While many companies experience a lack of orders and have to lay off workers, many small and medium-sized businesses in the supporting industry segment have recently experienced a “bumper” of orders, accelerating factory investment to enter the global supply chain. 

Many business owners think that in the current particularly challenging context, they find themselves lucky to have chosen the path of “austerity,” focusing on production. However, capital constraints and high-interest rates are challenging them.

Rise from the niche market

The factory manufacturing spare parts and components for Mr. Nguyen Ngo Long (District 9, Ho Chi Minh City) is currently operating at “full capacity” with orders from foreign-invested enterprises (FDI). Since the mechanical industry began to gradually encroach deeper into large enterprises to supply spare parts, Mr. Long, the chairman of Nhat Long Mechanical Co., Ltd. for more than 24 years, has encountered a wide range of emotions.

According to Mr. Long, mechanical engineering is a field with high precision, is capital intensive, and has a low-profit margin, so many people run in the direction of export. He chose another niche: investing in machinery to produce spare parts to supply back to businesses with large production lines.

He claimed that after the pandemic’s initial two years of disruption to the supply chain, materials, and spare parts, his business experienced great success. The Vietnamese company was able to produce on demand with quality and at a lower cost during the lengthy import process, so orders were slowly given to it. Currently, Nhat Long has 20 production partners, including companies from Japan, Korea, Singapore…

“It’s also very difficult for them to choose our company’s products. We had to go to the factory to check and send samples back and forth. I had listened and carefully surveyed the market and policies before deciding to invest 1 million USD to upgrade our machinery “- Mr. Long said.

In the early days of 2023, while it was difficult for the coal real estate industry to sell, other industries were also struggling to restructure, but for many enterprises in industrial production, especially supporting industries, orders were still steady.

The director of a company that manufactures door handles for Toyota’s Fortuner series based in Hiep Phuoc Industrial Park (HCMC), said that he is trying to increase equipment and machinery to make more new products. Although he has not revealed the next products ordered by the partner, he is confident that there will be new “moments”. In order to have the current comfort, he said he had gone through many stages of “coaching” Toyota when he started looking for a supplier according to world standards. This company strives to prove itself and is selected for training and development in machinery, and management… to become an important link in the supply chain of the global auto brand. In addition, the company also designs and manufactures molds, plastic injection molds for auto parts, motorcycles, electronics and home appliances, and high-end household goods…

Keep the industrial spirit alive.

According to numerous supporting industry enterprises who spoke with Tuoi Tre, taking out bank loans to buy machinery and expand factories in order to “receive” orders suddenly makes the monthly debt payment difficult due to the bank’s high-interest rate.

However, because they can’t access capital and the interest rates are too high, some businesses that want to borrow must continue to wait. Because of the current interest rates, Mr. Nguyen Ngo Long stated that he is debating whether to expand the factory and buy more machinery.

According to Mr. Do Phuoc Tong, chairman of the Ho Chi Minh City Association of Mechanical and Electrical Enterprises, some business owners had to sell their homes to pay their debts to the organization in order to prevent bad debts. Additionally, some businesses are attempting to “sell themselves” to FDI partners in order to reduce the risk of default. He claims that because interest rates are too high, member businesses say it is very difficult to access capital. 

If before Tet, Mr. Nguyen Van Tri, the general director of the Lap Phuc Company, is confident in the mold production orders he has received from significant partners, he intends to travel to the US to conduct further negotiations to maintain new sources of goods as early as 2023. But up until this point, Mr. Tri claimed that all plans had to be “delayed” because he had to figure out how to keep things running when the anchor interest rate was too high and getting access to capital was too challenging.

When referring to businesses in nations with relatively low loan interest rates, Japan is about 1.5% and South Korea is 2.5%, our long-term investment bank interest rates reach 13.5–16%.

Ten industrial production companies are currently enrolled in Ho Chi Minh City’s investment stimulus program to support interest rates, but they have not yet received any funding to support loan interest rates. Many companies claimed that they would face numerous challenges, possibly even fail or be bought out by Korean and Chinese firms, if they were unable to pay this interest rate.

Notably, businesses have recently made offers to buy them back. Businesses currently struggle each month to pay loan interest, even taking out black credit to do so in order to keep their debt from being classified as bad debt.

Source: Tuoi Tre Newspaper