Contrary to initial expectations, an overwhelming number of FDI projects in the processing sector did not create any remarkable changes in technology while increasing competitive pressure on domestic businesses.

According to the Foreign Investment Agency (FIA), by March 2011, there were 7,442 valid projects in the processing industry, accounting for 59.5 percent of the total 12,500 FDI projects. The sector also recorded the highest capital disbursement rate of nearly 67.2 percent, said a recent survey by the Vietnam Chamber of Commerce and Industry (VCCI).

However, FIA noted that the average size of these projects remains modest, reaching only 4.3 million USD per project compared to 32 million USD per project in real estate, 19 million USD per project in electricity, gas and water distribution, and nearly 35 million USD per project in mining.

A joint study conducted by Tran Dinh Thien, Director of the Vietnam Economics Institute, and Nguyen Tu Anh, an expert of the Central Institute for Economic Management (CIEM), showed that in addition to the small size, almost all FDI projects in the processing industry use low technologies and short-term business strategies dominated by overseas parent companies.

“Therefore, they have no motivation for technological transfer,” Tu Anh noted.

Also for this reason, the links between FDI and domestic businesses are loose, limiting the transfer of technologies and management skills between the two sectors.

According to a recent CIEM survey, in addition to a lack of State policy in support for production alliance networks, the problem also had its root in Vietnamese businesses’ poor capacity, which is yet to meet FDI businesses’ demands. The survey cited the examples of Fujitsu Vietnam , which must import all components and materials, and Panasonic Vietnam , which imports almost all components and materials except for packaging materials.

Director Thien cited the Republic of Korea ’s experience of strictly managing the licence of small-sized and low-tech projects and recommended that attention should be paid to developing supporting industries in attracting FDI investment instead of the current attraction./.