The Vietnamese Mechanical Industry: Overcoming Challenges and Embracing Opportunities
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 changes in recent years, making significant strides in technology ownership, investment expansion, and product quality enhancement. While there remains ample room for growth, experts assert that diversifying and expanding markets remains 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.
The market potential is enormous, with an estimated $310 billion worth of mechanical industry demand from now until 2030, including a $120 billion automotive market. However, Vietnam currently meets only one-third of this demand.
Dr. Phan Dang Phong, Director of the Institute of Mechanical Research (Ministry of Industry and Trade), shared that in the field of automobile and motorcycle production, Vietnamese engineers have successfully acquired technology transfers from Japanese and South Korean companies. As a result, the Institute can now independently design and manufacture automobile assembly lines.
In the realm of renewable and new energy, the Institute has excelled in technology transfer for floating and anchoring systems in solar energy projects. Moreover, numerous domestic businesses have demonstrated complete self-reliance, from design to engineering and technical services, as evidenced by their contributions to the 2,400 MW Son La and 1,200 MW Lai Chau hydroelectric projects, which were completed ahead of schedule.
Despite these achievements, Dr. Phong acknowledged that meeting the domestic and export market demands in the mechanical industry remains modest, especially in the field of comprehensive equipment. For instance, in the production of power plants, hydropower plants, new and renewable energy, cement, or raw materials, local businesses meet less than 30% of the equipment demand.
“The reason for this shortfall is the lack of ‘leading enterprises’ that possess core technologies and have the capacity and experience to undertake complete projects,” Dr. Phan Dang Phong explained.
 Many 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 manufacturing, foreign-invested enterprises (FDI) dominate the market. Local businesses primarily produce spare parts and components to supply to these FDI companies.
Producing a product typically takes Vietnamese businesses (mostly small and medium-sized enterprises) 1.5 times longer than their foreign counterparts due to technological disparities. FDI enterprises excel in automation, resulting in more efficient human resource management, quality control, and measurement processes.
“These internal challenges lead to higher management and production costs, negatively impacting their competitive edge in pricing,” Mr. Cuong remarked.
Transforming to Break Through
According to the Vietnam Association for 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 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 production, 15-40% for automobile production, 20% for complete equipment production, 40-60% for agricultural machinery and engines, and 40% for construction machinery. In the high-tech industry, local component supply meets 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 demand and exporting to foreign markets. Notable enterprises in the automobile sector include Vinfast, Thanh Cong, and Thaco.
Moreover, mechanical businesses are poised to benefit from Vietnam’s participation 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 reaped significant benefits 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 collaborate with partners from diverse countries, bringing projects to Vietnam. “As long as customers have ideas and samples, Smart Vietnam will help them develop a complete product in Vietnam,” Mr. Hung shared.
To enhance competitiveness in quality, Mr. Hung emphasized the need for businesses to invest in raw materials, machinery for production automation, international-standard quality management processes, and a highly skilled workforce.
“Businesses hope that ministries and sectors will organize more trade promotion programs abroad to support customer connections. Additionally, for enterprises aspiring to become ‘leading enterprises,’ substantial resources are required, so policies should focus on the research and development aspect,” Mr. Hung suggested.
Echoing this sentiment, Dr. Phan Dang Phong advised businesses to invest in human resources, equipment, and technology to own their proprietary technologies and adapt to customer requirements. Modernizing production lines is essential to achieving competitive pricing and ensuring quality, ultimately fostering sustainability in the global value chain.
Duc Duy
– 08:52 01/01/2025
