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Vietnam’s equipment and tools business has been rising considerably, contributing to elevated GDP and sub-sector industries. Vietnam Briefing takes an in-depth look and highlights key developments and alternatives for overseas traders within the business as Vietnam pushes forward with its rising economic system.
Vietnam’s equipment and tools sector has expanded considerably within the final decade. That is proved by the online income recorded by firms working on this business rising at a compound annual progress charge (CAGR) of 14.3 p.c between 2010 and 2019. Till 2020, there have been over 2,200 firms specializing within the manufacturing of equipment and tools in Vietnam, incomes complete income of US$4.6 billion.
Regardless of a promising market, home equipment producers haven’t been capable of fulfill market demand. Solely 32 p.c of demand is equipped by native firms, in response to the Vietnam Affiliation of Mechanical Business (VAMI). The remaining 68 p.c of market demand is equipped by imported merchandise as a result of important demand and outdated manufacturing expertise by home suppliers.
The dominant share of overseas suppliers for equipment and tools in Vietnam has remained regular within the final decade. In 2021, the import worth of equipment and tools hit US$46.3 billion, a rise of 24.3 p.c in comparison with the earlier 12 months.
Main suppliers of equipment to Vietnam have been Asian nations together with China, South Korea, Japan, and Taiwan. These accounted for round 70 p.c of the overseas sources for equipment within the Vietnamese market owing to their aggressive costs and prevailing client choice. Different notable exporters have been ASEAN nations together with Thailand, Malaysia, and Indonesia in addition to western nations reminiscent of Germany, US, and Italy.
Alternatives for overseas traders in main industries
Agricultural equipment
Agriculture is traditionally an vital financial sector of Vietnam the place it contributed to 12.4 p.c of the nation’s GDP in 2021. Nevertheless, round 30 p.c of farms in Vietnam stay unmechanized.
In recent times, the sector has witnessed a converging development of scattered small-scale farms in the direction of concentrated large-scale companies with an rising concentrate on mechanization and automation. Accompanied by inhabitants progress, urbanization, and better productiveness demand with shrinking agricultural land, the expansion in demand for agricultural equipment is predicted to be sturdy within the coming years.
In the meantime, Vietnam is just self-sufficient for 30 to 40 p.c of agricultural equipment with the remaining equipment imported largely from China and Japan. That mentioned, the agricultural equipment manufacturing phase is rising quickly and has considerably offset the hole between home provide and market demand. Import worth of key merchandise, together with tractors, soil preparation, cultivation, and harvesting machines, has declined at a CAGR of 13.5 p.c throughout the 2016 to 2020 interval.
Each overseas and home gamers are lively within the agriculture equipment market.
Home enterprises play very important roles on this phase since these firms rely extra on direct gross sales quite than distributing merchandise by way of brokers and third-party distributors. Moreover, Vietnamese firms have a tendency to raised perceive and seize the necessity of native farmers.
Main firms within the phase are Vietnam Engine and Agricultural Equipment Company (VEAM), Hanoi Agricultural Equipment and Agricultural Extension Firm (HAMCO), and Vietnam Institute of Agricultural Engineering and Put up-Harvest Expertise (VIAEP).
Main overseas firms working in Vietnam embrace Kubota, Iseki and Yanmar (Japan), CNH Industrial (USA-Italy), CLAAS KGaA GmbH (Germany), Buhler (Switzerland), ShanDong Huaxin Equipment (China), and Tong Yang Moolsan (South Korea). These manufacturers rely totally on their agent and distributor community to enter and broaden within the Vietnamese market.
Apart from manufacturing and distributing in Vietnam, rising alternatives for overseas equipment manufacturers lie in expertise switch for native firms and customized hiring in a densely cultivated area.
A notable function mannequin is the cooperation between Truong Hai Auto Company (THACO), the native automotive large, and LS Mtron, the main agricultural equipment producer from South Korea. THACO just lately opened a US$22 million plant in Chu Lai Open Financial Zone (Quang Nam province) to supply agricultural tractors, harvesters, and farming tools.
The company acquired expertise and coaching from LS Mtron. LS Mtron transfers tractor manufacturing expertise to THACO and assists THACO in coaching engineers as a way to assist the Vietnamese producer to achieve a regional worth content material of as much as 50 p.c.
One other rising enterprise mannequin is customized hiring of agriculture equipment because the native manufacturing of agriculture equipment is insufficient. Agricultural co-operatives and personal enterprises are the suppliers of equipment for rent. Tillage, harvesting, threshing, drying, grain storage, and transportation are dealt with by firms that present hiring companies. Such companies are predominantly within the Mekong River Delta and Crimson River Delta areas.
Industrial equipment
Lately, Vietnam turn into a significant different manufacturing vacation spot for companies which are looking for to diversify their provide chain amid uncertainties attributable to the pandemic and the US-China commerce warfare.
In 2020, Vietnam had about 110,000 companies within the manufacturing sector, which was roughly 2.5 instances larger than in 2010. Internet income of producing industries went up from US$100 million in 2010 to almost US$450 million in 2019.
Nevertheless, GSO’s survey on manufacturing and enterprise situations of Vietnamese enterprises in 2021 revealed that the previous and underdeveloped manufacturing traces of roughly 20 p.c of business enterprises have a major opposed impact on their enterprise operations.
Additional, companies are additionally banned from importing used equipment that’s greater than 10 years previous below Decree No 18/2019/QD/TTg on imports of used equipment, tools, and technological traces.
Accompanied by a rising variety of new companies becoming a member of the market, there’s an rising demand for brand spanking new industrial equipment, particularly within the meals, pharmaceutical, plastics, and chemical industries.
Main equipment, particularly high-tech and sophisticated ones, are nonetheless imported.
Going ahead, probably the most promising phase for overseas companies is robotics and automation. In keeping with a survey by the Provincial Competitiveness Index (PCI), from 2018 to 2020, 67 p.c of each overseas and home traders automated part of their operations, whereas 75 p.c plan to automate new duties throughout the subsequent three years.
In 2021, the robotics and automation market in Vietnam was estimated to be value US$184.5 million. The market is dominated by overseas manufacturers, together with ABB, Yaskawa, Fanuc, Kawasaki, Kaku, Common Robotic, and many others. These main manufacturers’ buyer base in Vietnam are largely large-scale foreign-invested and personal companies with adequate finances for funding in automation. They work intently with the licensed distributors and supplier networks in Vietnam to broaden their footprint.
Building equipment
The Vietnam building tools market has grown in recent times, owing primarily to its increasing building and infrastructure growth initiatives.
There have been over 91,000 contractors working in Vietnam as of 2020, with round a half specializing in residential building. Nevertheless, Vietnam doesn’t possess superior building tools manufacturing functionality and subsequently relies upon nearly completely on imported equipment.
Vietnam primarily imports machines from Japan, China, and the US with well-known manufacturers like Komatsu (Japan), Hitachi (Japan), Kobelco (Japan), Doosan (Korea), Hyundai (South Korea), Daewoo (South Korea), and Caterpillar (US).
By way of tools sorts, earthmoving tools leads the general Vietnam building tools market, primarily because of the nation’s increasing public infrastructure services. Cranes and materials dealing with tools are additionally seeing progress available in the market.
General, the Vietnamese marketplace for building tools is very engaging to equipment rental companies. New tools comes with substantial funding whereas renting used equipment reduces important funding in addition to transportation, storage charges, curiosity on mortgage quantities, registration, insurance coverage, and tax on new tools for contractors.
Key success elements for overseas rental companies available in the market embrace applicable pricing technique, various and up to date product portfolio, certified operator crew, and robust partnership with different stakeholders available in the market.
Market entry technique
The equipment and tools market in Vietnam is comparatively open to overseas traders. Market entry situations are primarily by way of environmental safety for funding in manufacturing. Moreover, one hundred pc foreign-owned firms are allowed within the manufacturing and buying and selling enterprise of equipment and tools.
The optimum market entry technique for overseas companies will range relying on a number of elements, together with the finances for funding and the event of supporting industries in Vietnam.
Nevertheless, establishing a subsidiary in Vietnam or collaborating with a companion, both by way of a distributor or an authentic tools producer (OEM), are two of the most typical choices for multinational equipment manufacturers.
Investing within the equipment sector
Overseas equipment firms contemplating opening a producing and buying and selling facility in Vietnam to supply and distribute their merchandise domestically in addition to export to different markets ought to take note of a major funding in addition to the feasibility of structuring a secure provide chain for the Vietnamese manufacturing facility. Although Vietnam’s mechanical engineering sector is quickly increasing, solely a small share of producers are capable of generate merchandise that obtain worldwide high quality requirements.
Establishing a buying and selling firm to import and distribute the equipment of the mother or father firm is an appropriate possibility for traders with a restricted finances or who’re unable to search out sufficient native suppliers for components and parts. Using an area group below the mother or father firm has additionally confirmed to be environment friendly by way of branding and managing the supplier community.
Connecting with native companions
Some overseas enterprises with a restricted funding finances that wish to take a look at the market could select to work with native companions reminiscent of equipment distributors and sellers, in addition to authentic tools producers (OEMs). Even when they aren’t bodily current within the goal market, collaboration with an area agency is a cost-effective market entry technique.
Native companies serving as licensed distributors are a useful enterprise channel as a result of their in-market expertise and high-value community of sellers and customers, which can assist new companies attain their potential shoppers inside a shorter timeframe and with much less effort.
Collaboration with OEMs generally is a profitable mannequin for some manufacturers. Nevertheless, this technique relies upon largely on the kind of equipment. Native producers have confirmed their sturdy functionality by way of agriculture equipment traces whereas being much less aggressive at complicated industrial tools and heavy building machines.
Whatever the market entry technique, overseas manufacturers ought to think about and concentrate on one very important issue, which is a well-developed dealership community. These sellers contribute to model consciousness and supply a complete gross sales and repair community that help their merchandise.
About Us
Vietnam Briefing is produced by Dezan Shira & Associates. The agency assists overseas traders all through Asia from workplaces internationally, together with in Hanoi, Ho Chi Minh Metropolis, and Da Nang. Readers could write to vietnam@dezshira.com for extra help on doing enterprise in Vietnam.
We additionally keep workplaces or have alliance companions helping overseas traders in Indonesia, India, Singapore, The Philippines, Malaysia, Thailand, Italy, Germany, and the United States, along with practices in Bangladesh and Russia.
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