Industrial parks

Foreign investments in Vietnam have the ability to change the economics of many of the country’s support industries, who are continually struggling to be part of the larger supply network.

Local automobile businesses are dependent on major foreign car manufacturers and their core technologies, a sticking point for true progress, photo Le Toan

Vietnam has received praise for its control of the pandemic, which has also contributed to its prestige among South Korean businesses. “Vietnam’s auto parts sector has reached an export scale of $5 billion and an import volume of $4 billion, thus attracting many South Korean businesses during the past three years,” said Lee Jong Seob, president of the Korea Trade-Investment Promotion Agency (Kotra) in Southeast Asia-Oceania and general director of its branch in Hanoi. Seob came to Vietnam under a special entry programme nine months ago.

According to Seob, Vietnam’s auto part exports are in the high growth group. In 2020, these exports grew by 48.6 per cent but “have not yet entered a stable period”, Seob pointed out, adding that “the development of the auto-business in Vietnam is based on the understanding of the government’s policymakers, promoting a business strategy that is consistent with the reality of Vietnam.”

Lagging behind

In mid-April, VinFast – a subsidiary of Vingroup – announced that it would sell three electric car models in the US market in 2022. Previously, VinFast introduced the Sedan Lux A 2.0 and SUV models. The Lux SA 2.0 participated in the international exhibition of the Paris Motor Show, one of the largest auto events in the world, and received an enthusiastic reception from the international public.

Vietnam may already be on the map of the world’s auto industry, but there is still a lot to do to gain a firm foothold in the global market, such as the right policies to develop the production of auxiliary automobile products.

A panorama of Vietnam’s auto industry was faithfully described by Pham Tuan Anh, deputy director of the Ministry of Industry and Trade’s (MoIT) Industry Agency at a seminar hosted by the ministry’s Trade Promotion Agency and Kotra that took place last week.

Vietnam’s car production has increased steadily in recent years, from around 287,000 vehicles in 2018 to 323,000 in 2020 – figures which include manufactured and assembled vehicles. The responding growth rate of the industry amounted to 2 per cent per year. However, despite the increase, Vietnam’s automobile industry remains behind other regional countries such as Thailand, Indonesia, and Malaysia.

Vietnam has 50 companies operating in automobile assembly, 45 companies manufacturing chassis and vehicle bodies, and over 200 companies producing spare parts, data from the MoIT shows. However, local businesses are only participating in the lower ends of the value chains in the automobile industry and are heavily dependent on global automobile manufacturers as they are not yet proactive in the development of core technologies.

The production and assembly of Vietnamese automakers have not yet met the criteria in the global industry and have not created links among businesses in manufacturing, assembling and spare parts, as well as with large-scale suppliers of raw materials.

While some companies are participating in the global supply chain, domestic automakers are still dependent on technological factors and the designation and distribution decisions of major manufacturers worldwide. Similarly, domestic suppliers only produce basic components, mainly for welding and painting.

Meanwhile, one of the MoIT’s regulations on the development of the country’s supporting industries lists conditions for companies to enjoy tax incentives. The Industry Agency’s deputy director Anh said, “South Korean supporting businesses make good use of an overwhelming number of incentives from the Vietnamese government’s auto industry development policy.”

The domestic automobile industry – with one of its focal points being spare parts – is one of the important industries for the nation’s industrialisation and has thus been given special incentives by the government, such as the prime minister’s Decision No.1168/QD-TTg from 2014 and the new Law on Investment, which reaps not just investment incentives for the industry but also additional ones to develop assembly activities.

Roadmap for localisation

Vu Ba Phu, director of the MoIT’s Trade Promotion Agency, sees a great opportunity for Vietnamese industrial parks and manufacturing enterprises to connect with South Korean businesses and invest in and cooperate in developing the value chain manufacturing auto parts.

In Vietnam, the production capacity of Hyundai Thanh Cong reaches 100,000 units. “We plan to develop more auto parts in Vietnam as the government has issued policies to focus on localisation,” said Yang Yun Goo, general director of Hyundai Thanh Cong.

Currently, the company does not directly manufacture auto parts itself but cooperates with local businesses to gather supplies of components.

The government already has preferential programmes for imported parts. However, the support of these programmes is not enough to lower car prices as the current tax remains relatively high compared to regional countries.

As the nation is further opening its market, Vietnam signed many free trade agreements (FTAs), but the implementation of technical factors under these schemes has received many reactions from several countries around the world.

Regulations on importing vehicles into Vietnam are an example of the remaining barriers. Luong Duc Toan, deputy director of the Industry Agency’s Department of Processing and Manufacturing, believed that Vietnam has been “unlucky”, similar to Thailand, when developing its industry at a time of blossoming bi- and multilateral FTAs as well as increased barriers. However, the application of technical measures by the Thai government has not suffered as many harsh reactions as Vietnam.

According to Toan, regulations on the production of spare parts imported by the Thai government in the 1980s did not receive any negative response. At that time, investing in manufacturing components in Thailand always followed the conditions of the supply chain.

The kingdom’s market capacity of around one million vehicles per year has also been an important factor contributing to the development of supporting industries and a sharp reduction in the cost of domestically produced vehicles.

Thailand had chosen the best time to become a country with a developed automobile industry in ASEAN, Toan said, with most major automakers wanting to enter Thailand as they turned the country into a car hub.

Meanwhile, Vietnam’s consumption of about 600,000 vehicles per year will increase to one million units by 2030. Companies like Hyundai Thanh Cong see this the reason to open cooperation with partners and speed up the localisation of spare parts manufactured in Vietnam as they hope that the localisation rate will increase to 40 per cent.

“We have had many visitors looking for opportunities to cooperate with spare part manufacturers in Hanoi and other regions,” said Kim Kwang Young, regional deputy director of Hyundai Thanh Cong. “The localisation rate of 40 per cent cannot be achieved in the short term. Instead, the government needs a roadmap to develop supporting automotive industries sustainably.”

Currently, the Vietnamese market is still small, and even if it is localised, the costs will not be reduced in the short term but may even increase over time.

Young pointed out that it may be simpler and less risky to let foreign enterprises invest in Vietnam and import components for assembly than building ancillary factories. However, the initial investment costs are huge, and these procedures also take a lot of time. That is why foreign businesses remain cautious in expanding investments in Vietnam.

According to Young’s observations, domestic manufacturers do not have much incentive to import complete units. “On the contrary, we have to bear many costs related to building factories or training workers. This situation leads to difficulties for businesses who want to invest in the Vietnamese market,” he added.

Kim also hopes that the government will soon have appropriate incentives to develop a supporting industry network, helping businesses of both countries to use each other’s products, which could benefit to local customers and contribute to the development of Vietnam’s automobile industry.

Becamex IDC was awarded as one of the Top 10 Prestigious Industrial Real Estate Companies

The Top 10 Prestigious Industrial Real Estate Companies are assessed and ranked by Vietnam Report and media partners based on three important criteria, including financial capacity shown in the most recent financial statements, media prestige evaluated via the media coding method – encoding articles related to the company on influential media channels, as well as the survey of relevent stakeholders in February and March 2021.

The recognition reflects the incessant efforts of Becamex IDC in the challenges caused by the COVID-19 pandemic, which affects all industrial park and real estate development. However, the company has achieved its business targets, spent billions of dongs on corporate social responsibility activities like supporting residents suffering natural disaster damages, taking care of heroic Vietnamese mothers, and building houses for disadvantaged people. The company also provides some relief measures for tenants and workers by reducing management and housing fees.

With over 30 years of experience in industrial and urban infrastructure development, Becamex IDC has achieved tremendous success in Binh Duong. The company has replicated the successful models across the country, making significant contributions to the socio-economic development of other provinces.

There are some of the core values making Becamex IDC a reputable brand. It lies on the company’s strategy to develop integrated townships and industrial parks associated with trade and services, social housing, and resettlement areas. Becamex’s projects are surrounded by high-quality transportation as well as healthcare and education ecosystems to meet the needs of all walks of life. The self-contained complex is its unique selling point, creating added value for both investors and residents.

Placing people at the centre of all of its strategies, Becamex IDC values the role of citizens and investors whether in site clearance compensation or investment promotion activities. Thus, the company takes the responsibility of building a complete and sustainable ecosystem for people to settle down and lead a better life.

Becamex IDC is a pioneer in developing social housing projects in Binh Duong to meet the residential demand of workers in industrial zones. The company has so far developed 120,000 such apartments for around 300,000 across Binh Duong such as Dinh Hoa, Hoa Loi (Thu Dau Mot city), Viet-Sing (Thuan An city), My Phuoc (Ben Cat town), and Bau Bang (Bau Bang district).

The social housing projects are developed with beautiful landscapes and on-site amenities like parks, sports areas, and flower gardens. They have both areas for rent and for sale at preferential prices with financial support from banks. The projects are surrounded by urban areas, high-end and modern apartment buildings, serving the needs of investors and residents.

VSIP Group, a joint venture between Becamex IDC and Sembcorp (Singapore), came second

In addition, Becamex IDC is known as Vietnam’s leading transport infrastructure developer. In Binh Duong, the company has built transport projects connecting townships and industrial zones in Binh Duong with the neighbouring provinces to improve connectivity in the key southern economic zone. The well-connected transport system has shortened logistics costs for investors, lower products costs, as well as increase Binh Duong’s competitiveness to lure investors and talents.

Some notable projects include the expansion of National Highway 13; projects connecting with Ring Road 2, 3, and 4; the project to renovate and upgrade the landscape of My Phuoc-Tan Van road; and North Tan Uyen-Phu Giao-Bau Bang route. In addition, Becamex IDC focuses on developing Bus Rapid Transit connecting with urban areas.

The company continues to work with JICA to negotiate funding for the extension project of Ben Thanh-Suoi Tien Metro Line to Binh Duong and Dong Nai. The company is carrying out projects of inland container depot – An Tay River Port as well as inter-regional freight railway project of Binh Phuoc-Binh Duong-Ho Chi Minh City-Dong Nai and Ba Ria-Vung Tau.

Becamex IDC also places an emphasis on education to support high-quality workforce development. The company has invested in a comprehensive education system at many levels, from preschool to university, typically the development of Eastern International University (EIU) in line with international standard.

Other projects include Becamex Business Incubator, Industry 4.0 Lab, Open Library at EIU, Fablab, and Techlab, which lays the foundations to create an innovative ecosystem in Binh Duong. Thanks to these efforts, Binh Duong has now joined the global innovation startup chain through cooperation with Block71 of the National University of Singapore.

Becamex has invested in two international hospitals namely My Phuoc General Hospital and Becamex International Hospital with 1,000 beds each. The hospitals are equipped with modern equipment, experienced doctors and medical staff to meet the healthcare needs of workers, experts, and residents in the locality.

Furthermore, the company has actively organised community activities to improve the spiritual lives of residents. Some programmes like Japan Cultural Festival, local football tournaments as well as Becamex Cup have created a healthy playground for workers and local people. Meanwhile, Becamex’s running programme to welcome the New Year has also attracted thousands of runners.

The integrated townships and industrial parks invested by Becamex IDC have set an example for other companies to follow suit. The company has actively entered into strategic cooperations with major domestic and foreign partners such as Sembcorp Group (Singapore) in the field of foreign investment attraction for industrial development; Tokyu Corporation (Japan) to promote services and urban development; NTT Group (Japan) in the field of IT and telecommunications infrastructure development; Warburg Pincus (US) implemented new models of logistics and cross-border e-commerce.

Becamex IDC has a team of highly qualified staff with foreign language skills. The company has marketing teams in many countries across all continents from Asia to Europe and the Americas. Becamex IDC not only approaches multinational businesses but also proactively works with domestic and international organisations and diplomatic missions to ensure fast and accurate communications in both offline and online channels.

In addition, Becamex IDC regularly coordinates with the People’s Committees of provinces to actively implement investment promotion seminars and conferences, supporting the connection between authorities, businesses, and employees to solve the problems of investors as well as ensuring the sustainable livelihoods of people.

Recently, Becamex IDC has developed key performance indicators (KPIs) for the entire corporation. The company is also striving to build a culture of innovation, fully digitise the whole system, as well as adopt the environmental quality management system according to ISO 14001-2015 standards.

At the same time, Becamex IDC continues to update and upgrade new ecosystems to meet the requirements of the digital economy era and the Fourth Industrial Revolution. It commits to accompanying with Binh Duong province to implement the Smart City project, Binh Duong innovation area, as well as develop high-quality services in Binh Duong New City.

The business strategy and achievements are the reason why Vietnam Report and its media partners select Becamex IDC to be in the Top 10 Prestigious Industrial Real Estate Companies in 2021. The award is also the result of Becamex’s continuous innovation and creativity to create prosperous and sustainable values. It once again confirms the company’s great contribution to the socio-economic development of the locality, the region, and the whole country.

Hanoi will organize international trade fairs to connect local and foreign partners, bringing Vietnamese products into the global supply chain.

Hanoi is set to draft substantial supporting policies specialized for local enterprises manufacturing the city’s key industrial products, with a view to turning them into the main driving force for growth.

Production at Channel Well Technology Vietnam in Quang Minh Industrial Park, Hanoi. Photo: Pham Hung

“Identifying and developing key industrial products are essential steps to boost growth in industrial sector in a sustainable way and ensure the realization of Hanoi’s targets to complete the industrialization process by 2025,” stressed Vice Chairman of the Hanoi People’s Committee Nguyen Manh Quyen.

“The move is especially important as industrial production plays a key role for economic development,” noted Quyen.

As part of an overall plan to promote key industrial products in 2021, Hanoi expects to select 25-30 industrial products to join a supporting program targeting at boosting enterprises’ production value by 10-12% against 2020.

By late 2021, key industrial products could contribute 35-40% of total industrial production value and 15% of the city’s exports.

To realize these targets, Hanoi aims to gear up trade and investment promotion activities by holding international trade fairs as a way to connect local and foreign partners, in turn taking Vietnamese products into the global supply chain.

For long-term solutions, local authorities would continue to improve business and investment environment by simplifying administrative procedures in fields of construction, customs, taxes and investment.

Hanoi also identifies the necessity to accelerate the construction progress of hi-tech and industrial clusters to create room for modernizing its industrial sector and eventually boosting economic competitiveness.

Vice Director of the municipal Industry and Trade Department Dam Tien Thang noted the local authorities would seek feedback from the business community to draft supporting policies accordingly, especially as the pandemic continues to exert negative impacts on enterprises’ operation.

“Enterprises should further take advantage of Vietnam’s existing trade agreements, including the CPTPP and EVFTA, to grasp opportunities for recovery and growth,” Thang said.

In the past three years, Hanoi recognized 117 products from 77 enterprises as the city’s key industrial products.

Last year, revenue from these 77 firms stood at nearly VND200 trillion (US$8.63 billion), along with export revenue of US$2 billion.

The majority of enterprises whose products classified as Hanoi’s key industrial items are of large size, high competitiveness and capable of integrating into global supply chains, with names such as Canon Vietnam, TOTO, or Meiko Vietnam.

All are operating in priority industrial sectors such as production of new materials, IT, molding and precision engineering, among others, which are expected to have high spillover effects and contribute significantly to Hanoi’s economic development.

To foster a successful timber export industry, experts advise a strong cooperation between FIEs and domestic businesses. Photo: Le Toan

Kuka Home, a fully Chinese-invested company has started construction of a wood-furniture processing factory after only six months of signing a lease contract for more than 12 hectares of land in Dong Xoai Industrial Park III in the southern province of Binh Phuoc. According to Li Binh, in charge of the factory’s construction, the company has invested in a system of factories in industrial zones in many provinces of Vietnam, including in the southern province of Dong Nai, to produce wood for export.

Exports of foreign-invested enterprises (FIEs) last year continued to show their superiority over domestic ones. By the end of 2020, Vietnam had more than 3,600 enterprises directly involved in exporting timber products, with an export value of $12.31 billion in 2020.

Among these, 653 FIEs account for 18 per cent of the total number of export enterprises. The export value of these companies reached $6.07 billion, accounting for 51 per cent of the total export value from timber products.

No competitive position

FIEs continue to play an important role in Vietnam’s timber and wood product exports as more of them invest in the industry, thus becoming an important component of Vietnam’s exports from this sector. Last year, the export turnover of the entire wood industry increased by 16.2 per cent compared to 2019.

The export value of these FIEs is especially high in southern localities like Binh Duong, Dong Nai, and Ho Chi Minh City. Binh Duong is the leading province in terms of last year’s export value in the wood industry, reaching $5.68 billion and accounting for 47 per cent of the total export value of the country.

In which, FIEs reached $3.85 billion, accounting for 68 per cent. Meanwhile, domestic businesses only raked in $1.8 billion, holding 32 per cent. Dong Nai ranked second and hit $1.62 billion, or 13 per cent of the total.

The increase of FIEs participation in the wood industry is a direct result of preferential policies and investment attraction measures by the government and partly the result of new-generation free trade agreements, as well as the favourable geographical position of the Asia-Pacific economic region. The tensions within US-China trade also created opportunities for Vietnam to receive capital flows from China in this industry.

The export growth of Chinese wood processors also shows that the financial scale and production capacity of FIEs are far ahead of domestic players.

“Capital and production capacity are both important factors that drive growth for FIEs in the wood processing industry,” said Nguyen Liem, general director of wood product exporter Lam Viet JSC.

For instance, investments of $5 million are huge for Vietnamese companies, but $10 million, or even $15 million, are still small for an FIE.

“A contract for 100 containers will be produced in 15 days,” explained Liem when talking about the production capacity of Chinese players.

“They carry out all operations very quickly, install equipment, and import raw materials before they produce around the clock,” he added.

According to Liem, Chinese enterprises investing in Vietnam’s wood processing sector are mostly manufacturers with decades of experience, who produce goods of medium quality but in large quantities for export.

Compared to FIEs, Vietnamese businesses are “not in a competitive position,” said Liem, who has worked more than 10 years at an FIE within the industry.

Before Chinese wood manufacturers were investing in Vietnam, US buyers already knew them. As the US-China trade war broke out, many Chinese wood processors invested in Vietnam to open factories. They dragged American buyers to their new location and signed large quantity contracts. Even the leaders of some large corporations in the US noted that their representative offices in Vietnam are now often bought by from Chinese-owned companies.

One unified system

The wood industry is witnessing a common phenomenon: the more developed, the higher the risks. Currently, Vietnam ranks second in Asia in the export of wood and timber products, with a rapid growth rate of about 17 per cent per year.

Businesses exporting wood products to the US market are under pressure from an investigation by the United States Trade Representative (USTR) regarding allegations of using illegally harvested or traded timber.

The Vietnamese government is trying to create an open policy mechanism to attract investment. But on the other hand, the government is also trying to control under- and shadow investments.

Tran Le Huy, vice chairman of the Forest Products Association of the central province of Binh Dinh, noticed that the wood industry is “lacking an appropriate mechanism to spread the strengths of FIEs. Meanwhile, the spillover effect only occurs when there is a suitable mechanism allowing domestic businesses and FIEs to exchange information and experiences.

Huy believed that allowing FIEs to be official members of wood associations will create a unified system between both sides. “This will contribute to better positioning and mitigating risks in foreign investment activities, while at the same time, building a sustainable Vietnamese wood industry in the future and helping to bring domestic players closer to the market,” Huy explained.

However, in the middle of the pandemic, the business environment of Vietnam remains highly appreciated by foreign investors. Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry, said that Vietnam has become the first choice for FIEs in the region, with 136 economies investing in the country with the total investment capital of over $400 billion.

According to Loc, with over 70 per cent of Vietnam’s export value coming from FIEs, these enterprises are also the main driver of export growth, bringing Vietnamese-made goods into global supply chains.

“If local and overseas companies are not symbiotically linked, it will be difficult to bring pervasive value,” Loc said, adding that the government should create a symbiotic environment between foreign and Vietnamese enterprises, and must encourage domestic ones to participate in the supply chain besides FIEs.

At this point, there are basic conditions to connect FIEs with their domestic counterparts effectively. The country’s Strategy for Socioeconomic Development 2021-2030 stated that foreign direct investment will continue playing an important role in national development.

The total registered capital within the 2011-2020 period reached over $278 billion, an average increase of nearly 6.9 per cent per year, accounting for 22.8 per cent of the total social investment capital.

Therefore, “the economy backed by foreign investment capital develops rapidly,” according to the strategy’s report. Meanwhile, the 10-year socioeconomic development strategy and the 5-year plan emphasise the strengthening of the links between FIEs – especially multinational corporations – with local suppliers.

Ha Cong Tuan – Deputy Minister of Agriculture and Rural Development Regulations on product quality and timber traceability of the importing countries have become a common trend but are also an excuse for resolving trade relations. During the investigation under the US Trade Act about the alleged use of illegally harvested and traded timber, a representative of the USTR consulted the Vietnamese government and opened hearings to gather opinions of both parties. Most said that the US accusations were not satisfactory. Therefore, the US has not yet made any official conclusions. The issue, however, could become a big story of the trade relationship between the two countries, which could force Vietnam to find a suitable solution to ensure more balanced trade. The state’s role is especially important in providing solutions to problems with the US market. Meanwhile, those who are exporting to the US need to comply with the laws in this market. Trade relations in a market economy must be two-way. Therefore, there are things that must sacrifice certain interests to receive certain goods of the partner country as a trade-off for a suitable and balanced trade relationship.