Growth prospects in Vietnam manufacturing sector

Vietnam is fast emerging as a global manufacturing hub. The manufacturing sector accounts for 24% of the GDP in 2009, according to Frost & Sullivan’s new report, “Economic 360 for Vietnam: Growth Prospects and Emerging Opportunities in the Manufacturing Industry. ”

The country aims to become an industrialised country by 2020. Vietnams manufacturing industry has been undergoing major changes as a result of government initiatives, WTO commitments and industrial liberalisation. Industrial development strategy for the period 2011-2020 to focus on the development of textiles, leather, chemicals, agro processing, electronics, automotive, information and communications technologies are expected benefit from the industrial development strategy. Due to improving business climate, increased trade and investment cooperation, low labour cost and Vietnam is expected to emerge as a major manufacturing hub in the ASEAN region.

New industries and changing lifestyles will spur advancements in the near to medium term. Industries that are helping to buoy the outlook for the automation and control market in Vietnam are residential and commercial building, paper and pulp, and mining. Industrialisation in Vietnam is affected by the interest shown by public and private organisations in the manufacturing industry.

“After the reunification of Vietnam, a concerted effort was made to rapidly transform the private, capitalist industry in the south into a state-run sector,” notes Frost & Sullivan. “Many industrial operations were nationalised or forced to become joint state-private enterprises; productivity of both capital and labour declined for the market as a whole and gross output slumped.” Reform measures in the 1980s introduced incentives, reduced subsidies to inefficient state-run operations, and gradually allowed limited market mechanisms. The Vietnamese government has been adopting agile methods to facilitate the deployment of large-scale industrial projects, stoking growth in this market.

The Vietnamese market holds huge potential; however, several deficiencies must be remedied to ensure forward momentum. The economic slowdown had clouded market prospects, and industrial production witnessed a downtrend. Companies had been operating under constrained budgets and large-scale investments were pushed to the back burner. Although the recession was a growth bottleneck, other factors had also contributed to make the market less attractive. Foremost among the challenges faced by the industry is the lack of infrastructure and skilled professionals. This has proved to be a major deterrent for foreign investors. Strong support from the private sector will be needed to circumvent this challenge. As far as the competitive landscape is concerned, major multinationals hold sway over the automation market in Vietnam. Local industries neither have the resources nor the financial wherewithal to compete effectively in this space. There are import barriers in Vietnam that make it difficult for companies operating in the market as the country lacks the technology to manufacture indigenously.

To ensure business progression, equipment manufacturers operating in Vietnam must offer customised solutions to clients as there is very little in terms of product differentiation. The onus is on the Government and private agencies to raise the capital needed to augment infrastructure. “Vietnam is on the threshold of phenomenal growth across industries, and conventional ones, such as oil and gas, are expected to continue on an upward trajectory,” said Frost & Sullivan. “In particular, the food industry is poised to be a major propelling force in Vietnam’s attempt to become an industrialised nation by 2020.”