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+)
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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 companies. As a result, the Institute can now independently design and manufacture automotive assembly lines.
In the realm of renewable and new energy, the institute successfully adopted and transferred technology for floating and anchoring systems in solar energy projects. Furthermore, numerous domestic enterprises have achieved complete self-reliance, from design to fabrication and technical services, as exemplified by the 2,400 MW Son La and 1,200 MW Lai Chau hydroelectric projects, which were completed ahead of schedule.
Nevertheless, according to Dr. Phong, the industry’s response to the domestic and export mechanical markets remains modest, particularly in the field of comprehensive equipment. For instance, in thermal power, hydropower, new and renewable energy, cement, or raw material production, 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 turn-key projects,” said Dr. Phan Dang Phong.
Numerous Vietnamese businesses have become tier-1 suppliers to foreign partners. (Photo: Duc Duy/Vietnam+)
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Mr. Nguyen Duc Cuong, Vice President of the Hanoi Supporting Industry Association, pointed out that in the field of machine fabrication, FDI enterprises dominate Vietnam’s production landscape. 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 manufacture a product than their foreign counterparts due to the latter’s technological superiority. Consequently, the FDI sector benefits from automation in human resources, quality control, measurement, and other aspects, resulting in lower management and production costs and heightened competitive edge in pricing.
Transforming for Breakthrough
According to the Vietnam Association for Mechanical Industry (VAMI), there are approximately 3,100 enterprises in the mechanical manufacturing industry, with 53,000 production facilities, accounting for nearly 30% of the total number of enterprises in the processing and manufacturing industry in Vietnam. The domestic mechanical industry in machines and equipment 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 has strengths in three main sub-sectors: motorcycles and motorcycle components; household appliances and tools; and automobiles and automobile components. The industry’s revenue exceeds 1.7 million billion VND and employs over 1.2 million workers.
At present, locally produced metal components meet 85-90% of the demand for motorcycle production, 15-40% for automobile production, 20% for integrated equipment, 40-60% for agricultural machinery and engines, and 40% for construction machinery. Additionally, the industry satisfies about 10% of the demand for metal components in high-tech industries.
Specifically, domestic mechanical manufacturing can now produce and assemble various types of passenger cars, trucks, and buses, with a localization rate of 85-95% in motorcycle production, meeting domestic demand and exporting to foreign markets. Notable enterprises in the automotive field include Vinfast, Thanh Cong, and Thaco.
Moreover, mechanical businesses are presented with significant opportunities as Vietnam participates in numerous 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+)
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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 immensely from the shift in international markets. As evidence, Smart’s revenue is estimated to increase by 260-280% in 2024 due to surging demand from existing and new customers in key markets.
To seize these market opportunities, Smart 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 and bring projects from abroad. “As long as customers have ideas and samples, Smart will help them develop a complete product in Vietnam,” said Mr. Hung, highlighting the company’s recent successes.
However, to enhance competitiveness in quality, Smart’s representative emphasized the need for investments in raw materials, machinery for production automation, international quality management processes, and a highly skilled workforce.
“Enterprises hope that ministries and branches will organize more trade promotion programs abroad to support customer connections. Additionally, for businesses aiming to become ‘leading enterprises,’ substantial resources are required, so policies should focus on the R&D aspect,” suggested Mr. Hung.
Emphasizing this perspective, Dr. Phan Dang Phong advised businesses to collaborate with the Trade Promotion Agency to promote their products in foreign markets and learn from successful enterprises in those markets to minimize risks. He also stressed the importance of investing in human resources, equipment, and technology to own unique capabilities, adapt to customer requirements, modernize production lines, reduce costs, ensure quality, and create sustainable products in the global supply chain.
Duc Duy
– 08:52 01/01/2025
