What is That Something? -- Avoiding the trap of average incomes

In his proposal for developing supporting industries in Vietnam, Kenichi Ohno has pointed out that Thailand and Malaysia (currently in the second phase) are more successful than Vietnam because as these countries industrialize, they fleshed out suitable policies to make the optimal use of
FDI however, they have not reaped much success in the second period and have even failed, because of the $1,000 per capita "trap." Despite decades of industrialization, the competitive capacity of their private sector still leaves much to be desired. Excessive reliance on foreign assistance, which has not been translated into their own strengths, has hampered their efforts to "internals" the value and capabilities of domestic supporting industries. There remains a hugh risk that FDI capital will flow out of these countries and pour into China, India and Vietnam instead.

What Vietnam needs to avoid this trap is a slew of judicious policies, as well as a dynamic private sector. The raft of actions which Ohno proposes includes enhancing the capabilities of each enterprise; developing human resources, both general and institutional; offering incentives; establishing linkages between foreign-invested enterprises and domestic businesses; promoting FDI; and building a policy framework for different types of enterprises.

In this action plan small and medium enterprises play a crucial role. At present, Japan is helping Vietnam study the capabilities of each domestic supplier in the next three of five years. Kyoshiro suggests that the Government should identify capable private enterprises and establish a specialized agency to oversee the development. These businesses should receive the same treatment as State-owned enterprises in terms of aid, access to capital sources and other incentives, as they are able to increase the competitiveness of Vietnam's industries. This will also boost the transformation of production mechanisms and task allocation among enterprises, creating a series of links in the domestic production chain and paving the way for Vietnam to join the global value production chain.