agreements between Vietnam and its partners, he hopes that the market will expand, which will significantly increase the volume of mechanical products, and thus, mechanical enterprises will have more opportunities to develop.