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Vietnam Supports Domestic Automotive Manufacturing

Vietnam Supports Domestic Automotive Manufacturing

Vietnam Prime Minister Nguyen Xuan Phuc emphasised that development of the domestic automobile industry is necessary to achieve a self-reliant economy, during a meeting to discuss development of the country’s automotive sector. PM Phuc states that the government aims to increase localisation rate in automotive manufacturing and apply modern technologies during manufacturing processes as the industry moves towards the Fourth Industrial Revolution.

Currently, more than 90 percent of car accessories and parts are supplied by foreign companies. The low localisation ratio and tax policies have resulted in high car prices which have hindered the development of the automotive industry. However, given the increase in income demographic and infrastructural improvements, the demand for cars are expected to rise. In fact, the automobile market is predicted to grow by 10 percent in 2019.

As such, the government will continue to revise institutional framework and work on favourable, long-term policies for automobile manufacturers and enable more local enterprises to participate in the automobile production chain.

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US’s Key Tronic And UAC To Invest In Projects Worth US$240 Million In Vietnam

US’s Key Tronic And UAC To Invest In Projects Worth US$240 million In Vietnam

US firms, Key Tronic and Universal Alloy Corporation Asia Private Limited (UAC group) are expected to invest a combined US$240 million in the central city of Da Nang.

Key Tronic, a provider of Electronic Manufacturing Service (EMS) has been granted a license to establish a 86,000 square-foot manufacturing facility worth US$70 million in Hoa Khanh Industrial Park in Da Nang. The factory is scheduled to begin operations by July 2019 and is expected to produce 100 million car lights to be exported each year.

“We expect that commencing operations in Vietnam will significantly augment our Asian footprint and reduce production costs,” said Craig Gates, president and CEO of Key Tronic. “By further diversifying our global manufacturing, we also believe it provides an additional hedge against uncertainty in a lingering or future trade war with China.”

While UAC, a manufacturer of aircraft components, has also invested in a US$170 million project to manufacture aircraft components at Da Nang’s high-tech park. The facility will produce 4,000 of five million parts for Rolls Royce engines and bodies of Boeing 787, 777 and 737 aircrafts which will be exported to North America, EU and Malaysia. UAC aims at exports of US$25 million in 2021, US$85 million in 2022 and US$180 million by 2026. The company also aims to collaborate with technical colleges in Da Nang to develop the aerospace industry. Furthermore, it plans to recruit 1,200 skilled workers in mechanics, electronics and automation as well as 2,000 employees to develop a production chain in supporting industries.

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Vietnam Could Be The Next Strategic Production Centre For Hyundai

Vietnam Could Be The Next Strategic Production Centre For Hyundai

Deputy Prime Minister Trinh Dinh Dung hope that South Korea’s Hyundai group would consider Vietnam as a strategic production centre and raise the rate of locally made components in its automobiles to at least 40 percent.

Hyundai has been investing in Vietnam’s automobile industry over the years, maintaining business relations with Truong Hai and Thanh Cong groups to manufacture, assemble and distribute automobile vehicles in Vietnam. The government hopes that Hyundai will continue to cooperate and transfer technologies and management skills to its Vietnam partners. During the meeting with Deputy PM Dung, Hyundai’s Vice President, Jin Haeng has also reassured that the company plans to invest, transfer technologies and contribute to the development of Vietnam’s automotive manufacturing.

Developing the automotive industry is a core part of Vietnam’s modernisation and industrialisation strategy which focuses on producing made-in Vietnam cars for the local market. Other major automobile manufacturers can take advantage of Vietnam’s global integration, competitive input cost and large domestic market to dive further into the global value chain ladder.

For sustainable development of the automotive industry, new policies that are consistent, transparent, forecastable and fair would have to be drafted. Deputy PM Dung affirmed that the Vietnamese government remains committed to creating optimal conditions to support local and foreign investors to expand investments and business activities in the country.

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Foxconn Considers Operation In Vietnam Amidst US-China Trade Tensions

Foxconn Considers Operation In Vietnam Amidst US-China Trade Tensions

Taiwan’s Foxconn technology group, the world’s biggest electronics contract manufacturer and a key Apple supplier has recently acquired the right to use a property in an industrial park in northern Vietnam. The company is reportedly considering setting up an iPhone manufacturing facility in Vietnam to mitigate the negative impacts of the ongoing US-China trade war.

Vietnam would serve as an additional production base to shelter operations from the trade tension and is one of the preferred locations as compared to India. According to Le Dang Doanh, the former economic adviser of the Vietnamese government, Vietnam has joined multiple trade pacts including the recently-ratified Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which would allow iPhones to be exported to many member countries with lower tariffs. Following an investment of US$5 billion in Vietnam in 2007, Foxconn could leverage on its existing operations in Vietnam to continue expansion of investments in the country.

However, Vietnam has a low number of supporting business and lower credit ratings as compared to India. Although high iPhone import tariffs due to the ‘Make in India’ policy might deter Foxconn from India, greater labour and English skills could make India a prime location as well.

Taiwanese companies have invested estimated US$31 billion in more than 2,530 projects in Vietnam, making them one of the top 10 investors of Vietnam.

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Private Enterprises To Form Backbone Of Vietnam’s Global Growth

Private Enterprises To Form Backbone Of Vietnam’s Global Growth

According to Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry (VCCI), private conglomerates hold the key to Vietnam’s successful global integration and they currently account for 40 percent of the GDP and employ a major proportion of the workforce. And he believes that these players would ultimately  hold a flagship role in the economy and be the pioneers in the Fourth Industrial Revolution.

In fact, since 2018, investments from private conglomerates have prospered and this can be seen in the case of Vingroup and its investments in automobile and supporting industries and the Truong Hai Auto Corporation and its investments in the automobile and spare parts sector. Additionally, through the economic movement that private conglomerates generate, positive spillover effects for small and medium enterprises can be witnessed and this in turn creates a positive impact on the local economy.

According to Loc, although nearly 98 percent of Vietnamese enterprises are of small and medium size, but it is through the creative application of technologies and adoption of e-commerce that these companies are able to contribute to Vietnam’s trade turnover of USD 450 billion. And moving forward, it is important for there to be a stronger development between the country’s large conglomerates and small and medium enterprises through measures such as administrative reforms, regulatory changes and enforcement of legal rights.

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Vietnam Attracts Novel Investment Streams

Vietnam Attracts Novel Investment Streams

Vietnam is beginning to experience an increase of non-equity modes (NEMs) of investment, which are also known as cross-border investments without capital contribution, and the country could soon be looking into policy reformations to advance this revenue stream.

According to Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises, this growth can be attributed to transnational corporations (TNCs) seeking entry into potential markets without having to make commitments towards capital contributions. As it is only through NEMs that companies are able to regulate the activities of all supply chains, and this leads to the creation of opportunities for producers and domestic suppliers in joining global chains.

Furthermore, NEMs have been implemented in many countries that are seeking higher value added investments instead of investment flows that are associated with lower end products. In Vietnam, several firms have taken the initiative in approaching and implementing NEMs as in the case of VinFast which has cooperated with foreign companies such as BMW, Siemens AG, Robert Bosch GmbH, Magna Steyr, Pininfarina and Aapico Hitech, to manufacture its own cars.

And according to Mai, NEMs generate bigger benefits to receiving countries because the new forms of investment enables producers in these countries to integrate into the global value chain. And it is due to reasons such as these that Vietnam’s new-generation FDI attraction strategy, which has been drafted jointly by the World Bank, the International Financial Corporation and the Ministry of Planning and Investment, has underscored an emphasis on attracting NEMs.  Also, according to drafts from Vietnam’s FDI attraction strategy, concerns over direct investments and NEMs eliminating eachother seems to be unfounded at the moment as it seems that TNCs will participate in the receiving markets through NEMs first before deciding to purchase equity through the foundation of subsidiaries or venture companies at a later time.

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Vietnam Kickstarts Development Of A Series Of National Innovation Centres

Vietnam Kickstarts Development Of A Series Of National Innovation Centres

Vietnam is looking to build a National Innovation Centre (NIC) and Minister of Planning and Investment, Nguyen Chi Dung, has mentioned that this is vital for promoting economic development based on science, technology, and innovation while allowing industries to adapt to the demands of industry 4.0.

Currently, it is intended that for the innovation centre to provide an ecosystem that will serve as a resource hub for companies while providing them with a means of market access for their products. Thus, it is projected that the NIC will be located in the Red River Delta which contributes a quarter of Vietnam’s GDP. Additionally, the government has laid out four focus areas for the centre in the fields of smart manufacturing, digital media, digital games and cybersecurity.  And according to consultants, the NIC will be the first of many innovation centres that will be developed across Vietnam, with each innovation centre expected to possess different focus areas that will serve to promote the overall adoption of technology within the country as well as the creation of new technologies.

As of now, there are numerous innovation centres globally that are aimed at accelerating technology developments such as the ones in Beijing (China), Seoul (South Korea) and CyberSpark at Beer Sheva (Israel). And Vietnam’s entry into this space indicates that global shifts towards the adoption of Industry 4.0 practices is occurring at a heightened pace.

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Impact Of The US-China Trade War On Vietnam’s Manufacturing Sector

Impact Of The US-China Trade War On Vietnam’s Manufacturing Sector

In 2018, disbursement of FDI projects in Vietnam reached a record high of USD 19.1 billion, showing the high confidence of foreign investors in Vietnam’s business and investment environments. This is an increase of 9.1 percent year-on-year amid global concerns over the tension caused by the US China Trade War. Additionally, the rapid growth of both privately and state run enterprises such as Vingroup or Viettel is an indication of Vietnam’s economy prosperity and the fact that the country’s business environment is capable of nourishing large corporations of global scale.

However, as tensions over the Trade War continue to escalate in 2019, uncertainly over the status of the global manufacturing sector has continued to plague the industry and much attention has been focused on Vietnam due to the country’s status as an emerging manufacturing hub. Currently, the Trump administration has imposed tariffs on USD 250 billion worth of Chinese imports while China has retaliated by imposing tariffs on a cumulative value of USD 110 billion worth of US imports.

In short-term, Vietnam is projected to capture some of China’s global market share in labour-intensive manufacturing, although, in the long-term it is uncertain if Vietnam will continue to benefit from the displacement of manufacturing from China. This is because, Vietnam could face the risk of trade frauds as China looks to route US-bound products through the country to evade existing tariffs at an increasing pace. Furthermore, there is also the risk of Chinese products saturating the Vietnamese market, resulting in increased competition with domestic producers.

Thus, as the trade war drags on, experts have advised Vietnam to develop a new development strategy to evade potential risks. This is also due to the fact that global investors are starting to withdraw their investments from emerging markets, including Vietnam.

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Vietnam’s First Domestic Car To Be Available In August 2019

Vietnam’s First Domestic Car To Be Available In August 2019

VinFast, a unit of Vietnam’s largest conglomerate Vingroup JSC VIC.HM, is set to become the country’s first fully-fledged domestic car manufacturer as the company is projecting to have its first car available commercially in August of 2019.

Currently, the company already has established a new plant in the northern Vietnamese port town of Haiphong, where two models will be built. And for a start, VinFast is looking to manufacture 250,000 cars annually in the next five years of production. This is equivalent to 92 percent of all the cars sold in Vietnam in 2017 according to data collated by the Vietnam Automobile Manufacturers’ Association (VAMA). To add to this, the company has earmarked about USD 3.5 billion for the project and has even debuted two vehicles at the Paris Motor Show in 2018. Commenting on the company’s ambitions, Jim Deluca, CEO of VinFast has said that, “[VinFast is] looking to expand both within ASEAN and outside.”

Beyond these vehicles, VinFast also intends to move forward with a city car through a partnership with General Motors that will also extend to automotive sales, where General Motors has given VinFast exclusive distribution rights for Chevrolet-branded vehicles in Vietnam. Other technology agreements are also underway between VinFast and General Motors and this will add on to VinFast’s expanding portfolio of partnerships such as the company’s current partnership with Siemens for the development of domestic electric buses.

As of now, a majority of the cars sold in Vietnam are foreign brands assembled in the country from kits. However, a series of free trade agreements have reduced import duties and this has opened up the market for domestic manufacturers. For example, a 30 percent import tax on cars from other Association of Southeast Asian Nations (ASEAN) countries was removed in 2018.

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Is Vietnam Asia’s New Tiger?

Is Vietnam Asia’s New Tiger?

Vietnam’s growth has been astronomical. In 2019, the country is set to welcome a new National Innovation Centre, IoT Innovation Hub and produce its own domestic automobiles as VinFast gears up its production plant in Haiphong. This builds upon the country’s strong PMI outlook, which can also be attributed to the rise of Vietnamese steel conglomerates such as Hoa Sen Group and Hoa Phat Group. Regarding the country’s rise, Andrew Harker, Associate Director at IHS Markit has commented that, “The recent success of Vietnamese manufacturing firms in being able to generate strong new order growth continued in December 2018. This meant that 2018 as a whole was the best calendar year for the sector since the PMI survey began in 2011 and leaves the industry well placed to have a positive 2019 despite headwinds elsewhere in the global economy.” Article by Hazel Koh.

According to Li Baodong Secretary General of the Baoao Forum for Asia, Vietnam is recognised by the world’s most prestigious organisations as the new economic tiger of Asia. This is due to the fact that the country’s economy is rapidly emerging as one of the fastest growing globally with increasing international investments. For example, just based on the number of Chinese investments that the country has attracted to date, Nguyen Duc Chung, Chairman of the Hanoi People’s Committee has observed that a total of 425 ​​projects in Hanoi with total registered capital of USD 517 million has been recorded.

While Deputy Minister of Foreign Affairs, Le Hoai Trung, has attributed Vietnam’s success to its huge workforce that amounts to a population of at least 60 million working age adults and the country’s status as a dynamic, fast growing and stable economy. In fact, Vietnam’s Nikkei Purchasing Managers’ Index (PMI) in November 2018 reached 56.5 points which is the highest level that the country has attained in seven years, resulting in the country leading Southeast Asia in terms of its PMI ratings.

Striving Towards Self Sufficiency In Steel Production

Driven by rising steel demands and economic growth, Vietnam is looking to reduce its dependency on Chinese steel and has undertaken active steps towards this goal.This is evidenced as two of the country’s largest steelmakers look set to embark on multibillion-dollar capacity investments within the country.

In fact, Hoa Sen Group intends to spend VND 10 billion on production facilities in southern Vietnam’s Ninh Thuan province in order to capitalise on the area’s deep water ports to import raw materials and export its manufactured steel products. Although the company has yet to reveal the details of its new manufacturing facilities in Ninh Thuan, construction is scheduled to occur in 2019, with operations beginning in 2019. Hoa Sen’s new facility would possess a blast furnace, which is a tool that Vietnam still lacks, and would boost an additional capacity that would more than quadruple total outputs to 16 million tons a year in 2031.

Meanwhile, Hoa Phat Group, intends to build a VND 2.7 billion steelworks in the Dung Quat Economic Zone of Quang Ngai Province and aims to begin operations in 2020. This facility is projected to increase the company’s annual capacity to 4 million tons which would lift the group total by 130 percent. At the same time, the company will be developing a $170 million steel plate mill in Hung Yen Province, which is close to the Dung Quat facility.

Strategies To Overcome Uncertainties Induced By The Trade War

In 2018, disbursement of FDI projects in Vietnam reached a record high of USD 19.1 billion, showing the high confidence of foreign investors in Vietnam’s business and investment environments. This is an increase of 9.1 percent year-on-year amid global concerns over the tension caused by the US China Trade War. Additionally, the rapid growth of both privately and state run enterprises such as Vingroup or Viettel is an indication of Vietnam’s economy prosperity and the fact that the country’s business environment is capable of nourishing large corporations of global scale.

However, as tensions over the Trade War continue to escalate in 2019, uncertainly over the status of the global manufacturing sector has continued to plague the industry and much attention has been focused on Vietnam due to the country’s status as an emerging manufacturing hub. Currently, Vietnam is projected to capture some of China’s global market share in labour-intensive manufacturing, although, in the long-term it is uncertain if Vietnam will continue to benefit from the displacement of manufacturing from China. Thus, as the trade war drags on, experts have advised Vietnam to develop a new development strategy to evade potential risks. And Mai Vu Minh, a Germany-based investor and Chairman of SAPA Thale GmbH, has further commented that Vietnam must not merely react to changing winds but take action to innovate its way up the supply chain. He also added that this means that, “Entrepreneurs need to change to adapt new technologies, management style[s] and [strive towards] the Fourth Industrial Revolution”

Strong IPO Standings

In 2018, proceeds from Southeast Asia’s IPOs plunged 34 percent. This is the first decline in two years. However, despite the overall weakening of the region’s growth, Vietnam has emerged as the region’s fastest-growing economy and witnessed increases in its IPO presences that were significant enough to allow the country to overtake Singapore and Thailand.

In total, the Ho Chi Minh Stock Exchange topped the region’s exchanges in total IPO proceeds for 2018 with a value of USD2.6 billion. This is 3.7 times more than the figure for 2017. This can be attributed to the growth of local enterprises such as the Vietnam Technological and Commercial Joint Stock Bank, which raised USD 923 million in April 2018 alone.

The emergence of Vietnam as Asia’s hot IPO destination “is a synchronized result of government support, market reform, inflow of foreign capital and high pace of economic growth,” said Margaret Yang, a Singapore-based analyst at CMC Markets.

Future Outlook

Vietnamese Prime Minister Nguyễn Xuân Phúc has pledged support for the implementation of Industry 4.0 in Vietnam and this vision looks set to continue to be incorporated into the country’s national development strategies. During the opening ceremony for the Industry 4.0 Summit and Expo in 2018, Prime Minister Nguyễn Xuân Phúc had also said that, “Vietnam has actively researched and transferred new technologies such as the Internet of Things (IoT), big data and robotics in order to improve [the country’s] competitiveness and innovation”.

Thus, as we look towards Vietnam’s future, it is expected that developments in infrastructure systems, especially ICT and digital connection infrastructures, cybersecurity, IoT and foreign collaborations will continue to dominate the country’s manufacturing sector.

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