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The Evolution of Vietnam’s Mechanical Industry: Vast Potential Yet to Hatch a “Leading Crane”

8 January, 2025

The Vietnamese Mechanical Industry’s Evolution: Overcoming Challenges for a Competitive Edge

Vietnamese businesses have become tier-1 suppliers to foreign partners. (Photo: Duc Duy/Vietnam+)

Vietnam’s mechanical industry has witnessed positive transformations, gradually mastering technology, expanding investments, enhancing product quality, and increasing localization rates while developing the market.

Despite the vast potential for growth, experts assert that market diversification and expansion remain challenging for businesses in this sector due to intense competition from foreign companies, coupled with low competitiveness, lack of branding, and inability to attract potential customers…

Untapped Market Potential

According to expert estimates, from now until 2030, the mechanical industry market demand is approximately 310 billion USD, with the automotive market alone accounting for 120 billion USD. However, Vietnam currently meets only one-third of this demand.

Dr. Phan Dang Phong, Director of the Institute of Mechanical Engineering (Ministry of Industry and Trade), shared that in automotive and motorcycle production, foreign entities used to dominate assembly line operations. However, since 2012, the Institute of Mechanical Engineering has sent engineers to learn and acquire technology from Japanese and Korean partners. As a result, the institute can now independently design and manufacture automotive assembly lines.

In the realm of renewable and alternative energy, the institute successfully adopted and transferred technology for floating and anchoring systems in solar energy projects. Furthermore, numerous domestic enterprises have demonstrated complete self-reliance, from design to engineering and technical services, as evident in the Son La 2,400 MW and Lai Chau 1,200 MW hydropower projects, which were completed ahead of schedule.

Nevertheless, Dr. Phong acknowledged that meeting the domestic and export market demands in the mechanical industry remains modest, particularly in the field of comprehensive equipment. For instance, in thermal power, hydropower, renewable and alternative energy, cement, or raw material production plants, local businesses meet less than 30% of the equipment demand.

“The reason for not meeting the demand is the lack of ‘leading enterprises’ that possess core technologies and have the capability and experience to undertake turnkey projects,” Dr. Phan Dang Phong explained.

Numerous Vietnamese businesses have become tier-1 suppliers to foreign partners. (Photo: Duc Duy/Vietnam+)

Mr. Nguyen Duc Cuong, Vice President of the Hanoi Supporting Industry Association, pointed out that in the field of machine manufacturing, FDI enterprises dominate the production landscape in Vietnam. Local businesses primarily produce spare parts and components to supply back to these FDI companies.

Typically, domestic enterprises (mostly small and medium-sized) take 1.5 times longer to produce a product than their foreign counterparts due to the latter’s technological superiority. As a result, FDI enterprises benefit from automation in human resources, quality control, measurement, and other aspects, leading to more efficient cost management and competitive pricing.

Transforming for Breakthrough

According to the Vietnam Association of Mechanical Industry (VAMI), there are approximately 3,100 mechanical manufacturing enterprises in the country, with 53,000 production facilities, accounting for nearly 30% of the total number of processing and manufacturing industrial enterprises in Vietnam. The domestic mechanical industry has gradually mastered and improved localization rates, creating a driving force for the development of other industries and the economy, directly and indirectly employing millions of workers.

Currently, Vietnam’s mechanical industry strengths lie in three main sub-sectors: motorcycles and motorcycle components; household appliances and tools; and automobiles and automobile components. The industry’s revenue exceeds VND 1.7 million billion and employs over 1.2 million workers.

At present, locally produced metal components meet 85-90% of the demand for motorcycle manufacturing, 15-40% for automobile manufacturing, 20% for integrated equipment, 40-60% for agricultural machinery and engines, and 40% for construction machinery. Additionally, the industry supplies metal components for high-tech industries, meeting about 10% of the demand.

Specifically, domestic mechanical manufacturing has successfully produced and assembled various types of passenger cars, trucks, and buses, with a localization rate of 85-95% in motorcycle production, meeting domestic and export demands. Notable enterprises in the automotive field include Vinfast, Thanh Cong, and Thaco.

Moreover, mechanical businesses are poised to capitalize on Vietnam’s participation in multiple free trade agreements. These agreements will enhance their competitive edge in exports, market expansion, and foreign investment attraction.

Automation is crucial for enhancing competitiveness. (Photo: Duc Duy/Vietnam+)

Mr. Cao Van Hung, Director of International Market Development at Smart Vietnam Precision Mechanics Joint Stock Company, shared that in recent years, Vietnamese businesses have benefited significantly from the shift in international markets. Smart Vietnam, for instance, expects a 260-280% increase in revenue in 2024 due to surging demand from existing and new customers in key markets.

To seize these market opportunities, Smart Vietnam has heavily invested in its sales and research and development (R&D) teams. The sales team comprises capable individuals who can communicate and work with partners from different countries, bringing projects from abroad.

“As long as customers have ideas and samples, Smart Vietnam will turn them into complete products in Vietnam,” Mr. Hung shared, highlighting the company’s recent successes.

However, to enhance competitiveness in quality, Smart Vietnam’s representative emphasized the need for investments in raw materials, machinery for production automation, international quality management systems, and a highly skilled workforce.

“Enterprises hope that ministries and sectors will organize more trade promotion programs abroad to support customer connections. Additionally, for businesses aspiring to become ‘leading enterprises,’ substantial resources are required, so policies should focus on the R&D aspect,” Mr. Hung suggested.

Emphasizing this perspective, Dr. Phan Dang Phong advised that the Ministry of Industry and Trade, in collaboration with commercial affairs offices abroad, regularly organizes trade promotion programs in host countries. Therefore, businesses should connect with the Trade Promotion Agency to promote their products effectively. Additionally, understanding the success stories of enterprises that have thrived in those markets can help newcomers avoid potential risks.

“Internally, enterprises need to invest more in human resources, equipment, and technology to own their unique technologies and adapt to customer requirements. Moreover, modernizing production lines is crucial for competitive pricing and quality assurance, ultimately fostering sustainability for their products in the global supply chain,” Dr. Phan Dang Phong concluded.

Duc Duy

– 08:52 01/01/2025