Montag, November 22, 2021

Vietnam: Export Industries and Sourcing Potentials

Ho Chio Ming

Bildquelle Photo: Pixabay/TUONG KHUU

Vietnam is getting traction as an alternative sourcing destination to China. Many companies that formerly exclusively sourced there are now expanding their supplier network to other nearby countries according to the "China +1" strategies. Within South-East Asia, Vietnam is one of the fastest-growing economies and compared with other developing markets in the region, this country is emerging as a leader in export-oriented production and a driving force behind free trade agreements.

The AHK Vietnam is supporting international enterprises with finding suitable suppliers in Vietnam’s burgeoning manufacturing scene. There are strengths that Vietnamese partners may provide but also weaknesses. Within this article, we will sort out potentials for sourcing in Vietnam.

BCG Matrix for Vietnam's Export Industries

Vietnam is known as a prime location for investors operating in a wide range of industries, such as wooden, metal products, agricultural products and apparel. The BCG matrix below shows a selection of Vietnam’s export industries relevant for our customers. In this matrix, the Y-axis measures export growth per annum and the X-axis depicts the current export world rank. We also added arrows to show where the industries are heading in their future development. Overall, Vietnam has a well-balanced portfolio with some industries which are already world-leaders (furniture, apparel, agricultural produce) and some runners-up (metal products, electronics supply, processed food).

BCG matrix: Vietnam's Export Product Portfolio

Agricultural Produce/Processed Food: Agriculture is profiting off the natural bounty that Vietnam’s River deltas, highlands and water bodies provide. Vietnam is the 15th biggest exporter worldwide for food products[1]. However, the country often exports unprocessed (e.g. coffee) or pre-processed goods (e.g. shrimps). Its industry so far fails to develop an established branded food processing industry.

Apparel: Using its ample and able HR supply, the country has developed a strong apparel sector being the 2nd biggest exporter worldwide[2]. On the downside, Vietnam is focusing on CMT and still must import textile pre-products limiting its competitiveness.

Furniture: The country ranks as 5th largest furniture exporter worldwide [3] and aims to become no. 2 until the mid-2020s. In this field, Vietnam massively profits off punitive taxes the U.S. is leveraging on Chinese imports. This leads to companies shifting their production and sourcing for the American market to Vietnam.

Metal Processing: Because of constraints with labor costs and environmental regulations in China, metal processing capacity is currently shifted to Vietnam. The country has a lot to offer in terms of casting, turning, stamping etc. However, local companies face constraints regarding raw material supply, customer orientation and technical know-how.

Electronics Supply: Vietnam’s supplying electronics industry is still rather weak. Although international OEMs such as Samsung, Panasonic and LG have poured billions of dollars into their Vietnamese manufacturing operations, a broad local supplier base has yet to manifest. As the OEMs are looking to strengthen their localization rates, Vietnamese sourcing partners are bound to emerge during the coming years.

Overall, Vietnam has potential to boost growth in trade and increase its share of global exports in the coming years.

SWOT Analysis

As pointed out above, Vietnamese suppliers have considerable strengths making them attractive to foreign clients. However, they also have weaknesses and there are some threads to their future development. The SWOT Analysis below gives some insights into the status quo of the Vietnamese sourcing community.

SWOT Analysis: Vietnamese Suppliers

1. Strengths:

Human Resources: With an average monthly income of 250 Euro Vietnam is a reasonable but not the “cheapest” labor market in the region. What makes Vietnamese laborers competitive is their attitude. Investors describe them as willing-to-learn, diligent and goal-oriented.

Free Trade Agreements (FTAs): Vietnam has closed FTAs with over 50 jurisdictions worldwide. Vietnamese companies can trade tariff-free with most important sourcing and sales markets such as the PR China, Japan, Korea and – notably – the European Union.

Customer Attitude: On the upside, foreign customers praise their Vietnamese suppliers for their quality and reliability. They also typically enjoy the personal relationships with their partners.

2. Weaknesses:

Customer Attitude: On the downside, Vietnamese suppliers are sometimes hard to access. There is a certain distrust against new contacts in the local market. Therefore, it takes time and effort to establish trust within client-supplier-relationships.

Pricing: Even though Vietnam is on the lower end of wages in the region its products sometimes end up being more expensive than in the PR China. This may be due to small company sizes (and thus a lack of scalability), the need to import raw materials as well as non-efficient processes. If pricing is a major factor to go to Vietnam, an RFQ should thus be done early in the supplier evaluation process.

Technical Know-How: Vietnamese companies might not be able to supply goods that need high technical expertise or tight tolerances. This is often due to outdated machinery outfits or insufficient know-how on the engineering side. Supplier development may thus take time; some of our customers are calculating with 18 months from initial contact to first regular delivery.

3. Opportunities:

Diversification Trends: The pandemic and its ensuing supply chain disruptions have shown that sourcing from a single supplier or country may proof disastrous. Hence, buyers are exploring alternatives or additions to their current products sources. This especially means that Chinese sourcing upon which many German enterprises are currently relying will be supplemented with partners from other countries such as Vietnam. This process is called “China +1”.

4. Threads:

Near-Shoring Trends: The above-mentioned supplier diversification may also lead to geographical diversification. This means that current Asian sourcing may be supplanted or supplemented with suppliers closer to home. For German companies, this could mean that instead of diversifying into Vietnam they might investigate Eastern European countries to find new suppliers.

And there you have it; Vietnam is a location with a high potential to find outstanding suppliers in diverse industries. For us, sourcing projects have played a pivotal role within our service range for some years now. Prospective buyers will find certain strengths and opportunities with Vietnamese suppliers. However, they will also have to consider the weaknesses accompanying their sourcing in Vietnam.

Our role is to provide services supporting foreign enterprises to recognize the opportunities and limitations of suppliers in Vietnam. For us, it is crucial to help them to effectively start their sourcing operations in Vietnam and to avoid inefficiencies in the decision-making process based on our analyses.

Contact

Delegation of German Industry and Commerce in Vietnam (AHK Vietnam)
Björn Koslowski, Deputy Chief Delegate

Deutsches Haus Ho Chi Minh City 4th Floor
33 Le Duan Blvd, District 1, Ho Chi Minh City, Vietnam

T: +84 (28) 3823 9775
E: [email protected]
W: www.vietnam.ahk.de

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[1] Worldbank: https://wits.worldbank.org/CountryProfile/en/Country/WLD/Year/2019/TradeFlow/Export/Partner/by-country/Product/16-24_FoodProd/Show/Partner%20Name;XPRT-TRD-VL;XPRT-PRDCT-SHR;/Sort/XPRT-TRD-VL/Chart/top10

[2] Vietnam+: https://en.vietnamplus.vn/vietnam-becomes-second-largest-garment-exporter/205709.vnp

[3] Statista: https://www.statista.com/statistics/1053231/furniture-leading-exporters-worldwide/

Source Images: flaticon.com (freepik)