Vietnam

Manufacturing in Vietnam

 

Posted on May 24, 2016 by Vietnam Briefing
Manufacturing-in-Vietnam-to-sell-to-ASEAN-and-ChinaBy: Dezan Shira & Associates 
Editor: Constance Holman

 

With slowing economic growth and rising labor costs encroaching on the profitability of traditional Chinese manufacturing operations, Vietnam has a emerged as a destination of choice for its low costs, receptive governance, and increasing integration with key trading partners. Conjoined, these factors have and will continue to grow Vietnam as a hotbed of manufacturing and position the communist nation as an ideal location for China-plus one oriented production.

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In light of recent Free Trade Agreements, notably the Trans-Pacific Partnership and FTA with European Union, Vietnam is well positioned to allow investors to utilize its cheap workforce and close proximity to existing Asian based supply chains.

In recent years, Vietnamese growth has reached record heights, recording a 7.01 percent rate of growth in the fourth quarter of 2015 from a year earlier, according to data released by the General Statistics Office. Driving these gains has been a strong uptake in Foreign Direct Investment (FDI), which surged to a record of US$ 14.5 billion in 2015. According to Nguyen Tan Dung, Prime Minister of Vietnam, these “figures indicate that Vietnam has become a destination of choice for foreign investors”.

 

Vietnam’s Comparative Advantages in the Manufacturing Sector 

Among a number of rising sectors in Vietnam, manufacturing distinguishes itself with the largest share of the total investment received. In 2014, FDI projects licensed represented US$ 15.5 billion out of a total amount of US$ 22 billion, that is to say 70.72 percent of new FDI.

This success is sustained by low labor costs and a growing consumer market. The labor force (over 15 years old) amounts to more than 53 million people and remains cheap. In 2015, the average monthly wage in the manufacturing sector was around US$ 190, much lower than Malaysia or China (around US$ 650) and lower than its neighbors Thailand, the Philippines, and Indonesia.

Furthermore, Vietnam benefits from a favorable political environment. The communist government has eased restrictions on foreign investment and is slowly opening its borders. Through incentives, the state has established priority sectors such as manufacturing of high-tech products, research and development, knowledge-based services, processing and manufacturing, and infrastructure projects. It has also created priority geographical regions, with difficult social and economic conditions, and more than 299 industrial zones (IZs) and export processing zones (EPZs) as of July 2015.

Thanks to these competitive advantages, Vietnam has been considered as a reliable substitute to China. Nevertheless, some manufacturing sectors are more vigorous than others.

 

Booming Manufacturing Sectors

Thanks to its central location in Asia and proximity to regional shipping routes, many manufacturers entering Vietnam are export focused. Foreign investors can benefit from many incentives and under many circumstances can be exempt from import duties on goods brought into the country for their own use if they cannot be procured locally. This includes all equipment, machinery, components, and spare parts for machinery and equipment, raw materials, inputs for manufacturing, and construction materials. It should be noted that most export duties are also exempt.

Textile and garment production is a well-known success in Vietnam, and will likely continue to be as it is propelled to new levels by the forthcoming Trans-Pacific Partnership and its reduced tariff barriers. In 2015, the industry provided employment to 2.5 million people working in 6,000 factories, and is expected to grow at a rate of 12-14 percent per year from 2015-2020.

However, Vietnam does not intend to remain stuck in low value-added production. Lately, automotive manufacturers and shipbuilders have also closely considered Vietnam. For instance, Damen, a Dutch shipbuilding firm, opened a new brand, Damen Song Cam, through a joint venture yard in Vietnam. According to their website, this yard should produce 40 ships per year, employing more than 2,500 employees directly and 5,000 indirectly. Moreover, Vietnam has been extremely welcoming towards FDI in electronics, expanding its exports to US $1.6 billion during the first two months of 2016, according to Vietnam Customs. Electronic giants are relocating in Vietnam, evidenced by Intel, Panasonic, and Microsoft.

 

Challenges

The country is still seen as highly corrupt, ranking 112th out of 177 countries by the Transparency International Corruption Perceptions Index in 2015. Furthermore, the legal environment remains complex, with a slow and bureaucratic government, restrictive labor policies, and land use limitations. Nevertheless, Vietnam keeps on restructuring its decision-making process and introducing more laws favorable to FDI. For instance, it has recently opened its real estate market to foreigners, as well as ironed out some caps in public companies, allowing foreign investors to invest in its promising industries.

 

 

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TNS reviews 20 years of growth in Vietnam

Source: Tuoi Tre 30 May 2015

 

TNS Vietnam has released a special report to review 20 years of growth in Vietnam, in celebration of two decades of tracking and providing insight into Vietnamese consumers by the market research firm.

Part of Kantar, the data investment management division of WPP and one of the world's largest consultancy groups, TNS began its operations in Vietnam in 1996.

Over the past two decades, TNS has observed “just how much the Vietnamese market has grown, changed, and developed into one of the world’s most vibrant economies,” it said in a press release on Monday.

20 years of economic growth

Ashish Kanchan, managing director of TNS Vietnam, said the Southeast Asian country is “an incredible growth story.”

In 1996 when TNS Vietnam was founded, the Vietnamese economy was booming, boasting a 9.3 percent growth rate.

The world has since gone through an economic crisis, which was followed by a global slump that dampened growth across markets, but Vietnam “has consistently remained relatively strong,” Kanchan said.

“For the past 20 years Vietnam’s GDP has far exceeded the world average, and the GDP per capita growth proves the strength of the rapidly growing productivity and prosperity of the Vietnamese people,” Kanchan commented.

“The numbers highlight the potential and viability of this rapidly emerging market.”

 

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Over the past 20 years TNS has studied how personal incomes have grown.

Workers in Vietnam’s biggest cities are now earning nearly five times as much on average as they did in 1999, Kanchan said, citing findings from TNS’s VietCycle and Consumer Pulse reports.

In 1999, the goods people most aspired to have were motorbikes, personal computers, and washing machines.

But aspirations have shifted to bigger ticket items such as cars, smart TVs, and air conditioners, as rising incomes have made those items more attainable.

“However, even these new aspirational items are becoming attainable to a growing segment of the population which is borne out in the massive boom in car sales,” Kanchan noted.

“When we look at other past aspirational categories such as travel for leisure, rising incomes have allowed that industry to blossom.”

In the past, travel, even domestic, was out of reach for most consumers, while Vietnamese today are able to travel thanks to increased incomes and the rise of budget airlines to meet consumer needs.

“Even travel by land has become easier with continued investments into the country’s infrastructure making land travel more comfortable and efficient,” Kanchan concluded.

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20 years of consumer insight

In its Quarter 2, 2016 Consumer Pulse study, TNS placed Vietnam’s Consumer Confidence Index at the highest-ever 91 points.

The index is based on Vietnamese expectations for the value of the Vietnamese dong, employment, Vietnam’s economy, and personal standards of living, according to the market researcher.

“The high Consumer Confidence Index shows continued positivity in 2016 by Vietnamese consumers but that index has changed over the years,” Kanchan said.

The TNS official underlined that it is important to remember the landscape that existed back in the 1990s.

“The country had recently normalized relations with the United States, the world economy was doing well, and as a result, consumer expectations and outlooks were sky-high,” he elaborated.

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Kanchan noted that although consumers are still highly optimistic, they are more reserved in their expectations, as the Consumer Pulse survey shows.

“Vietnamese are realizing that even though the country continues to grow rapidly, improvements to daily life will become more gradual than in the early days,” he added.

Ninety-six percent of Vietnamese expect stability or improvement in their standard of living, while at the same time, expectations for a worse standard of living have declined, leaving the vast majority of Vietnamese holding positive or neutral sentiments, according to the study.

TNS has also tracked how consumers have changed their lifestyles and ways of thinking, and how their interest in entertainment has changed over the last 20 years.

For example, in 1999 TNS found that 78 percent of consumers thought women must focus only on traditional roles, but that number had fallen greatly to 51 percent in the latest Consumer Pulse study.

Similarly, while Internet surfing was nearly non-existent back in the 1990s, it is the most commonly reported activity to relax at home by urban Vietnamese today.

 

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The next 20 years

After observing the Vietnamese consumer’s evolving tastes and habits over the past 20 years, TNS said there are some game-changing trends that are shaping the landscape for brands and consumers in Vietnam.

Three of those trends to watch, according to the market researcher, are the rise of digital, the convince category, and the importance of emotional drivers.

Kanchan concluded that Vietnam has been “an amazing country to watch,” with consumers' overall optimism for the future remaining steady despite changes the nation has made over the years.

“We are eager to see how the rest of the year concludes with our rolling Consumer Pulse studies to be conducted later in 2016, and are looking forward to our next 20 years in Vietnam,” he said.

 

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Vietnam 2035: A growing global middle class from 11% of the 90 million population market in 2015 to more than 50% in 2035

 

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With Vietnam’s aspirations to be a modern and industrial nation moving toward becoming a prosperous, creative, equitable, and democratic society, five specific quantitative criteria were set forth in the joint Vietnam – World Bank report “Vietnam 2035” in relation to that objective:

§ A GDP per capita of at least $18,000 (in 2011 PPP) with a growth rate of 6% year
§ An urbanization of the Vietnamese population > 50%
§ A share of industry and services in GDP at more than 90% and in employment at more than 70%.
§ A private-sector share in GDP of at least 80%.
§ A score of at least 0.70 on the UN’s Human Development Index.

Such a realization which will not be straighforward, will require i) a strong-willed economic government with enhanced capacity and clear accountability by the State and ii) an acceleration of the needed transformations particularly in the building of a competitive and leading private sector and in the acquisition and transfer of technological and innovative capacity.

Vietnam however is well placed for the challenge:

§ with its political stability and the higher integration into world trade
§ having achieved a GDP per capita fastest growth rate (behind China only) over 1991-2014 . Continuing with the high growth pace to 2035 and so for more than a 50 year period, will create conditions for the country to reach the high come rank and avoid the risk of middle income trap,
§ with a large domestic market of 90 millions people, of which more than half is global middle class (note).

and so Vietnam is and should be clearly a country of first choice for your now and long term investments

Note:
Global middle class consumer is defined as consumer with a daily consumption of $15 a day or more in 2011 purchasing power parity (PPP) terms.

Welcome from ATTP Capital

 

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In the context of an accelerated integration of Vietnam in the South East Asian region, with the beginning of 10-country Asean Economic Community planned for end 2015 and in the world economy with the coming signature of the Trans-Pacific Partnership agreement grouping 12 Pacific Rim countries representing 40% of global GDP and about 1/3 of world trade, ATTP Capital aims to actively participate in and push for the growth of Vietnam's small and medium enterprises through our corporate and business advisory services for i) the company's management ii) the foreign companies with planned business development in Vietnam or Asean iii) the regional and global investment funds.

Our advisory services include:

- Management consulting in particular with identification, elaboration and implementation of projects to improve profitability or performance.
- Strategy consulting, including the development of medium and long term business plan which could prepare the ground for future family business transition or IPO.
- Interventions in key stages of M&A (pre, during and post-transaction)
- Identification and search for new capital funding (for the company) and for investment opportunities (for investors)

We intervene in Vietnam and Asean countries and in western Europe directly or through our correspondants' network.

We are committed to building up our clients' trust and satisfaction. We practice success-based fees.

For all contacts:
ATTP Capital, Ltd
Hoi An City (Vietnam)
F: +84 510 393 3079 M: +84 168 324 8441
E: attpcapital@gmail.com

 

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