USAID Linkages for Small and Medium Enterprises (LinkSME) Project

Linkages for Small and Medium Enterprises (USAID LinkSME) Project Annual Progress Report – Year 1 Covering the Period September 5, 2018 to September 30, 2019 Submitted October 31, 2019

This Annual Progress Report was made possible through support provided by the U.S. Agency for International Development (USAID). The opinions expressed herein are the sole responsibility of IESC and do not necessarily reflect the views of USAID or the United States Government.

Prepared under the USAID Linkages for Small and Medium Enterprises (USAID LinkSME) Contract No. 72044018C00002 managed by International Executive Service Corps

IESC Contact

Ronald Ashkin USAID LinkSME Project Director 6th Floor, No. 10 Chu Văn An, Ba Đinh Hà Nội 10000, Tel: +84 358 021 163 Email: [email protected]

Chad Ford Associate Vice President International Executive Service Corps 1900 M Street, NW Suite 500 Washington, DC 20036 Tel: (202) 589-2643 Email: [email protected]

Front cover photograph: Worker at Vietnamese SME Tung Lam Production and Commercial Company Limited, Ba Ria - Vung Tau Province (Photo: USAID LinkSME)

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Table of Contents List of Acronyms ...... 3 Executive Summary ...... 5 I. Introduction ...... 6 II. Progress Against Planned Activities ...... 7 TA 1: Establishing One-to-One Relationships Between Lead Firms and SMEs ...... 7 TA 2: Supplier Days ...... 15 TA 3: Outreach and External Communications ...... 18 TA 4: SME Advisory Group ...... 22 TA 5: Baseline Assessment...... 24 TA 6: Phase 2 Sector Selection Process ...... 24 III. Progress related to Monitoring, Evaluation, and Learning ...... 24 Table of Indicators ...... 25 Analysis of Indicators as Applicable ...... 25 IV. Risk Assessment ...... 26 V. Project Management ...... 26 Mobilization ...... 26 USAID LinkSME Registration, Organizational Registration, and Local Offices ...... 27 Management Approach and Structure ...... 28 IESC Home-office Oversight and Support ...... 29 Communications and Outreach ...... 29 IESC Reporting ...... 30 Environmental Plan ...... 31 Annex A: Updated Implementation Plan ...... 32 Annex B: USAID LinkSME Indicator Table ...... 33 Annex C: Objectives ...... 35 Annex D: Annual Financial Status Report ...... 38 Annex E: Summary of Electronic Attachments ...... 43 Annex F: Project Bibliography ...... 44 Annex G: Technical Assistance Activities ...... 47 Annex H: Workshops, Forums, and Trainings ...... 48 Annex I: Inventory List ...... 50 Annex J: Media Coverage of USAID LinkSME Project in 2019…………………………………………51

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List of Acronyms

AED Agency for Enterprise Development AmCham American Chamber of Commerce AMELP Activity Monitoring, Evaluation, and Learning Plan APCA Administrative Procedures Control Agency ASEAN Association of Asian Nations AWP Annual Work Plan BSO Business Support Organization CDCS Country Development Cooperation Strategy CLA Collaborating, Learning, and Adapting COR Contracting Officer’s Representative CRM Customer Relationship Management DO Development Objective EG2 Economic Growth and Governance ERC Environmental Review Checklist ERP Enterprise Resource Planning GVN HCMC HEPZA Ho Chi Minh City Export Promotion Zone Association HO Home Office IESC International Executive Service Corps IIE Initial Environmental Examination IMC Innovative Marketing Consultants ISO International Standards Organization IT Information Technology ITPC Investment and Trade Promotion Center USAID LinkSME USAID Linkages for Small and Medium Enterprises LOP Life of Project MEL Monitoring, Evaluation, and Learning MOIT Ministry of Industry and Trade MOU Memorandum of Understanding MPI Ministry of Planning and Investment ODA Official Development Assistance OOG Office of the Government PD Project Document PO Purchase Order RFQ Request for Quotations SECC Saigon Exhibition and Convention Center SME Small and Medium-sized Enterprise STTA Short-Term Technical Assistance TA Technical Activity USAID United States Agency for International Development VAMI Vietnam Association of Mechanical Industries VASI Vietnam Association of Supporting Industries VCCI Vietnam Chamber of Commerce and Industry USAID LinkSME Year 1 Annual Progress Report Page 3

VEIA Vietnam Electronics Industry Association ViEF Vietnam Economic Forum VINASME Vietnam Association for Small and Medium Enterprises VME Vietnam Manufacturing Expo VSQI and Quality Institute

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Executive Summary The purpose of the USAID Linkages for Small and Medium Enterprises (LinkSME) project is to spur systemic changes in relationships between Vietnamese SMEs and lead firms and thereby achieve significant increases in the quantity and/or quality of business linkages between Vietnamese SMEs and lead firms. The cost-plus-award-fee contract is valued at approximately $22.1 million, not including the award fee. USAID LinkSME runs from 2018 to 2023.

At the end of its first year of implementation, USAID LinkSME exceeded all its applicable performance indicators, as shown in Table 1:

Year 1 Code Indicator Target Actual G1 Number of linkages created within targeted 0 16 industries and sectors O1 Value of private sector contributions $100,000 $610,135

EG.2.2-1 Number of firms receiving USG-funded technical 800 823 assistance to export GNDR-2 Percentage of female participants in USG-assisted 20% 41% programs designed to increase access to productive economic resources

Table 1: Summary of USAID LinkSME Year 1 Performance Indicators, Target and Actual At the end of Year 1, USAID LinkSME received both Official Development Assistance (ODA) project approval and registration from the Government of Vietnam (GVN), per GVN Decision 1203/QD-TTG dated September 16, 2019. The Project Document (PD) was approved by the GVN on September 23, 2019. On September 24th, U.S. Ambassador to Vietnam Daniel Kritenbrink, USAID/Vietnam Mission Director Michael Greene, Office of the Government (OOG) Minister and Chairman Mai Tien Dung, and Ministry of Planning and Investment (MPI) Minister Nguyen Chi Dzung officially launched the project at a ceremony in Hanoi. The OOG is the project’s official government counterpart while MPI serves as co-counterpart.

In the first year of implementation, the USAID LinkSME Project registered 1,340 individuals into the project database, including 599 in the focus sectors of electronics and metals. Of these, 106 firms were assessed for linkage readiness and 69 passed. Fourteen MOUs were signed with lead firms sourcing from Vietnam. Sixteen linkages were completed and 26 purchase orders (POs) issued were attributable to USAID LinkSME’s technical assistance efforts. Discussions with private sector business support organizations (BSOs) resulted in the signing of 19 memoranda of understanding (MOUs) that frame future cooperation. As a highlight, USAID LinkSME worked with the American Chamber of Commerce (AmCham) to execute the first- ever Hanoi Supplier Day on April 24, 2019, and throughout the year hosted booths and technical presentations at more than two dozen key supply chain events.

In Quarters 3 and 4, the project’s risk environment changed significantly, particularly in terms of political risk. The trade deficit between the U.S. and Vietnam was up approximately 40 percent year-on-year as of mid-2019. In August, USAID/Vietnam asked IESC to re-orient USAID

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LinkSME’s technical approach to reduce USAID’s risk of being perceived as adding to the U.S. trade deficit with Vietnam. In discussions between USAID/Vietnam and IESC, USAID/Vietnam determined that the project’s primary focus should henceforth be on building the capacity of intermediary BSOs to accelerate SME growth, and that USAID LinkSME should cease direct contact with firms. Project nomenclature was changed from “foreign firm” to “lead firm”, and “global value chain” to “manufacturing supply chain”.

Simultaneously, due to the GVN’s requirements to approve the project’s ODA status, the project’s structure was notably changed at the end of Year 1, away from the three-phase approach contemplated at inception (Phase 1: focus on firm-level linkages in two sectors; Phase 2: expansion to five sectors; and Phase 3: policy focus incorporating lessons learned). The PD eliminated the phased approach as the GVN desires that the policy focus begin immediately; the PD further structures the project into four components, essentially policy, government-business interaction, linkages, and management. A contract modification to reflect these changes is anticipated to be completed in early Year 2.

Major project management milestones were completed in the first year. Permanent offices were opened in Hanoi and Ho Chi Minh City (HCMC) and both were fully staffed. The IESC home office Associate Vice President and Senior Program Manager each completed two oversight assignments. Contract modification language was drafted and reviewed with USAID related to the risk environment as well as the project registration requirements of the GVN. Technical tools were developed and continuously improved.

USAID LinkSME conducted its baseline assessment, including a gender assessment and analysis of job multipliers for each of seven sectors to be considered for the anticipated scale-up beyond electronics and metals.

I. Introduction The purpose of USAID LinkSME is to spur systemic changes in relationships between Vietnamese SMEs and lead firms and thereby achieve significant increases in the quantity and/or quality of business linkages between Vietnamese SMEs and lead firms. Systemic changes include evidence-based regulatory and policy recommendations to improve the SME enabling environment. The cost-plus-award-fee contract is valued at approximately $22.1 million, not including the award fee. The obligation at the end of Year 1 was approximately $11.4 million with spend to date as of September 30, 2019 at $3.1 million. As per Section F, Deliveries or Performance, F.6. Deliverables, subpart b. Annual Progress Report, the fourth Quarterly Progress Report shall constitute the Annual Progress Report and is due to USAID/Vietnam on October 31 of each year. The Annual Progress Report must be a comprehensive narrative report summarizing the previous year’s activities and accomplishments using the annual work plan as a starting point and will serve as a key tool by which USAID/Vietnam monitors the performance of the Contractor.

IESC is the prime implementer of USAID LinkSME, joined by KPMG Vietnam and TAJ Media. Under this Contract, IESC contributes to the CDCS for Vietnam (2013-2019) through USAID/Vietnam’s Development Objective (DO) 1: “Governance Enhanced to Facilitate Broader-Based, Sustainable Growth”, and USAID/Vietnam’s Trade and Growth Project Purpose USAID LinkSME Year 1 Annual Progress Report Page 6

“Develop Replicable Approaches to Facilitate a More Attractive and Predictable Trade and Investment Climate for Domestic and International Investors”.

II. Progress Against Planned Activities Progress against the project technical activities are described below. More detail on the timing of each Technical Activity (TA), responsible and assisting team members, and deliverables and milestones, can be found in the implementation plan Gantt Chart referenced in Annex A and attached separately. Costs are captured in the total budget spent to date against budget planning for Year 1 are included as Annex D of this Annual Progress Report.

TA 1: Establishing One-to-One Relationships Between Lead Firms and SMEs Technical Activity 1 (TA1) is encouraging one-to-one matching between lead (buyer) firms and Vietnamese SME suppliers. At present, USAID LinkSME is working with SMEs in two focus sectors, the electronics and metals sectors.

TA 1.1 Identification of Lead Firms To kick off the first quarter, USAID LinkSME introduced the project to the Vietnam business community at AmCham’s 2018 Supplier Day in HCMC on October 4, 2018. Subsequently, USAID LinkSME’s Technical Team Lead and Technical Manager met with 47 lead firms sourcing from the electronics and metals sectors in the first quarter, both at trade events and at individually-scheduled meetings.

Over the course of Year 1, USAID LinkSME met with more than 100 lead firms sourcing from the focus sectors, resulting in signing MOUs with 14 lead firms who agreed to participate with the project to expand their local content and source components from Vietnamese SMEs:

1. Penflex Vietnam Co., Ltd. (USA, metal hoses) – December 4, 2018 2. RCH Vietnam LLC (Italy, Point-Of-Sale devices) – December 12, 2018 3. Northstar Precision (Vietnam) LLC (USA/Taiwan, powersport vehicles) – December 18, 2018 4. Fluid Power and Controls (USA, solenoids and solenoid-controlled valves) – January 4, 2019 5. East West Industries (USA, industrial, consumer, and retail products) – January 10, 2019 6. WES LLC (USA, aluminum railing and architectural railing) – January 17, 2019 7. Wellmaster Pipe and Supply Inc. (Canada, machinery and equipment for groundwater, oil & gas and nursery/greenhouse sectors) – March 27, 2019 8. Shane Erickson, Inc. dba Innovative Marketing Consultants (IMC) (USA, advertising specialties, point of sale materials and display products) – March 27, 2019 9. Coca-Cola Beverages Vietnam Limited (USA, beverages) – March 28, 2019 10. Preformed Line Products (Thailand, power transmission hardware) – April 5, 2019 11. Métosak (Canada, Supplier for Bombardier, metal products) – June 20, 2019 12. Avela Corporation (USA, product sourcing from Asia/Pacific region) – August 15, 2019 13. Steel Builders (Australia, structural steel and building supplies) – August 16, 2019 14. Sonion (Denmark, micro-acoustic products) – August 26, 2019

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However, during Q3, in the context of these global trade tensions, the U.S. bilateral trade deficit with Vietnam increased sharply. From January through May 2019, Vietnamese exports to the U.S. increased 36.4 percent year-on-year compared to 2018, according to U.S. Census data cited by the Wall Street Journal on July 10, 2019. In response to reputational risks to USAID posed by offering technical assistance to U.S. firms who might potentially move supply chain jobs from the U.S. to Vietnam, a new Mission policy on technical assistance to U.S. firms was developed. This policy restricted the project from offering technical assistance to U.S.-headquartered firms having production lines in the U.S. In Q3, USAID LinkSME developed and applied a new Due Diligence Screening Tool to assure that lead firms comply with USAID/Vietnam’s risk profile. As a result, the cooperation in progress with four firms was put on hold as of the end of Q3, as these firms all have U.S. headquarters and production lines in the U.S.:

1. Fluid Power & Controls; 2. Northstar; 3. Penflex; and, 4. Preformed Line Products.

The MOU with Coca Cola Vietnam is under review as USAID has global partnerships in effect with Coca Cola.

In Quarter 4, the project’s risk environment changed even more when the U.S. Trade Representative stated that Vietnam must take steps to reduce its trade deficit with the U.S. Subsequently, USAID/Vietnam asked IESC to re-orient USAID LinkSME’s technical approach so that USAID LinkSME would cease direct contact with firms, and that the project’s focus should instead be on building the capacity of intermediary organizations. Project nomenclature was changed from “foreign firm” to “lead firm”, and “global value chain” to “manufacturing supply chain”. This subject is discussed in greater detail in Section IV, Risk Assessment.

To cast a wide net and further identify potential lead firms who are manufacturing in Vietnam or otherwise sourcing from Vietnam, as well as identify potential suppliers for them, in the first year USAID LinkSME team members met with 43 BSOs (chambers of commerce, trade associations, foreign trade promotion organizations, and other business organizations) and three industrial zones, including the following:

Chambers of Commerce  Delegate of German Industry and Commerce in Vietnam (AHK) Hanoi  AHK HCMC  AmCham Hanoi  AmCham HCMC  German Business Association  Korean Chamber of Commerce (KoCham)  Vietnam Chamber of Commerce and Industry (VCCI)  EuroCham

Trade Associations

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 HCMC Association of Mechanical and Electrical Enterprise (HAMEE)  Vietnam Association of Mechanical Industries (VAMI)  Vietnam Association of Supporting Industries (VASI)  Vietnam - USA Society of Hai Phong City (VUS)  Vietnam Electronics Industry Association (VEIA)  Da Nang Association of Mechanical Engineering (DANASME)  Vietnam Association of Small and Medium Enterprises (VINASME)  Hanoi Supporting Industries Business Association (HANSIBA)  Hepza Businesses Association (HBA)  Ho Chi Minh City Automation Association (HAuA)  Vietnam Association for Women Entrepreneurs (VAWE)  Hanoi Association of Small and Medium Enterprises (HanoiSME)  Vietnam Timber and Forest Product Association (VIFORES)  Vietnam Seaculture Association (VSA)  Vietnam Textile and Apparel Association (VITAS)  Vietnam Leather, Footwear and Handbag Association (LEFASO)

Trade Promotion Organizations  Centre of Supporting Industries Development (CSID)  Da Nang Department of Industry and Trade  Da Nang Science and Technology Department  Da Nang Investment Promotion and Management Division  Hai Phong Department of Industry and Trade  Hai Phong Science and Technology Department  Investment and Trade Promotion Center (ITPC)  Japan External Trade Organization (JETRO)  VCCI SME support services Center of Ho Chi Minh City  VCCI Service and Trading Limited Company  Osaka Foundation for Trade and Industry  Sagamihara Industrial Promotion Foundation  Thai Consulate  VCIC Vietnam  Tokyo SME Support Centre  United States - Association of Southeast Asian Nations (ASEAN) Business Council (USABC)  Vietrade and PROMOCEN  SME Development Support Center 2 (SMEDEC2)  Vietnam Certification Center (QUACERT)

Industrial zones  Management Board of high-tech parks and industrial zones of Danang  Long Hau Industrial zone  HCM high-tech park

Among BSOs, the following 19 signed MOUs with USAID LinkSME in Year 1: 1. Dong-A University Startup Support Center – November 19, 2018

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2. American Chamber of Commerce in Vietnam Hanoi Chapter (AmCham Hanoi) – November 29, 2018 3. American Chamber of Commerce in Vietnam Ho Chi Minh City Chapter (AmCham HCMC) – December 11, 2018 4. HCMC Association of Mechanical-Electrical Enterprises (HAMEE) – December 13, 2018 5. Hanoi Supporting Industries Business Association (HANSIBA) – January 18, 2019 6. Vietnam Chamber of Commerce & Industry, Ho Chi Minh City branch - VCCI Trade & Service One Member Co., Ltd (Hanoi City) (VCCI-TSC) – January 23, 2019 7. Vietnam Chamber of Commerce & Industry Small and Medium Enterprise Promotion Center (VCCI-SME PC) – March 6, 2019 8. Vietnam - USA Society of Hai Phong City (VUS) – April 4, 2019 9. Vietnam Association for Supporting Industries (VASI) – April 10, 2019 10. Vietnam Association of Mechanical Industry (VAMI) – April 18, 2019 11. Private Sector Development Office (PSDO) – April 24, 2019 12. Ho Chi Minh City Export Processing and Industrial Zones Authority (HEPZA) Businesses Association (HBA) – April 26, 2019 13. Ho Chi Minh City Automation Association (HAuA) – May 23, 2019 14. Vietnam Electronic Industries Association (VEIA) – June 5, 2019 15. Da Nang Association of Mechanical Engineering (DANASME) - July 5, 2019 16. VCCI Da Nang - August 2, 2019 17. HD Bank - August 14, 2019 18. Vietnam Association of Small and Medium Enterprises (VINASME) - August 19, 2019 19. Vietnam Association for Women Entrepreneurs (VAWE) - August 30, 2019

TA 1.2. Development of Lead Firm Requests for Proposals Lead firm Requests for Quotations (RFQs) began in December 2018 of Y1, with Penflex as the first firm with whom USAID LinkSME signed an MOU. By the second quarter, USAID LinkSME staff were working with four lead firms (East-West Industries, Northstar, Penflex, and Ultralox) to define product specifications as well as their customer-specific requirements including logistics, packaging, and volumes. Penflex and Northstar developed RFQ packages throughout Q2 and Q3 while the others, East-West Industries and Ultralox, each agreed upon a specific SME supplier and waited to receive samples for evaluation prior to placing a purchase order.

As of the end of Q3, USAID LinkSME staff were working with lead firm MOU partners Métosak and Wellmaster to develop RFQ packages. As of the end of Q4, USAID LinkSME was additionally working with lead firms IMC, Avela, and Steel Builders to elaborate their local supply chain needs.

TA 1.3 SME Outreach and Two-Stage Shortlisting At the onset of the project, the USAID LinkSME team set up an online database with a bilingual interface where interested SMEs can register for the project. In the first quarter of Year 1, the SME Linkage Team contacted approximately 1,500 SMEs and met with 381 SMEs, both at trade events and at individually-scheduled meetings. In Q1, 262 enterprises registered their interest USAID LinkSME Year 1 Annual Progress Report Page 10

online. Of these online applicants, 62 were from the project’s target sectors of electronics and metals. The team learned early on that the project would need a large database of SMEs to identify enough potential SME suppliers.

In the second quarter, USAID LinkSME’s SME Linkage Team met with 324 SMEs through trade events and individually-scheduled meetings. One hundred twenty-one firms registered their interest, 67 of whom were from the project’s target sectors of electronics and metals. Targeting improved significantly in Q2 compared to the project’s initial quarter, as 55.4 percent of firms that registered in Q2 were in the focus sectors of electronics and metals as opposed to 23.6 percent in Q1.

In the third quarter, USAID LinkSME’s SME Linkage Team met with approximately 1,500 SMEs through trade events and individually scheduled meetings. In Q3, the pace of registrations accelerated due not only to more outreach events, but also to better targeted events; 572 firms registered their interest in Q3, bringing total database registrations to date to 955. Two hundred thirty-three of these firms were in the focus sectors of electronics and metals, bringing the total number of registered electronics and metals firms up to 362 (100 electronics + 262 metals).

In the fourth quarter, USAID LinkSME’s SME Linkage Team met with approximately 1,176 SMEs through trade events and individually scheduled meetings. In Q4, 385 firms registered their interest, bringing total database registrations in Year 1 to 1,340. Two hundred thirty-seven of these firms were in the focus sectors of electronics and metals, bringing the total number of registered electronics and metals firms up to 599. Targeting has improved significantly compared to the first quarter as 237 of 385 or 61.5 percent of firms who registered in Q4 were in the target sectors.

Evaluation of SMEs takes two stages. The first stage, a half-day capability assessment known as a “pre-evaluation” conducted by the SME Linkage Team based on ISO 9001:2015, assesses the firm’s basic supply capabilities. The SME Linkage Team visits the facility, collects data, and the SME then receives a scorecard covering seven key business areas (Management, Quality Management System, Production / Technology, Research & Development, Sub-Supplier Management, Logistics, and Health, Safety & Environment), indicating areas that are satisfactory and areas needing improvement. If the SME passes with a score greater than 2.50 out of a possible 5, it will be eligible for matchmaking with lead firms in the project portfolio. This “pre-evaluation” assures lead firm MOU partners that USAID LinkSME will only introduce potential suppliers that have an acceptable level of fundamental capabilities; unqualified suppliers will be screened out at this stage.

An analysis of the first 86 firms that were pre-evaluated showed that the:

 Best performing areas in firms that pass (score above mean) were sub-supplier management, general management, and logistics (all low-weighted areas);  Worst performing areas in firms that fail (score below mean) were production/technology, quality management systems (both high-weighted areas), and sub-supplier management;

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 Largest gaps between firms that pass and firms that fail (gap above mean) were Sub- supplier management, production/technology, and quality management systems (these are the areas needing most improvement).

Table 2 below shows the results by evaluation area.

Scale of 1 Evaluation Area (lowest) to 5 (highest) “Acceptable” Quality Production Sub- Health, Research and Overall threshold for Management Management / Supplier Logistics Safety and Development Performance overall System Technology Management Environment performance is >2.50 Grading 10% 30% 30% 5% 10% 10% 5% 100% Weight Average of acceptable 3.42 3.27 3.22 2.96 3.42 3.23 3.24 3.25 firms (Pass) N=54 Average of unacceptable 1.49 1.28 1.25 1.65 1.32 1.48 1.73 1.36 firms (Fail) N=32 Gap 1.93 1.99 1.97 1.31 2.10 1.75 1.51 1.89 Table 2: Results of SME Pre-Evaluations in Year 1 As of the end of Year 1, a cumulative total of 106 SMEs had been visited and pre-evaluated by the SME Linkage Team (12 electronics + 94 metals), and 69 passed (64.5 percent). Of the electronics firms, 7 passed (58.3 percent). Of the metals firms, 62 passed (66 percent). SMEs that pass are entered into the project’s Customer Relationship Management (CRM) system and are considered eligible for matchmaking with buyers. Table 3 demonstrates the winnowing process from initial contact with an SME to nomination as a supplier to a lead firm.

Category Number (Cumulative) Percent of SMEs Percent of Previous Level Approached SMEs approached 4,500 100% - SMEs registered 1,340 29.8% of SMEs approached - registered online SMEs in 599 13.3% of SMEs approached 44.7% of SMEs registered electronics and were in the target sectors online were in target sectors metals sectors SMEs pre- 106 2.4% of SMEs approached 17.7% of SMEs in target evaluated for made products suitable for sectors made products linkage further evaluation suitable for further evaluation SMEs passed pre- 69 1.5% of SMEs approached 65.1% of SMEs pre- evaluation passed the pre-evaluation evaluated passed the pre- evaluation

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SMEs nominated 21 0.5% of SMEs approached 30.4% of SMEs who passed to Lead firms were nominated to lead firms pre-evaluation were nominated to lead firms SMEs linked to 5 0.1% of SMEs approached 23.8% of SMEs nominated Lead firms were linked to lead firms to a lead firm were linked to lead firms Transactions (POs) 26 between SME and Lead Firms signed Linkages 16 61.5% of transactions signed completed were linkages completed Table 3: The Winnowing Process from Initial Contact to Nomination as Supplier to Lead Firm, as of End-Q4

TA 1.4 Linking SMEs to Lead Firms Products made by SMEs that pass pre-evaluation are screened against specific procurement requirements of lead firms in the program. If they make products that match lead firm needs, USAID LinkSME will introduce them to the buyer. The SME and lead firm will then negotiate commercially. If the SME is selected by the lead firm as a potential vendor, USAID LinkSME will conduct the second stage evaluation – a comprehensive ISO 9001:2015 operations audit. That audit generates a gap analysis from which a supplier development (upgrade) plan is created. USAID LinkSME will then provide targeted consulting assistance and training to help the SME meet buyer requirements and join the manufacturing supply chain.

Matchmaking between SME suppliers and lead firm buyers began in Q1, when the USAID LinkSME team matched three SMEs as potential suppliers to Penflex based on their product requirements. As the year progressed, the USAID LinkSME SME Linkage Team continued to conduct pre-evaluation field visits to potential SME suppliers and add the pre-qualified, “linkage-ready” SMEs to the CRM system.

As of the end of Q4, a total of 21 SMEs that had passed pre-evaluation had been introduced to lead firms for commercial negotiations. This is approximately one out of three SMEs that passed pre-evaluation, showing high value added by the pre-qualification stage. All were in the metals sector. The SMEs are as follows:

1. Australia General Engineering (Austgen) 2. Anh Nghia Co. Ltd. 3. ANT 4. Bach Tung Travel Construction Mechanical Co., Ltd. 5. Chimasa Co., Ltd. 6. Duy Khanh Engineering Co., Ltd. 7. Hoang Hung 8. Hong Ky Corporation 9. MEE 10. MKTP Company Limited 11. Nhuan Tien Co., Ltd. 12. OnTops KIC 13. Saki 14. Sang Tao USAID LinkSME Year 1 Annual Progress Report Page 13

15. Tung Lam Manufacturing & Trading Co., Ltd. 16. Viet Nhat Precision Co., Ltd. 17. Vinavit Corp 18. VPMS Co., Ltd. 19. AMA Parts Manufacturing Co., Ltd. 20. Thien Long JSC 21. Bac Viet Industry JSC

TA 1.5 Final Selection of SME Suppliers Beginning in Q2, the first two lead firms made final selections of SME suppliers, both of which were metals SMEs: lead firm Ultralox chose SME Ontops, and lead firm East-West Industries chose SME Anh Nghia ANCL Pvt. Ltd. During Q2, both SMEs were in the process of producing prototypes for evaluation. By Q3, the SMEs had completed three transactions with the lead firms with vendor selection, order, production, delivery, and payment; the project’s first three complete linkages:

 SME Anh Nghia to lead firm East-West Industries – one transaction completed; and,  SME OnTops to lead firm Ultralox – two transactions completed.

In the fourth quarter, thirteen additional transactions (linkages) were completed, for a total of 16, including:

 SME OnTops to lead firm Ultralox – eleven transactions completed;  SME Anh Nghia to lead firm East-West Industries – one transaction completed; and,  SME Tung Lam to lead firm Metosak – one transaction completed.

Per the approved Activity Monitoring, Evaluation, and Learning (AMEL) Plan: “Linkage equals completed transaction. A transaction is fully completed when goods/services are delivered, and payments are made.”

A total of 13 POs were issued by lead firms during Q3. In Q4, an additional 13 POs were issued by lead firms, for a total of 26 POs in Y1; 16 of which resulted in the above linkages, and ten of which are in process as of the end of the fiscal year.

TA 1.6 Technical Assistance to SME Suppliers Once SMEs have been matched to lead firms, USAID LinkSME provides technical assistance to help bring the linkages to fruition. For example, in Year 1:

 For SME Anh Nghia supplying to lead firm East-West Industries, USAID LinkSME conducted an ISO 9001:2015 audit including a gap analysis, then provided audit implementation training and follow-up on corrective actions on the audit findings.

 For SME Ontops supplying to lead firm Ultralox, USAID LinkSME conducted an ISO 9001:2015 audit including a gap analysis, then provided Enterprise Resource Planning

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(ERP) training and started to set up the production planning process to improve the delivery situation.

 For SMEs Austgen and Hoang Hung supplying to lead firm Wellmaster, USAID LinkSME conducted quality inspection and final release of prototype samples based on supplier quality reports from Austgen and Hoang Hung. Further technical assistance will be required in Year 2 as the firms move beyond prototype to mass production.

 For lead firm IMC which is seeking Vietnamese SME suppliers, the USAID LinkSME team set up the RFQ documents including detailed specifications and discussed the RFQ with suppliers based on real samples. The USAID LinkSME team supported potential suppliers to find sub-suppliers for plastic injection components and packaging.

 For SME Tung Lam supplying to lead firm Métosak, USAID LinkSME conducted an ISO 9001:2015 audit. Gap analysis showed further support needs. The USAID LinkSME team supervised prototype quality reporting and approved prototypes for shipment. Follow up on audit findings is ongoing into Year 2.

 For lead firm Avela which is seeking Vietnamese SME suppliers, USAID LinkSME introduced potential suppliers and helped Avela visit their facilities for evaluation.

Realizing that SMEs need access to finance information and there is a market gap, in May USAID LinkSME completed an SME finance map entitled “SME Finance Sources in Vietnam 2019” which is an up-to-date, one-stop guide for enterprises to the financial products and institutions currently in the market. The purpose of the finance map is to offer SMEs the information they need to quickly locate appropriate financial support; no similar guide currently exists. During the week of May 27, the guide was distributed to all SMEs registered in the USAID LinkSME online database. Six hundred and fifty-five firms received soft copies of the guide in as a benefit of registering for the project. Distribution to additional SMEs is being done concurrently through all partner associations, chambers, and organizations with whom USAID LinkSME has MOUs. The finance map is included in the Project Bibliography in Annex F.

TA 2: Supplier Days SMEs meet with lead firms directly through supplier days and trade fairs as well as events sponsored by collaborating institutions, particularly Vietnam Electronics Industry Association (VEIA), Vietnam Association of Mechanical Industries (VAMI), and Vietnam Association of supporting Industries (VASI). During these events, lead firms gain more information about potential Vietnamese SME suppliers and SMEs ask questions to and set up meetings to explore commercial opportunities with the lead firms. Similar to a trade show, supplier days feature both SME (supplier) and lead firm (buyer) booth displays.

TA 2.1 AmCham Sponsored Supplier Days In the first quarter, the USAID Economic Growth and Governance (EG2) Director and the Project Director introduced the USAID LinkSME project during the plenary session at

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AmCham’s fifth annual Supplier Day event in HCMC on Thursday, October 4, 2018. The all- day event included more than 350 lead firms and Vietnamese SMEs, including 20 chambers and business associations. USAID LinkSME worked a table in the exhibition area and entertained inquiries from potential program participants. This event introduced the project to a targeted audience and started actual negotiations with participating firms.

USAID LinkSME signed an MOU in November 2018 with AmCham Hanoi to co-organize the first-ever supplier day event in Hanoi for April 2019. Planning for the event largely took place in the second quarter, with the event taking place in the third quarter on April 25 at the JW Marriott. Sixty-five firms exhibited their goods and services to nearly 400 attendees at the event, exceeding the target of 50 firms. U.S. Ambassador to Vietnam Daniel Kritenbrink addressed the plenary session along with Mr. Vu Ba Phu, Director General, Vietnam Trade Promotion Agency; Dr. Doan Duy Khuong, Vice Chairman, VCCI; and Mr. Nguyen Duc Tung, Chief Executive Officer, Private Sector Development Committee. USAID LinkSME presented the project’s benefits to the audience and had a display booth where attendees could register on the spot. Seventy-one new SMEs registered on the day of the event. As the project had not yet received GVN approval, USAID was the official sponsor of the event; other event partners were VCCI and the Private Sector Development Committee (Committee IV).

Event Date(s) Description AmCham HCMC October 4 Fifth annual AmCham HCMC business matching event, where USAID Supplier Day 2018 LinkSME introduced the project to the Vietnam business community.

AmCham Hanoi April 25 Business matching event co-organized by USAID LinkSME held for the Supplier Day 2019 first time ever in Hanoi, attracting 65 exhibitors and over 400 participants.

Table 4: AmCham Vietnam Supplier Days in Year 1 USAID LinkSME also committed to co-sponsor AmCham’s 2019 sixth annual Supplier Day in HCMC, scheduled for October 2019 (Year 2) with the goal of significantly expanding the roster of exhibitors. Additionally, during Year 1 discussions were held with AmCham HCMC and the Da Nang local government to discuss organizing the first-ever supplier day in Da Nang, which would potentially be held at the beginning of Year 2.

TA 2.2 Sector-Specific Supplier Days In the first quarter of Y1, USAID LinkSME began to reach out to industrial zones such as Becamex, BW Industrial, Da Nang Hi-Tech Park, Hai Phong, Long Hau, and Saigon Hi-Tech Park. Discussions were conducted about setting up roadshows, with USAID LinkSME visiting the industrial parks and pitching the project’s benefits to tenants. Through the year, the USAID LinkSME team conducted three roadshows at industrial zones across .

USAID LinkSME also identified a number of established commercial sector-specific trade fairs in Vietnam to participate in during Year 1, such as the Vietnam Manufacturing Expo (VME), METALEX (metals sector), and NEPCON (electronics sector). By attending established trade

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fairs, USAID LinkSME was able to both promote participation in the project to prospective suppliers and buyers and enable partners to display their goods and services in order to create supply chain linkages. At these events, USAID LinkSME set up a USAID-branded project pavilion and shared the cost of participation with a group of first-time SME exhibitors and trade associations to give them direct exposure to a targeted international buyer audience.

Major trade and matchmaking events in which the project participated over the course of the Year 1 are listed below in Table 5. Additionally, a list of all in-country workshops, forums, trainings organized and numbers of participants is included as Annex H.

Event Date(s) Description Vietnam Expo April 10 - 13 USAID LinkSME booth at the 29th Vietnam International Trade Fair in Hanoi, organized by Vietrade. Promoting the project and looking for potential lead firms and SMEs to participate; 4-day event. Presentations at Vietnam Investment Conference and Vietnam Export Promotion Forum. National Private May 3 National economic forum with Private Sector Development Sector Forum 2019 Committee/Vietnam Economic Forum (ViEF) established to Business Matching discuss key issues and development strategy of Vietnam’s Day macroeconomy. This forum maintains constructive dialogue on public-private policy between the private sector and the Government, along with other stakeholders. Saigon AutoTech May 23 - 26 Exhibition on automobiles, motorcycles, electric vehicles and supporting industries; only exhibition in "Supporting Industry Development Program in 2019" of Vietnam Ministry of Investment and Trade (MOIT); partnership with VASI to bring member companies. Business Matching July 5 Exhibition where both lead firms and Vietnamese SMEs display Conference in Da their products, meet other manufacturers and suppliers, establish Nang business relationships, and expand their networks. Organized by Da Nang People’s Committee with Da Nang DOIT and The Assistance Center for SMEs - (MPI - AED) EWEC Da Nang August 2 The East-West Economic Corridor International Investment, Trade, 2019 and Tourism Fair Da Nang 2019.

Vietnam August 14 - 16 Vietnam’s Leading Exhibition on Machinery and Technology for Manufacturing Expo Manufacturing and Supporting Industries, at I.C.E, 91 Tran Hung 2019 Dao, Hanoi. VME attracted nearly 8,000 trade visitors last year. LinkSME organized pavilion and co-exhibited with four business associations, five Vietnamese SMEs, and one lead firm. NEPCON Vietnam September 11 - 13 NEPCON Vietnam, a unique exhibition of surface mount 2019 technologies , testing technologies, equipment and supporting industries for electronics manufacturing, held in Hanoi. 10,000 trade visitors last year. LinkSME organized pavilion and co- exhibited with VEIA, VinaSME, six Vietnamese SMEs, and one lead firm. Table 5: Major Trade Fairs and Matchmaking Events in Year 1

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TA 2.3 Pre-Supplier Day Training As seen in Table 6 below, the project delivered trainings to coach Vietnamese SME exhibitors on successfully marketing their capabilities to lead firms prior to the East-West Economic Corridor International Investment, Trade, and Tourism Fair held in Da Nang 2019 in August as well as at the pre-show forums for three Reed Tradex-organized commercial trade fairs: Vietnam Supporting Industries Forum 2019 on May 30 in Hanoi, NEPCON Vietnam Forum July 11 in Hanoi, and METALEX Vietnam Forum July 24 in HCMC.

Event Date(s) Description Vietnam Supporting May 30 Pre-show forum leading up to Vietnam Manufacturing Expo in August, Industries Forum organized by Reed Tradex. LinkSME presentation on "Strengthening 2019 Vietnam’s Participation in the Global Supply Chain"

NEPCON Vietnam July 11 Pre-show forum leading up to NEPCON Vietnam trade fair in September, Forum organized by Reed Tradex in Hanoi. LinkSME presentation on “How to Connect Vietnamese SMEs to the Global Electronics Value Chain”.

METALEX July 24 Pre-show forum leading up to METALEX Vietnam trade fair in October, Vietnam Forum organized by Reed Tradex in HCMC. LinkSME presentation on “How Advanced Technologies Support Vietnamese Manufacturers to Join the Global Supply Chain”.

EWEC Da Nang August 2 USAID LinkSME in collaboration with VCCI, organized a workshop for Forum exhibitors on "Supporting Small and Medium Enterprises in Product Improvement and Export Promotion".

Table 6: Trainings Delivered Prior to Major Trade Exhibitions in Year 1 TA 3: Outreach and External Communications As USAID LinkSME did not receive project approval or registration with the GVN until the end of Q4, the project refrained from engaging in high-profile outreach and external communications and could not officially partner with GVN entities. As such, USAID LinkSME worked primarily through private sector stakeholder events. As the project took a facilitative approach, all the events described below were conducted in conjunction with partner BSOs.

A list of materials produced during Y1 for outreach and external communications is included in Annex E. The project’s Communication and Outreach Manager joined the team in December 2018. Year 1 promotion and outreach events are listed in Table 7 and detailed below.

From October 11 to 13, USAID LinkSME participated in METALEX Vietnam 2018 organized by Reed Tradex. METALEX was an international exhibition in HCMC and part of ASEAN’s largest machine tool and metalworking technology trade exhibition and conference on machine tools and metalworking solutions for production upgrades. There were approximately 300 exhibitors mainly in the metals and electronics sectors, with lead firms from Taiwan, Singapore, Japan, Thailand, Germany, , and Korea as well as Vietnamese enterprises. The event was attended by around 6,000 participants on the first day and 8,000 on the second day. The team conducted significant discussions with 12 lead firms (including Canon, Brothers, Foster, and USAID LinkSME Year 1 Annual Progress Report Page 18

Omron) as well as 5 organizations from Japan interested in this program. On October 12, 2018, the project’s Technical Team Lead and Deputy Project Director formally presented the project at the Vietnam Supporting Industries Forum, which was co-sponsored by VEIA and the Vietnam Standards and Quality Institute (VSQI).

On November 28, USAID LinkSME’s Project Director was the leadoff speaker at VCCI’s Vietnam Export Forum 2018 in Ho Chi Minh City, which revolved around the theme of “Promoting Vietnam’s Linkages to Global Value Chains”. Over 200 participants from both private and public sectors attended the Forum, co-sponsored by AmCham in Ho Chi Minh City and the Japanese Chamber of Commerce and Industry in Ho Chi Minh City. USAID LinkSME’s presentation entitled “How to Connect to Global Value Chains” walked the audience through the linkage process while introducing firms to the benefits of participating in the program.

On December 7, USAID LinkSME’s Technical Team Lead presented the project to the VEIA Conference for SMEs to Participate into the Global Production Chain. The presentation took place at the Saigon Exhibition and Convention Center (SECC) in HCMC.

On December 13, USAID LinkSME’s Project Director presented the project to a workshop on marketing industrial products at the 2018 Vietnam International Machinery Fair/Vietnam Supporting Industries Fair (VIMAF/VSIF) in HCMC. Event organizers estimate that 23,000 visitors attended 120 exhibitors’ displays at the SECC over three days.

On Thursday, March 14, USAID LinkSME collaborated with the VCCI HCMC to conduct the SME promotion event “Supporting Binh Duong Mechanical Engineering & Electronics Enterprises to Participate in Global Value Chains”. Seventy-nine representatives of Vietnamese SMEs, lead firms, government entities, and business associations attended, including 20 women. As a result of introducing the project at this half-day event, 35 firms registered online, 25 in the focus sectors. HCMC Section Chief Stephen Berlinguette made opening remarks on behalf of USAID. USAID LinkSME’s Deputy Project Director explained how enterprises can benefit from the project, and the Technical Team Lead served on a panel discussion addressing how Vietnamese SMEs can become capable suppliers to lead firms.

On Thursday, March 28, USAID LinkSME again collaborated with VCCI HCMC to conduct the SME promotion event “Supporting Dong Nai Mechanical Engineering & Electronics Enterprises to Participate in Global Value Chains”. Ninety representatives of Vietnamese SMEs, lead firms, government entities, and business associations attended. As a result of introducing the project at this afternoon event, 58 Vietnamese SMEs registered to participate in the project via the USAID LinkSME online database system, 44 in the focus sectors of electronics and metals. Eighty participants returned feedback forms to help improve similar events in the future. Ms. Nguyen Thi Bich Thuy, Senior Program Manager, Office of EG2, made opening remarks on behalf of USAID. Both USAID LinkSME Deputy Project Director and the Technical Team Lead again addressed lead firm, SME, business association, and local government representatives.

An internal “lessons learned” session held after the initial Binh Duong event helped make modifications prior to the Dong Nai event that significantly increased the number of registrations and the number of participants who completed and returned feedback forms.

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In the third quarter, USAID LinkSME’s Project Director was invited as a guest speaker by the Vietnam Export Promotion Agency (Vietrade) and MOIT to two high-profile events in early April held in conjunction with the Vietnam Expo, the 29th Vietnam International Trade Fair in Hanoi. The first was the Investment Promotion Conference on April 11. USAID LinkSME’s topic was “The Importance of Global Value Chains in Vietnam’s Economic Development”. The second was the Vietnam Export Promotion Forum on April 12. USAID LinkSME’s topic was “How to Participate in Global Value Chains”.

On May 10, USAID LinkSME participated in the Haiphong Technology Exchange (HATEX) metals sector event, “Conference on Application of Quality Control Technology and Solutions to Reduce Waste in Mechanical Sector and How to Support Vietnamese Supporting Industry SMEs in Joining Global Value Chains”. Fifty-five participants attended. USAID introduced the project at the plenary session and staffed an exhibition table where interested attendees could register to participate in the project. Twenty-two firms registered at this event.

USAID LinkSME was the featured case study at a USAID MarketLinks global webinar on May 14 hosted by USAID’s Office of Trade & Regulatory Reform, with the topic “Growing Small and Medium Enterprises: What Works?”. Over 200 development professionals participated worldwide.

On June 4, USAID LinkSME, in cooperation with Investment and Trade Promotion Center (ITPC) HCMC, delivered a training on “How to Become a Qualified Supplier to Foreign Firms” to representatives of 49 organizations. On June 5, the national English language daily newspaper Viet Nam News ran the headline “Small firms must join world supply chains”. The feature article “Vietnamese firms need to enter global supply chain” covered the June 4 event in detail and cited both ITPC and USAID LinkSME.

On July 23, USAID LinkSME cooperated with ITPC to run a third road show in Long Hau, promoting the USAID project to companies in the metal and electronics sectors in three industrial zones: Tan Thuan Processing Zone, Long Hau Industrial Zone and Hiep Phuoc Industrial Zone.

At the NEPCON Vietnam electronics industry supply chain trade fair on September 11, in coordination with event organizer Reed Tradex, USAID LinkSME led a forum “How to Connect Vietnamese SMEs to the Global Electronics Value Chain” attended by 74 registered individuals representing 61 enterprises.

At the end of Q4, USAID LinkSME received both project approval and GVN registration, per GVN Decision 1203/QD-TTG dated September 16, 2019. On September 24, US Ambassador to Vietnam Daniel Kritenbrink, USAID/Vietnam Mission Director Michael Greene, Office of the Government (OOG) Minister and Chairman Mai Tien Dung, and Ministry of Planning and Investment (MPI) Minister Nguyen Chi Dzung officially launched the project at a ceremony in Hanoi. Showing strong support from both public and private sectors, over 300 representatives from ministries, local government agencies, business associations, Vietnamese small and

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medium enterprises, lead firms, international organizations, and the media attended the event. Over 120 media placements covered the project launch.

Event Date(s) Description Vietnam Supporting Industries October 12 Presented the project at forum co-sponsored by VEIA and Forum 2018 the Vietnam Standards and Quality Institute (VSQI), concurrent with the METALEX Vietnam 2018 trade fair

Vietnam Export Forum November Presentation at VCCI’s Vietnam Export Forum 2018 in 28 HCMC, which revolved around the theme of “Promoting Vietnam’s Linkages to Global Value Chains”.

Conference for SMEs to Participate December USAID LinkSME presented to the Vietnam Electronics into the Global Production Chain 7 Industries Association (VEIA) conference at the SECC, HCMC.

Vietnam International Machinery December USAID LinkSME presented to a workshop at marketing Fair/Vietnam Supporting Industries 13 industrial products. Fair (VIMAF/VSIF)

Binh Duong Roadshow March 14 To promote USAID LinkSME project to companies in metal and electronics sectors in Binh Duong industrial zones, organized by VCCI.

Dong Nai Roadshow March 28 To promote USAID LinkSME project to companies in metal and electronics sectors in Dong Nai industrial zones, organized by VCCI.

Vietnam Investment Promotion April 11 Invited by Vietrade in conjunction with Vietnam Expo. Conference USAID LinkSME’s topic was “The Importance of Global Value Chains in Vietnam’s Economic Development”.

Vietnam Export Promotion Forum April 12 Invited by Vietrade in conjunction with Vietnam Expo. USAID LinkSME’s topic was “How to Participate in Global Value Chains”.

Hai Phong Conference on How to May 10 USAID LinkSME Project supporting metal enterprises Support Vietnamese Supporting invited by HATEX to attend the workshop and give a Industry SMEs in Joining Global speech introducing the project and supporting policies. Value Chains Workshop on How to Become a June 24 Organized by Investment and Trade Promotion Centre Qualified Supplier to Foreign Firms (ITPC) HCMC

Long Hau Roadshow July 23 To promote USAID LinkSME project to companies in metal and electronics sectors in three industrial zones: Tan Thuan Processing Zone, Long Hau Industrial Zone and Hiep Phuoc Industrial Zone, organized by ITPC HCMC.

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Event Date(s) Description NEPCON Vietnam 2019 September USAID LinkSME led a technical forum at the trade fair on Conference 11 “How to Connect Vietnamese SMEs to the Global Electronics Value Chain”.

Project Launch Event September Official public launch of the USAID LinkSME project after 24 GVN approval, attended by US Ambassador to Vietnam, USAID/Vietnam Mission Director, OOG Minister, and MPI Minister. Table 7: USAID LinkSME Promotion and Outreach Events in Year 1 TA 4: SME Advisory Group Part of USAID LinkSME's mandate from USAID included forming an SME Advisory Group comprised of relevant private and public-sector representatives. The advisory group provides strategic direction to the USAID LinkSME contract. It serves similar to a steering committee that will engage at strategic inflection points in the project. In addition, regular quarterly meetings will provide the opportunity for the SME Advisory Group to review progress, understand lessons learned, and recommend real-time modifications to the project as necessary.

IESC submitted notice of the commencement of the SME Advisory Group to USAID for approval on December 4, 2018. Approval for establishment of the group was granted by the COR on December 19, 2018. The group consists of seven members and two representatives from USAID (the COR and USAID LinkSME Advisory Group Inaugural Meeting, January 24, 2019, the Director of EG2), Hanoi with three Ex-Officio members.

On January 24, the SME Advisory Group held its inaugural meeting to introduce Advisory Group members to each other; describe the project in detail and report progress; discuss and agree upon the group’s scope; and set the schedule and communications protocols for future meetings. The group agreed on their scope of reviewing project progress, understanding lessons learned, recommending modifications to the project as necessary, and advising sector selection at the end of the pilot phase.

On April 24, the SME Advisory Group held its second quarterly meeting to update members on USAID LinkSME project progress since the January 24 meeting; discuss project opportunities and challenges as well as early lessons learned; review and discuss the USAID LinkSME Project

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Document; preview the upcoming AmCham Hanoi Supplier Day; and be brought up to date on upcoming USAID LinkSME events.

On July 25, the third quarterly meeting of the SME Advisory Group was held in Hanoi. New USAID/Vietnam EG2 Office Director Gregory Leon welcomed members and made opening remarks. An update and discussion on USAID LinkSME project progress since last quarterly meeting followed, and the new USAID policy on project technical assistance to lead firms was discussed. The meeting concluded with an overview of the USAID LinkSME Year 2 Work Plan and contract targets and Advisory Group input on the Year 2 Work Plan was sought.

In the fourth quarter, Ms. Mary Tarnowka, new Executive Director of AmCham HCMC, agreed to serve on the Advisory Group, filling the vacancy left by her departed predecessor. Mr. Ngo Hai Phan, Director General of APCA, also agreed to serve. The fourth quarterly meeting will take place early in Year 2. Table 8 below details the SME Advisory Group membership as of the end of the year:

No Name Designation Organization Contact Details 1 Mr. Ngo Director General Administrative Email: [email protected] Hai Phan Procedure Control Address: No. 1 Hoang Hoa Tham, Ba Dinh, Agency (APCA), Hanoi Office of the Telephone: +84 904117989 Government 2 Mr. Le Director of Enterprise Email: [email protected] Van Center of Development Address: Ton That Thuyet, Cau Giay, Hanoi Khuong Northern SMEs Agency, Ministry of Telephone: +84 904872179 Support Planning and Investment 3 Ms. Mary Executive AmCham Ho Chi Email: Tarnowka Director Minh Chapter [email protected] Address: New World Hotel Suite 323, 76 Le Lai Street, District 1, Ho Chi Minh City Telephone: +84 2838243562 4 Ms. Deputy Director VCCI Email: [email protected] Nguyen of SME Address: No. 9 Dao Duy Anh Street, Dong Da Thi Hanh Promotion Center District, Hanoi Telephone: +84 904206626 5 Mr. Do Vice Chairman VASI Email: [email protected] Phuoc Address: 310A Luy Ban Bich St., Ho Thanh Tong Ward, Tan Phu District, Ho Chi Minh City

Telephone: +84 903663866 Ho Chi Minh Chairman Association of Machinery and Electric Enterprises (HAMEE) 6 Mrs. Do Member of VEIA Email1: [email protected] Thi Thuy Executive Board Email2: [email protected] Huong Address: 11th Floor, MIPEC tower, 229 Tay Son Street, Dong Da District, Hanoi Telephone: +84 903291771

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7 Mrs. Le Administrative VAMI Email: [email protected] Thi Hong Manager Address: 203 - 205 Nguyen Thai Binh Street, Loan District 1, Ho Chi Minh City Telephone: +84 2838216710

Ex-Officio Members No Name Designation Organization Contact Details 8 Mr. Nguyen Chief Executive Private Sector Email: [email protected] Duc Tung Officer Development Address: R. 316, 3rd Fl Block C, UDIC Committee Complex, Hoang Dao Thuy St., Cau Giay (Committee IV) Dist., Hanoi Telephone: +84 868422777 9 Mrs. Pham Deputy Chief Private Sector Email: [email protected] Thi Ngoc Executive Development Address: R. 316, 3rd Fl Block C, UDIC Thuy Officer Committee Complex, Hoang Dao Thuy St., Cau Giay (Committee IV) Dist., Hanoi Telephone: +84 904992648 10 Mr. Phan Deputy Project Mekong Business Email: [email protected] Vinh Quang Director Initiative Address: Cornerstone Building, 15th Floor, 16 Phan Chu Trinh, Hanoi Telephone: +84 903429990 Table 8: USAID LinkSME SME Advisory Group Membership as of Y1

TA 5: Baseline Assessment Per the contract, 180 days after the AMEL Plan has been approved, USAID LinkSME will complete a baseline assessment for seven selected sectors, namely: agribusiness, apparel, automotive, electronics, footwear, metals, and wood processing. The baseline assessment team was finalized in the third quarter and the team conducted field work in Vietnam in mid-June 2019. The team included a Task Leader, Economist, Gender Specialist, and two Vietnamese Private Sector Specialists, supported by the USAID LinkSME field team. As the AMEL Plan was approved on January 30, 2019, the Baseline Assessment was submitted to USAID on July 22, 2019 and included the gender assessment and an assessment of the multipliers for each sector. Based on the feedback received from USAID on August 12, 2019, the Assessment was revised and resubmitted on August 23, 2019 and is currently pending approval.

TA 6: Phase 2 Sector Selection Process The Phase 2 sector selection was originally scheduled for Year 2. However, changes to the project technical approach requested by USAID/Vietnam in line with the contract’s Collaborating, Learning, and Adapting mandate, in sync with PD approval by the GVN, has made further sector selection appear unnecessary as of the end of Year 1. A pending contract modification is likely to enable USAID LinkSME to work in any manufacturing sector in Years 2 through 5.

III. Progress related to Monitoring, Evaluation, and Learning On October 4, 2018 (Day 30 after contract award), IESC submitted the draft AMEL Plan, which covered ten indicators: seven custom indicators and three standard indicators and included details for each indicator such as the definition, target, frequency of reporting, and disaggregation. USAID LinkSME Year 1 Annual Progress Report Page 24

Through discussion, USAID agreed to eliminate a custom indicator “Value of Production of Assisted Firms” as it was redundant with the standard indicator “USD Sales of Firms Receiving USG-Funded Assistance.”

The revised AMEL Plan was resubmitted on November 27, 2018 with a set of nine indicators. However, the indicator of “Key Characteristics of SME Growth-Ready Firms Identified” was determined as a qualitative output lacking a clear measurement unit and indicator result. After discussion with USAID, the project submitted a newly revised table of indicators for review, which included the details of this milestone within the AMEL Plan but removed it from the final indicator table. After getting USAID’s response, the project re-submitted the revised AMEL Plan for approval early in Q2. USAID LinkSME received approval for the AMEL Plan from USAID on January 30, 2019. The AMEL Plan included details for each indicator such as the indicator definition, target, frequency of reporting, and disaggregation.

Quarterly targets were requested by USAID during Q3, submitted, and accepted in May. A change to the targets for indicator O1 was submitted in May and is pending USAID approval.

Table of Indicators The table of indicators and progress against the targets at the end of Year 1 is included as Annex B.

Analysis of Indicators as Applicable Indicator G1: Linkage is fully completed when goods/services are delivered and payments are made. Twenty-six POs were issued, and 16 linkages were completed, of which 13 linkages were between SME OnTops and Ultralox, two linkages were between SME Anh Nghia and East West Industries, and one linkage was between SME Tung Lam and Metosak.

Indicator O1: This amount was contributed by (1) OnTops upgrading production lines by two contracts with CyberTech Company and TAT Company; (2) the contributions of the private sectors for 6 events (AmCham Hanoi Supplier Day, Business Matching Day, Hatex Hai Phong, Sai Gon Auto Tech, VME 2019 and NEPCON 2019); and (3) lead firms visiting the potential SME suppliers for evaluation.

Indicator EG.2.2-1: The annual target is 800 firms. Through the efforts of the technical team, 823 firms have joined in 13 events that received USG-funded technical assistance in Year 1 of the project such as Binh Duong and Dong Nai Conferences, AmCham Hanoi Supplier Day, Business Matching Day, Hatex Hai Phong, Sai Gon Auto Tech, Workshop on "How to Become a Qualified Supplier to Foreign Firms", Long Hau Road Show, Danang EWEC Conference and Training, VME 2019, AutoTech and Accessories 2019, NEPCON 2019, and the project launch event.

Indicator GNDR-2: To strengthen gender considerations in all project activities, the technical team has worked in close collaboration with partners. Efforts have been placed that generated significant results for gender equality to contribute to achieving the target (41 percent against a target of 30 percent). USAID LinkSME Year 1 Annual Progress Report Page 25

IV. Risk Assessment The USAID LinkSME contract requires that the annual progress report include an updated risk assessment examining the project’s critical assumptions and associated risks. In Quarter 4, the project’s risk environment changed significantly, particularly in terms of political risk. The trade deficit between the U.S. and Vietnam was up approximately 40 percent year-on-year as of mid- 2019. On July 29, the U.S. Trade Representative stated that Vietnam must take steps to reduce its trade deficit with the U.S., building on earlier comments from the White House that singled out Vietnam’s imbalanced trade relationship with America. Following these high-profile remarks, on August 1, 2019, USAID/Vietnam asked IESC to re-orient USAID LinkSME’s technical approach to reduce USAID’s risk of being perceived as adding to the U.S. trade deficit with Vietnam.

In discussions between USAID/Vietnam and IESC on August 1, 2019 and August 12, 2019, USAID/Vietnam determined that the project’s primary focus should henceforth be on building the capacity of intermediary organizations to accelerate SME growth, and that USAID LinkSME should cease direct contact with firms. IESC submitted a memorandum to propose realistic changes to USAID LinkSME’s technical approach to address USAID/Vietnam’s political risk concerns. A risk assessment pertaining to the revised approach was considered by USAID LinkSME in its submission of August 21, 2019, shown in the risk matrix below:

Identified Risk Potential Mitigation Vietnamese associations lack the capacity, particularly Choose initial partners based on absorptive capacity; human resource capacity, to deliver effective phase in partner roles and responsibilities; develop clear matchmaking and TA to SMEs organizational structure and deliver capacity building Association partners are conditioned to receiving Develop quantitative business model with clear donor and government grants and cannot transition to financial targets; develop clear messaging and sell a member-based revenue business model benefits to members; deliver capacity building; coordinate with other development partners so we do not compete with free The global business model for private sector Work with GVN agencies upon project approval and associations does not provide for in-depth technical develop a public-private model, as private consulting firm-level support as needed for a B2B match. services are neither financially viable for SMEs at scale, nor self-sustainable for associations Data-driven matchmaking depends on database with Coordinate partners in database working group so proper structure and large population; no single common structure is agreed, all input goes into independent entity can manage common database, institutional home is developed Government partners have different incentives than Use best practice global models as benchmark; work private sector partners and it may be difficult to only with the most motivated public sector agencies coordinate both objectives and implementation which may be at provincial level Table 9: Risk Assessment of Revised Technical Approach The Year 2 revised work plan under development at the time of writing will incorporate specific actions in terms of partner selection, rapid assessments of partner capacity, internal realignment of staff, and technical assistance to business support organization partners including action plan implementation, human resource support through STTA, and Training of Trainers.

V. Project Management Mobilization To establish local offices, onboard the initial round of project personnel, establish local USAID LinkSME Year 1 Annual Progress Report Page 26

subcontracts, and develop the Year 1 Annual Work Plan and AMEL Plan, IESC mobilized the home office Startup Specialist on September 5, 2018, along with the Associate Vice President. They were joined by the IESC Trade Specialist consultant on September 9, 2018 and IESC home office MEL Director on September 23, 2018. The team also worked to set up an Information Technology (IT) system including the bilingual online SME intake system and the CRM database to register partner firms, established financial management systems and trained project staff on IESC policy, practices, and procedures; and drafted and completed IESC project management manuals, including the Field Office Employee Manual; Operations Manual; Finance Manual; and Security Manual.

Long-term personnel for the Deputy Project Director and Technical Team Lead positions started on September 5, 2018. The Project Director was mobilized on September 23, 2018. Additional long-term staff members including the Finance and Administration Team Lead and the Monitoring, Evaluation, and Learning Team Lead joined at this time as well. These staff members, along with technical specialists from KPMG Vietnam and Taj Media, participated in the Year 1 work plan workshop aimed at transferring the proposal design to the USAID LinkSME project leadership. USAID organized a Mission welcome and overview as well as participated in several of the work plan development activities. The Year 1 AWP was submitted on October 4, 2018; a revision was submitted on October 31 following feedback from USAID and approved by the COR on December 28, 2018.

After the deliverable submissions in early October, the IESC home office Recruiter traveled to Vietnam to support a recruitment push for the next tranche of project staff. This was not originally planned but completed based upon the recommendation of USAID to help onboard some of the local technical specialists.

In the second half of October, the IESC home office Accountant completed an assignment to establish IESC general ledger accounts with USAID LinkSME’s field office accountant. He provided training on established IESC financial management policy, procedures, and practices.

To complete startup administrative activities and to provide on-site backstopping support to the USAID LinkSME field team, IESC mobilized the home office Senior Program Manager for a three-week assignment during Q2. During this assignment, the Senior Program Manager developed and delivered trainings on the project management manuals; provided on-site support to the finance and administration team to implement operational, financial, and human resources processes; met with the local subcontractors KPMG Vietnam and Taj Media to review invoicing and administrative requirements of their subcontracts; and developed a project budget monitoring tool.

USAID LinkSME Registration, Organizational Registration, and Local Offices In the first quarter, the project established temporary offices, while identifying long-term offices in Hanoi and HCMC. The team worked from temporary spaces at the Pullman Hotel in Hanoi and WeWork in HCMC. After conducting a market assessment, the Hanoi team selected a permanent office at No. 10 Chu Van Anh in the Ba Dinh District. The office fit-out was completed and the team moved into the space in early Q3. The HCMC moved into their permanent office space in E-Town in District 4 on February 18. USAID LinkSME Year 1 Annual Progress Report Page 27

As the GVN requires that all Official Development Assistance projects receive approval prior to operating officially, USAID LinkSME worked closely with the OOG throughout the year for project approval. The OOG is USAID LinkSME’s identified governing body, with project ownership within OOG assumed by APCA. Collaboration on technical agreement, document drafting, constituent buy-in, and approval began at the start of the project in September 2018. During Q4, final approval of the PD and local registration were received. Going into Year 2, the USAID LinkSME team is revising the submitted work plan to incorporate necessary changes.

Management Approach and Structure The USAID LinkSME field team is responsible for managing project logistics and administration, executing the technical implementation, reporting results achieved, liaising directly with USAID/Vietnam, managing the SME Advisory Group, private sector partners, and GVN stakeholders. The Project Director is responsible for overall project leadership, management, and oversight for all USAID LinkSME interventions. The Project Director generates key project deliverables, such as quarterly and annual reports. He liaises directly with USAID/Vietnam, providing an agenda in advance and following-up with notes for USAID and IESC files. He participates in public and private stakeholder discussions as necessary. He also leads and manage the work of project personnel, subcontractors, and consultants. The project team staffing is included in the USAID LinkSME Personnel Organizational Chart below. A full-sized Personnel Organizational Chart is located in the LinkSME Year 1 Annual Progress Report Google drive folder and is titled USAID LinkSME_Personnel Organizational Chart September 2019.

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IESC Home-office Oversight and Support In the third quarter, IESC’s home office Associate Vice President completed an oversight visit to review and provide guidance as applicable on current systems, processes, client relations, and staff members’ performance as well as seek feedback on home-office support. The Associate Vice President met with implementing partners, public and private counterparts, and USAID to review the level of service and observe Year 1 initiatives underway with senior leadership.

In the fourth quarter, the IESC home office Senior Program Manager completed an assignment to support Year 2 work planning. During this visit, the Senior Program Manager facilitated team discussions regarding planning Year 2 activities and events, solicited feedback from team members on how to improve processes and procedures, and supported the project’s administrative team’s efforts in procurement, accounting, and other operational functions. The Year 2 draft work plan was submitted to USAID/Vietnam on August 30, 2019. This work plan is focused on the activities that USAID LinkSME has started planning under the proposed revised project scope; now that the project has received registration, revising the work plan to account for activities planned with the counterpart will begin in early Year 2.

Communications and Outreach A Branding Implementation Plan and Marking Plan for USAID LinkSME was approved by USAID on October 04, 2018 and describes in detail how IESC will name and position the project and communicate the project to beneficiaries, partners, and Vietnamese citizens. The project has high visibility in Vietnam among its targeted audiences, and IESC actively publicizes USAID LinkSME opportunities, activities, and achievements. The primary audiences for the USAID LinkSME project include Vietnamese SMEs, lead firms already operating in and exporting from USAID LinkSME Year 1 Annual Progress Report Page 29

Vietnam or already sourcing from Vietnam, Vietnamese SME associations, and USAID. To reach its target audiences, IESC communicates its messages through multiple channels and platforms. These will include local press releases and media interviews, public service announcements (via print, radio, and online media), business round tables, social media, supplier day events, site visits, success stories, promotional videos, SMS messages, beneficiary testimonials, webcasts, and emails sent to group lists, such as for participation in a training session. During Year 1, IESC developed a communications toolkit including templates for press release, success stories, one pagers, and guidelines for social media postings, for USAID LinkSME project staff to use for communications. All branding complies with the standardized USAID regulations on branding. To communicate the impact of the program to general audiences and to put a face on the development intervention, USAID LinkSME will produce success stories for USAID to share on its websites and social media channels, and to support other communications. A revised fact sheet was developed in Q4 to reflect the changes in project approach requested by USAID/Vietnam.

Supply chain was a popular topic amongst the business press during Year 1, and USAID LinkSME received extensive media coverage. A list of media links is attached as Annex J.

A full list of communications materials developed in Year 1 is listed in Annex E and provided in the Annex E folder in the USAID LinkSME Year 1 Annual Progress Report folder in Google drive.

IESC Reporting USAID LinkSME’s deliverables consist mainly of reporting as defined in the contract with USAID. The project will deliver reports and data according to Table 10 below.

# Deliverable Period Covered Due Date 1 Fact Sheet (initial version) 9/5/2018 - 9/30/2019 10/5/2018 2 Year 1 Work Plan 9/5/2018 - 9/30/2019 10/5/2018 3 AMELP (initial plan) 9/5/2018 - 9/30/2019 10/5/2018 4 Branding and Marking Plan 9/5/2018 - 9/30/2019 Approved 10/04/2018 5 Weekly Update Weekly By noon Friday every week 6 Quarterly Performance Report Quarterly 30 Jan, 30 Apr, 30 Jul 7 Quarterly Financial Report Quarterly 30 Jan, 30 Apr, 30 Jul, 30 Oct 8 Quarterly Accrual Report Quarterly 15 Dec, 15 Mar, 15 Jun, 15 Sep 9 Quarterly TraiNet Report Quarterly 30 Jan, 30 Apr, 30 Jul, 30 Oct 10 Annual Performance & Annual October 31 of each year Financial Report 11 Establishment of SME 9/5/2018 - 9/4/2023 12/5/2018 Subject to USAID and Advisory Group OOG mutual agreement and subsequent approval of SME advisory group members 12 Baseline Assessment 180 days after AMELP 8/23/2019 approved 13 Event Plan and Agenda Each event At least 2 weeks before the event 14 Event Report Each event At most 2 weeks after the event 15 Short-term Consultant Reports Each activity At most 4 weeks after the activity & Technical Reports completion

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17 Government-furnished 9/5/2018 - 9/30/2019 October 31 of each year Property Report Table 10: Schedule for USAID LinkSME deliverables

Environmental Plan USAID/Vietnam prepared an Initial Environmental Examination (IEE) dated 13 December 2017 and available upon request. The IEE recommends “Categorical Exclusion” in that the activities of this project fall within the classes of action:

 Education, technical assistance, or training programs  Analysis, studies, academia or research workshops and meetings  Document and information transfers

As part of the Year 1 work planning process, the IEE was reviewed by the environmental compliance consultant hired by IESC to complete the environmental impact assessment. As part of this assessment, an Environmental Management Plan (with corresponding Environmental Review Checklist (ERC) and Environmental Monitoring and Mitigation Plan was prepared and included as Annex D to fully address any environmental consequences of the USAID LinkSME interventions and processes. Stipulations are made within the IEE: Selection of sector and interventions. The Revisions and Limitations section of the IEE states: “The Contract Officer’s Representative will closely consult the Mission Environmental Officer on sector impact.” If there is a potential for a significant environmental impact to be caused by scaling up of activities in a selected sector, an amendment to the IEE will be prepared, using the guidelines on impact mitigation from the USAID GEMS site (www.usaidgems.org/sectoruidelines.htm). As the impacts of planned and new interventions become better defined, and if they are deemed “major” and “significant, this determination will be reviewed by the Contracting Officer’s Representative, the Mission Environmental Officer and the Bureau Environmental Officer for approval, and if appropriate, an environmental assessment will be prepared. The ERC points out that specific SMEs entering into new transactions with Lead firms need to be consistent with national environmental laws, specifically Vietnam’s 2015 35 Revised Law on Environmental Protection and USAID Reg. 216. Therefore, USAID LinkSME will review and assess the environmental management of each SME as part of the RFQ selection process outlined under technical activities, to verify compliance with local policies, regulations on environment consistency with national regulations and laws, specifically as they impact:

 Air pollution  Surface and groundwater pollution  Soil contamination  Material extraction from natural resources  Waste management

The conditions noted above demonstrates that USAID LinkSME will systematically ensure that the implications of its proposed activities on environmental and natural resources are fully analyzed and will work to mitigate any adverse impact.

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