Research and development (R&D) is a cornerstone for industrial success. Taiwan (China) has leveraged industrial research institutes to transfer both personnel and technology to businesses, leading to the rise of major players like UMC and TSMC. Vietnam could learn valuable lessons from this model to enhance its own participation in global supply chains.

Challenges for Vietnamese businesses

Nguyen Xuan Tho, a Smart Solutions Advisor at Digiwin Software Vietnam with extensive experience in digital transformation consulting in Taiwan (China), identifies Vietnam's lack of mastery over core technologies as a significant challenge.

Despite some progress, Vietnamese industries are still reliant on imported components and materials. Even in the automotive sector, the “Make in Vietnam” ratio remains low, with most parts being imported for assembly.

Vietnam has yet to make a significant mark in global supply chains. For instance, Tesla’s current supply chain does not feature any major Vietnamese suppliers, with the exception of An Phat Xanh, which provides certain plastic components. However, its production volume and revenue contributions remain unclear.

Vietnam’s large population and economic potential could be better harnessed if businesses improve product quality, cost efficiency, management skills, and digital technology applications. Greater investment in R&D, quality control, and compliance capabilities is essential for competing on the global stage.

Learning from Taiwan (China)

In contrast, Taiwan (China) has established itself as a vital player in global supply chains, including Tesla’s. Over 20 Taiwanese companies supply critical components to Tesla, ranging from control systems to electrical systems.

One small Taiwanese company, for example, supplies batteries indirectly to Tesla via Panasonic. This partnership required three years of rigorous inspections to meet Panasonic’s strict production, welfare, and social responsibility standards.

Taiwan’s path to global supply chain integration was not easy but was built on decades of consistent growth and strategic decisions. From 1950 to 2020, Taiwan’s economy experienced sustainable growth, with major leaps in 1980, 2006, and 2010.

Strategic milestones

Taiwan's success stems from its ability to seize opportunities and build a strong manufacturing foundation. Key strategies included:

Export-oriented focus in the 1950s, with mastery of light industrial technologies.

OEM (Original Equipment Manufacturing) dominance in the 1970s, 1980s, and 1990s, enabling rapid production growth.

Transition to ODM (Original Design Manufacturing), taking on design and production responsibilities.

Developing self-owned brands, such as Asus, after decades of supplying major global players like IBM, Compaq, Dell, and Sony.

This progression also applied to Taiwan’s machinery and electronics industries. Initially, Taiwan produced OEM components but gradually shifted to ODM and, eventually, high-value branded products. Semiconductor giants like TSMC and UMC emerged during this evolution, leveraging opportunities in the global semiconductor industry.

Adapting the Taiwanese model for Vietnam

According to Nguyen Xuan Tho, Taiwan (China) shares cultural and social similarities with Vietnam, making its development model a valuable reference. Taiwan’s early focus on science, technology, and R&D played a pivotal role in its success.

Starting in 1974, the Taiwanese government established the Industrial Technology Research Institute, under the Ministry of Economic Affairs. It later expanded to include institutes specializing in machinery, materials, biotechnology, metrology, and nanotechnology.

Since 2002, Taiwan has also developed technology transfer centers for lasers, optoelectronics, and big data. These institutions have accelerated business growth, supplying talent and technological resources that enabled the rise of companies like UMC and TSMC.

“Vietnam should consider adopting Taiwan’s approach, particularly by establishing research institutes focused on biotechnology, biomedicine, semiconductors, and AI,” Tho emphasized.

The importance of R&D investment

While Vietnamese businesses are increasingly proactive in expanding globally, their efforts are often hampered by insufficient internal strength and preparation. Annual R&D investment in Vietnam currently hovers between 0.4% and 0.6% of GDP - below Taiwan’s 3.5%.

Other countries also far outpace Vietnam in R&D spending: South Korea invests over 5% of GDP, Japan more than 4%, and China approximately 2.5%. Without significant R&D investment, Vietnamese businesses will struggle to compete in international markets.

“Mastering technology is essential for joining global supply chains,” Tho said. “We hope that by 2030, more Vietnamese companies - large and small, direct and indirect - will become part of the global supply chain.”

Binh Minh