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IIST e-Magazine (For the Japanese version of this article)

Series :The Power of Japan—Small and Medium Enterprises Go Global (Part 2)Overseas Expansion by Small and Medium-sized Manufacturers: The Case of Vietnam Shinya Inoue General Director The Support Vietnam Co., Ltd. [Date of Issue: 30/November/2016 No.0261-1028]

Date of Issue: 30/November/2016

Series :The Power of Japan—Small and Medium Enterprises Go Global (Part 2)
Overseas Expansion by Small and Medium-sized Manufacturers:
The Case of Vietnam

Shinya Inoue
General Director
The Support Vietnam Co., Ltd.

Why are small and medium-sized manufacturers setting up operations in Vietnam, and what is the significance of the industrial cluster currently developing in Dong Nai Province?

Why Vietnam?

A whole range of factors, including major manufacturers shifting operations overseas, exchange rate volatility, the difficulties which aging owners are experiencing in finding successors, and a successful catch-up by emerging countries, have left Japan’s small and medium-sized manufacturers with their backs against the wall in recent years. Smaller manufacturers with ambition are therefore looking overseas themselves as a means of survival. As of 2012, we have been helping small and medium-sized manufacturers from Kansai in particular to set up operations in Vietnam.

Our model has been Fuji Impulse Vietnam Co., which was established in Vietnam in 1997. The Japanese parent company Fuji Impulse is a leading manufacturer of small impulse sealers. These days, its Vietnam operation boasts sales of US$2.5 million and a payroll of around 100 people, while management has been placed entirely in Vietnamese hands. Fuji Impulse Vietnam is also successfully branching out into areas with which the parent company has no experience back home—sheet metal, for example. Looking at the operations’ development over the last 20 years, human resources were clearly the vital factor in the company’s success, convincing us that people were the key to overseas expansion by small and medium-sized manufacturers. In fact, around 30 percent of smaller manufacturers considering setting up in Vietnam intend taking in Vietnamese trainees for a three-year period and then using these personnel as the core of their local operations. The number of Vietnamese trainees is likely to top 10,000 per annum in FY2016. Most trainees are employed by small and medium-sized manufacturers around Japan where they are underpinning Japan’s manufacturing base. Because the Vietnamese and Japanese peoples are quite similar in nature, they can relate to each other in many respects. Trainee education systems and other on-the-job training seem to be helping Japanese and Vietnamese employees come to understand each other and build strong trust relationships.

Management strategies are of course important for smaller manufacturers too, but it is just not realistic for them to try to pursue textbook-style management. This is primarily because of their limited management resources. Human resource shortfalls in particular can be fatal. Smaller manufacturers must have personnel who identify with the core of their management strategies—which is the attraction of Vietnam. Vietnam could fairly be described as the optimum place for Japanese companies in terms of implementing their offshore strategies on a foundation of emotional empathy.

Driving force behind smaller manufacturers’ offshore expansion

The strength of Japan’s manufacturing lies in a collaborative approach based on shared evaluation criteria in relation to product design, manufacturing methods, materials and QCD (quality, cost and delivery). Obviously, drawings provide the basis of this shared understanding, but when it comes to achieving ongoing improvements and innovations in the manufacturing process, there are many elements that cannot be conveyed through drawings alone, but rather require that the various parties share the same manufacturing approach. Japanese manufacturers all share a common foundation in that regard—a ‘manufacturing database,’ as it were.

Japanese companies with operations in Vietnam often comment that they’re more comfortable outsourcing to other Japanese companies. This is not just a matter of technological capacity, but rather that Japanese companies are superior to local companies across the manufacturing process as a whole. Once Japanese companies have drawings, materials, and manufacturing methods, they take the initiative in working out QCD aspects. Local companies, however, need to be walked through QCD, which often costs manufacturers too much time and money to make it worthwhile.

The ‘manufacturing database’ common to Japanese manufacturers is not something that was deliberately created, but rather developed as a result of many years of engagement in manufacturing. However, now that it has formed, the ‘database’ is extremely convenient in terms of enabling the companies who share it to pull out and use the technology, skills, and knowhow required for the particular manufacturing task.

Specific components of the ‘manufacturing database’ include:
• Understanding of how to use core proprietary technologies
• Sharing and utilization of technologies among multiple companies
• Flexible manufacturing teamwork among companies
• Effective use of factory floor knowhow
• An environment conducive to continuous improvement

There are of course many other elements in the database, tacit knowledge included, and this is what makes it a real strength for Japanese companies. In Japan, the database is as pervasive as air, but when companies venture overseas, they are immediately struck by its absence. They have to consciously seek to use the database, which means strategically developing personnel who are in tune with the Japanese manufacturing approach to serve as the engine driving that database utilization.

The three key issues in offshore expansion by small and medium-sized manufacturers are therefore as follows.

First, Japanese companies need to band together and create a manufacturing environment. There are more than 240 manufacturers in Dong Nai Province where we are based. However, only limited information is available on each of these companies, making it difficult for them to join forces and work together.

Second, manufacturers need to train and educate their local staff on the job. Many aspects of manufacturing which seem obvious to we Japanese are not at all obvious to the Vietnamese. Fortunately, the Vietnamese look up to Japanese companies and are keen to learn.

Third, ongoing efforts need to be made to instill the Japanese manufacturing approach. Even the 5S workplace organization method and the kaizen practice of continuous improvement are far from standard fixtures in Vietnamese factories. Sharing Japan’s manufacturing database is perhaps the most effective means of embedding the 5S and kaizen practices in these workplaces.

Data base of  knowledge and “Monodukuri” network

Data base of knowledge and “Monodukuri” network

The Support Vietnam currently has on board more than 30 companies in Dong Nai and neighboring provinces, but this is insufficient in terms of either quantity or quality to be called a cluster. The ideal would be for companies engaged in casting, forging, die casting, machining, sheet metal working, press working, heat treatment, surface treatment, mold making, steel processing, and injection molding to divide manufacturing processes amongst themselves so that integrated production systems can be formed. We want to bring together more than 100 smaller manufacturers in Dong Nai in the next few years, opening the way for utilization of Japan’s manufacturing database and contributing to the growth of small and medium-sized manufacturers in Vietnam.

(original article : Japanese)

Kansai Supporting Industry Complex

Kansai Supporting Industry Complex

An Phuoc Industrial Park

An Phuoc Industrial Park

(For the Japanese version of this article)

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