Vietnam Becomes A New Manufacturing Base in Asia, Demand For Machinery and Equipment Is Expected

Vietnam's reform and opening up

After the announcement of "renovation and opening up" in 1986, Vietnam launched an export-oriented development strategy; in 2007, Vietnam joined the World Trade Organization (WTO). Since then, foreign capital has entered a large scale, and now half of its industrial output value is created by foreign companies.

Since the second half of 2018, under the influence of the US-China trade war, Vietnam has become a popular investment region in Asia and the world's most compact manufacturing base. In recent years, the Vietnamese government has actively developed domestic manufacturing, attracting many foreign manufacturing industries such as textiles, shoe-making, 3C electronic products, etc. to invest in Vietnam to set up factories, and its domestic manufacturing processing demand has increased year by year, thus driving the general demand for machine tools. With the investment of foreign capital and the rapid development of Vietnam's local economy, the cognition of automation and smart machinery began to sprout. Taiwan's machinery is flexible and customized, and the introduction of IT application development of smart machinery just meets the needs of Vietnam's local transformation and upgrading.

The Dutch Export Promotion Center (CBI) said that the metal processing industry is one of the most important machinery industries in Vietnam, and its products can be seen from industries such as steam locomotives to electronic components, and shipbuilding to aviation. In recent years, the Vietnamese government has actively developed domestic manufacturing, attracting many foreign manufacturing industries, such as textiles, shoe-making, and 3C electronic products, etc., to invest in Vietnam and set up factories. Also, its domestic manufacturing processing demand has increased year by year, thus driving the general demand for machine tools; Due to the low technical level of Vietnam's machine tool industry, it relies on imports of over 70%. According to Gardner Publication data, in 2018, Vietnam was the eighth largest importer of machine tools in the world, an increase of 4.3% compared with 2017. Among them, the top three categories of imports were electrical discharge, laser, and ultrasonic processing machines, followed by forging and stamping. Machine, and then machining center machine. Vietnam's basic industry is weak, mainly to meet the needs of the manufacturing equipment market for large-scale infrastructure construction with imported equipment.

Vietnam promotes manufacturing

In 2018, the top six import source countries of Vietnam's machine tools were South Korea, China, Japan, Taiwan, the United States, and Germany. According to a report in Vietnam, in recent years LG has closed some factories in South Korea, Thailand and China and set up more factories in Vietnam; after Samsung officially closed its last factory in China in September 2019, Vietnam has become Samsung’s largest production in the world At the base, half of Samsung's mobile phones are exported from Vietnam, which is one of the reasons why South Korean machine tool exports to Vietnam rank first. Because of their cost advantages, Chinese-made machine tools are in line with the needs of Vietnam's manufacturing industry at the current stage of development, so the market also accounts for a considerable proportion. According to Mr. Shinji Hirai, Director of the Ho Chi Minh City Office of the Japan Trade Promotion Agency (JETRO), most of the Japanese companies participating in the exhibition do not strive to sell finished products but hope to introduce technical solutions or components to expand the current production line. Machine or equipment. The growth of the total value of Vietnam's import orders for German machine tools in 2018 was a substantial increase of 215% compared to 2017. Germany is currently one of Vietnam's most important partners in the European Union, allowing German factories to provide overall technical solutions It has obvious advantages and is generally recognized by the Vietnamese market. The Vietnamese government passed Decree No. 18/2019/QD-TTG in 2019. From June 15, 2019, the import of used machinery, equipment, and technology production lines that have been used for more than 10 years to Vietnam will be prohibited. Vietnam's machine tool market and the impact is to be observed.

In the past, the local machinery market in Vietnam was dominated by the replacement of second-hand mobile phones. With the investment of foreign capital and the rapid development of the local economy, cognition of automation and smart machinery began to sprout. The development of Taiwan's smart machinery just met the needs of Vietnam's local transformation and upgrading. Ho Chi Minh City Electromechanical Business Association said that Vietnam has cooperated and communicated with Taiwan's machinery industry as early as possible, and Taiwan's machinery is customized to be flexible, which is very popular in the Vietnamese market. Compared with European or Japanese products, Taiwan machine tools have a certain quality and relatively cheap price, so they are increasingly favored by the Vietnamese market. According to statistics, with Vietnam's economic and trade development, the number of Taiwanese machinery and tools in Vietnam's manufacturing industry is increasing, of which metal processing machines, lathes, and grinding machines account for a large proportion. With the development trend of Industry 4.0 technology, Taiwan's machine tool industry combines the advantages of IT technology and is committed to developing smart machines to make Taiwan's machine tools more diverse. The directors of Syntec stated that in addition to price advantages, service quality and flexibility are the advantages of Taiwanese companies in the Vietnamese market. Many Vietnamese companies choose to use Taiwan's machine tools because they are produced under the same international quality standards as Europe and Japan, which can meet the standards of Vietnamese companies' product outsourcing and can be exported to markets with higher standards such as the United States and Japan. Therefore, competitive prices, attractive sales policies, and fast maintenance and repair services are the strengths of Taiwan's machine tools.

At present, the Vietnamese government is committed to building a complete industrial chain, attracting foreign investment in manufacturing, and encouraging foreign investors to transfer technology to develop local industries. In the existing foreign-invested manufacturing industries, such as the electronic equipment, textile industry, automobile industry, and construction industry, the industrial chain has grown much more than in the past but is still at an early stage and has a limited market share. According to the strategic research of Vietnam National Science and Technology Policy and Policy Research Institute, the local machinery, electronics and plastics, and rubber industries are only 1,383, accounting for only 0.3% of Vietnam's 500,000 companies, and China (67%) and Thailand (57%) In comparison, the localization rate of the Vietnamese machinery industry is extremely low. Vietnamese Prime Minister Nguyen Xuan Phuc said that due to the lack of key industries to drive the overall industrial development, and the development of many key industries was not as expected, the ratio of the development of the relevant industrial chain to the localization of enterprises is still very low. With the start of the U.S.-China trade war, Vietnam has become the biggest beneficiary, with an economic growth rate of 7.08% in 2018, surpassing China and being the crown of ASEAN and Asian countries. And Vietnam has its abundant labor force, and its economic development is becoming more and more stable. It has become a treasured place for foreign investors desperate to enter and invest in factories. The manufacturing and processing industry is the main driving force for the country's industrial growth, and the demand for machine tools and related components will continue to rise.

According to the organizer of the MTA exhibition, to accelerate the introduction of Industry 4.0 technology into the machinery industry, the Prime Minister approved the development strategy of Vietnam’s machinery industry, focusing on the development of automobiles, agricultural machinery, construction equipment, industrial equipment, and electrical equipment, hoping to accelerate domestic advancement with advanced technology. The industry develops and enters the world's supply chain, to export the machinery industry to 45% of total output by 2035. However, according to the marketing manager of Informa Markets, as many as 85% of Vietnamese companies are not ready to introduce Industry 4.0. Currently, Vietnam is still one of the countries with the advantage of cheap labor, but this has also resulted in the past 3 or 4 years. Only about 13% of manufacturers are interested in automation. Although some Vietnamese companies have invested in related new technologies, the shortage of technical personnel in Vietnam is still a problem that needs to be overcome.

In 2018, Taiwan was the fifth largest exporter of machine tools in the world, with an export value of US$3.655 billion, an increase of 9.5% over 2017; during the same period, Taiwan was the fourth-largest source of imports of Vietnamese machine tools. According to statistics from the Taiwan Machine Tool & Component Industry Association, in 2018, Taiwan's machine tool exports to Vietnam were US$122 million, an annual increase of 14%, and the export value in the first eight months of 2019 increased by 22% compared with the same period in 2018. It has leapfrogged into the fourth largest exporter of Taiwan, ranking the largest export market among Southeast Asian countries. According to statistics from the Foreign Investment Bureau of the Ministry of Planning and Investment of Vietnam, from January to May 2019, Vietnam attracted foreign direct investment of US$16.74 billion, an increase of nearly 70% compared with the same period in 2018, of which manufacturing investment accounted for the most, accounting for 72%. Vietnam has gradually become a new manufacturing base in Asia, which is bound to drive the increase in demand for machinery and equipment.

Affected by the Covid-19 epidemic, the Vietnam Industrial Production Index increased by 0.74% in the second quarter of this year compared with the same period last year. The cumulative industrial production index of Vietnam in the first six months of this year has increased by 2.71% compared with the same period last year. Among them, the manufacturing industry grew by 4.96%, the lowest growth index since 2011. However, because the epidemic has been brought under control, various sectors of the economy have entered a new normal, industrial production has improved, and it has resumed a relatively high growth rate since May.

In the first six months of this year, the cumulative industrial production index in Vietnam increased by 2.71% compared with the same period last year (5.1% in the first quarter and 0.74% in the second quarter). Among them, manufacturing grew by 4.96% (7.12% in the first quarter and 3.2% in the second quarter), electricity production and supply grew by 3.04%, water supply and waste disposal grew by 3.76%, and mineral extraction decreased by 5.4%.

The Covid-19 epidemic spread and broke out in many countries and regions, affecting the import of raw materials in industrial industries, especially manufacturing. Among the secondary industrial, some industries have slightly increased or decreased compared with the same period last year, such as the production of engine vehicles decreased by 16.4%, crude oil and natural fuel extraction decreased by 11.3%, mechanical equipment repair, maintenance, and installation decreased by 9.5%, beverage production Decrease by 8.8%, production of automobiles and locomotives by 8.4%, production of unclassified machinery and equipment by 5.3%, production of clothing by 4.7%, production of electrical equipment by 3.5%, production of wood and bamboo products by 2.7%, and production of leather and its products by 2.3 %, metal production decreased by 1.4%, various printing and burning decreased by 0.3%, production of rubber and plastic products increased by 2.1%, and the textile industry increased slightly by 2.8%.

Other industries with better growth over the same period last year include: pharmaceuticals, medicinal chemistry and pharmaceuticals growth 27.9%, coke, and refined petroleum products growth 15%, metal mineral mining growth 13.3%, production of electronic products, computers and optical products growth 9.8%, paper Production of paper and paper products grew by 9.1%, production of chemical raw materials and chemical products grew by 7.8%, production of cigarettes grew by 7.2%, and coal mining grew by 4.9%.

Vietnam has been actively developing its industry recently and has initiated an export-oriented development strategy. It joined the WTO in 2007, attracting foreign investment, hoping to promote the overall economy, and also encourage local enterprises to upgrade their technology. The main market development momentum comes from the needs of manufacturers in South Korea, Japan, Singapore and Taiwan to set up factories.

From last year’s US-China trade war to this wave of epidemics, Asian countries and Europe and the United States have reviewed, and the concentration of manufacturing in one or two countries is too high. Coupled with changes in customer demand, Asian and European companies will accelerate their diversification under risk considerations. The transformation of manufacturing and automatic digitization of factories also opened up the development of the Southeast Asian market and Vietnam.

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