The Development and Business Opportunities of Made in Vietnam

The Development of Made in Vietnam

Nowadays, Vietnam's industrial field is progressing rapidly, and manufacturing and processing industries have become the main driving force of Vietnam's economic growth. Both local and foreign companies in Vietnam have confidence in the stability of Vietnam's overall economy and continue to increase investment in the industrial sector. In addition to the current changes in international political and economic trends such as the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and the US-China trade war, foreign businessmen who have gone to Vietnam to inspect and complete the lease of land and set up factories, or the manufacturers that have invested in the expansion of Vietnam’s industrial zones, have all increased. However, although the prospects of Vietnam's manufacturing industry are promising, Vietnam still lacks a complete industrial supply chain. Raw materials, components, and key technologies rely on foreign countries. Consumers' confidence in the "Made in Vietnam" brand needs to be strengthened. Therefore, it is an important step to improve investment for various places in Vietnam to understand related policies and laws such as Vietnamese manufacturing, smart manufacturing, and renewable energy incentives.

According to statistics from the Foreign Investment Bureau of the Ministry of Investment and Planning of Vietnam, Vietnam attracted a total of 35.46 billion U.S. dollars in foreign direct investment (FDI) in 2018, of which the manufacturing and processing industries attracted 16.58 billion U.S. dollars, accounting for 46.7% of the total FDI. Secondly, the real estate industry attracted 6.6 billion U.S. dollars (accounting for 18.6%), and the third was the wholesale and retail industry, which attracted 3.67 billion U.S. dollars of FDI, accounting for 10.3%. Vietnam's GDP growth rate in 2018 reached 7.08%, which is the highest since 2008, and its industrial growth rate reached 8.79%, accounting for 28% of GDP. In the first four months of 2019, the total value of Vietnam's merchandise imports and exports was 156.8 billion U.S. dollars, an increase of 8% over the same period in 2018. Among them, exports were 78.7 billion U.S. dollars, an increase of 5.8%, imports were 78 billion U.S. dollars, an increase of 10.4%, and the import and export trade surplus were about 700 million U.S. dollars. Among them, mobile phones, telephones, and parts still occupy a leading position in exports, with more than 16 billion U.S. dollars. Followed by computers, electronic products, and parts; For textiles, clothing, machinery, tools, spare parts, and leather shoes. The export value of timber and wood products rose by 18%, the highest.

Manufacturing and processing industries continue to be the main driving force for Vietnam's economic growth. In 2018, the IIP (The index of industrial production) growth rate reached 10.2%. As of 2019, the growth of Vietnam's manufacturing industry has remained strong. The manufacturing and processing industry has attracted 1.19 billion US dollars in January, accounting for 62.4% of the overall FDI. Vietnam's IIP growth of 9.2% in the first quarter of 2019 was mainly driven by the 10.9% growth of the processing industry and manufacturing industry. Among the 63 provinces in Vietnam, 59 provinces have experienced growth in IIP, with Thanh Hoa province growing the most, by 44.8%. In terms of geographical differences, in January 2019, Vietnam’s top three regions for attracting foreign investment were Ho Chi Minh City (US$746 million, accounting for 39.1% of total foreign investment), followed by Binh Duong Province (US$240 million, accounting for 12.5 of total foreign investment). %), the third is (126 million US dollars, accounting for 6.5% of total foreign investment).

The Vietnamese government is committed to achieving the goal of becoming a manufacturing powerhouse. Recently, the Vietnamese government has tightened its regulations on machinery, equipment, and production technology. In June 2019, it implemented Decision No18/2019/QĐ-TTg, stipulating that the import of obsolete, poor quality, and unsafe second-hand machinery, equipment, and production line technology was restricted. In addition, it also regulates that imported machinery and equipment must comply with the Vietnam National Technical Specification (QCVN), or the Vietnam National Standard (TCVN), or the 7 major industrial countries (G7) and South Korea for safety, energy consumption, and environmental protection requirements.

Recently, Vietnam’s demand for renewable energy development has increased, and it is actively seeking foreign investment funds to develop the renewable energy market. As of the end of 2018, the total capacity of renewable energy projects accounted for 2.1% of Vietnam's total power generation, the solar power generation capacity registered by investors has exceeded 10 million kW, and more than 100 projects have signed power purchase agreements. According to Vietnam's renewable energy development strategy from 2015 to 2030, the goal is to increase renewable energy power generation to 42% of the total power generation by 2050. To achieve this goal, the Vietnamese government provides investors with a series of preferential measures, including credit access, tax and land rent reduction and exemption, and the application of the pricing mechanism of the solar, wind, and biomass power purchase system (Feedin-Tariff, FIT).

At the same time, to develop the domestic manufacturing supply chain in Vietnam, the Vietnamese government promotes industrial upgrading and job creation through the sale of "Made in Vietnam" products and introduces various tax subsidies and other incentive measures. Vietnamese companies have also worked hand in hand with foreign companies. In new areas, Vietnam-made products such as electric locomotives and smartphones have been launched.

The international environment also affects Vietnam's economic growth. The Vietnamese National Assembly passed the relevant document resolutions of the Trans-Pacific Partnership Comprehensive Progress Agreement (CPTPP) in November 2018, and it became effective on January 14, 2019. CPTPP is a new-generation trade agreement with strict regulations in most areas, and its influence is expected to be more comprehensive than that of a free trade agreement (FTA). When Vietnam participated in the CPTPP, it proposed to cut nearly 100% of tariffs on goods, public procurement, state-owned enterprises, allowing labor to form labor unions, environmental protection issues, and e-commerce, and other related commitments. When CPTPP takes effect, many disputes may arise in the fields of agricultural products, wood, textiles, and garments.

The continuation of the US-China trade war has also affected Vietnam's economic, trade, and industrial development. Faced with the United States’ long-term trade deficit with China, China’s stealing of advanced technology through mergers and acquisitions of foreign companies, and "Made in China 2025" and other unfair trade practices, it began to impose a series of trade sanctions against China and instructed the US Trade Agency to launch unfair trade actions against China. Punitive tariff measures.

In December 2018, the United States agreed at the G20 summit to increase tariffs on US$200 billion worth of Chinese products to 25%. China agreed to expand its purchases of American agricultural, industrial, and energy-related products. In the ninth round of high-level Sino-US economic and trade consultations in April 2019, the two sides discussed technology transfer, intellectual property protection, non-tariff measures, service industries, agriculture, trade balance, implementation mechanisms, and other agreement texts. However, the China-US bilateral relations negotiations are still ongoing.

Because the United States and China are each other's largest trading partners, their trade conflicts have a profound impact on the global supply chain. To avoid the punitive tariffs imposed by the US government on China goods, some companies have gradually shifted their supply chains from China to Vietnam, making Vietnam one of the beneficiaries of the US-China trade war.

Since the US-China trade war, there has been an increase in the number of foreign businessmen who have invested in the expansion of industrial zones in Vietnam, and have gone to Vietnam for inspections and completed a lease of land to set up factories. Looking at investment regions and countries, the rankings are Hong Kong, South Korea, and Singapore in order.

For the Taiwanese metal industry, because the U.S. trade protection policy has become more severe, and the China market has seen cooling down in import demand in the domestic market, coupled with the continued impact of import substitution policies, downstream industry players are gradually withdrawing from China and relocating to Taiwan, Vietnam and other Southeast Asian countries.

The Business Opportunities of Made in Vietnam

Raw materials, components, and key technologies rely on foreign countries, which are weak links in the manufacturing industry chain in Vietnam. At present, Vietnam still lacks a complete industrial supply chain, and local companies still rely on importing foreign parts and components. As of the end of April 2019, most of Vietnam’s imports have surged, with imports of computers, electronic products, and parts reaching US$15.8 billion.

Many foreign-funded garment factories have been established in Vietnam, mainly because of the CPTPP origin regulations, and preferential tariffs are available for production and export in Vietnam. However, most of the raw materials still rely on imports. Although textile exports are increasing day by day, with Vietnam's textile and garment exports in 2018 reaching 36.2 billion U.S. dollars, this has required the import of approximately 21 billion U.S. dollars in raw materials. Vietnam relies on imports from China, South Korea, and India, restricting increased profits.

Although the Vietnamese government has provided special incentives to large companies, electronic products, and auto products "made in Vietnam" have not yet generally entered the Vietnamese consumer market. In the future, more attention should be paid to how to accelerate the transfer of technology to Vietnam, and assist local small and medium-sized enterprise manufacturers to produce high-quality products to improve market visibility.

Creating a perfect brand image, enhancing people's purchasing intentions, and building consumer confidence are the key next steps. According to the ranking of the top 100 most valuable national brands in the world in 2018, the brand value of “Vietnam” ranks 43rd. At present, the Ministry of Industry and Commerce of Vietnam hopes to build and promote Vietnam's national image with high-quality products and services, to enhance the visibility and competitiveness of Vietnamese enterprises in the domestic and international markets. In addition to the need for Vietnamese companies to invest in innovative technologies, the Vietnamese government's prevention of smuggled and counterfeit products is also the key to cultivating high-quality local Vietnamese products and then producing a variety of new products to expand foreign markets.

Although Vietnam's renewable energy market and smart manufacturing market are taking shape, they are still in an unstable stage. Although Vietnam hopes to promote investment, it has not yet formulated a long-term government power purchase system for renewable energy projects, which has caused foreign investors to reduce their willingness to invest in Vietnam’s solar and wind energy projects. Regarding the regional integration of CPTPP and the US-China trade war and other international situations, although there may be a short-term trend of foreign capital shifting to Vietnam and Southeast Asian countries, Vietnam may benefit from it, but if investment evaluation is not done, it may not benefit in the long-term. Therefore, to fully understand the planning and development of local industrial zones, and the multiple local and provincial government districts, mastering the information and policies of Vietnam’s industrial zone supervisory units is a key step that cannot be omitted for investment.