The outbreak of the coronavirus has had negative effects on global supply chains in the world’s automobile industry.
|Vu Tan Cong – Deputy general director Vietnam Automobile and Trade Consulting Co., Ltd.|
In addition, the pandemic has made the US-China trade dispute even fiercer. As a result, many Chinese-located automobile parts and component-manufacturing enterprises are planning to move to other countries to avoid the effects. These enterprises include tier-1 and tier-2 groups that supply their products to both China (such as Geely, Changan, Chery, and SAIC) and overseas carmakers (like Volkswagen, Toyota, Honda, Hyundai, and many more).
Vietnam has now successfully controlled COVID-19. This makes it one of the more interesting countries in terms of attracting new waves of foreign investment in the automotive support industry. Moreover, Vietnam is close to China with a long in-land border line that makes the country even more attractive for Chinese automobile supporting industrial businesses.
Vietnam has signed some free trade agreements (FTAs) such as the ASEAN Trade in Goods Agreement (required in-bloc localisation ratio of 40 per cent), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (required in-bloc localisation ratio of 55 per cent), and the EU-Vietnam FTA (required in-bloc localisation ratio of 55 per cent). In order to enjoy zero import tax rates on cars to be imported by other FTA member countries from Vietnam, the development of the automotive support industry is the key to success.
In order to take advantage of this, Vietnam needs to implement a selection of the right investment fields, establish an automobile industry cluster, and make full use of central government, local government, and business enterprise efforts.
|Managing fresh automobile clusters for post-virus boost-illustration photo. Photo: AFP/Christophe Archambault|
Suitable funding fields
There are two fields of automobile supportìng industries advisable to attract foreign investment – automotive electronic component production and the material production industry.
In a passenger car, many electronic components have been used to make cars more effective, safe, stable, and comfortable. According to data from PwC, the percentage of electronics value in passenger car total value will be 35 per cent in 2020 and up to 50 per cent by 2030.
These rates show the big potential for the electonic passenger car field to develop. It is predicted that the global electronics automotive market size will exceed $300 billion this year.
In addition to this industry, material production is also a very important area for the field to develop. Materials, which are recognised as “food” for the industry, include steel alloys, aluminum alloys, cast iron, plastics, rubbers, glass and more.
In Vietnam, the material production industry for automobiles is at very low levels of development, and most of the materials necessary for the automotive industry are imported from overseas.
In order to be successful in the automobile industry, it is advisable for Vietnam to concentrate on the development of the material production industry using raw materials available in Vietnam like alumina, iron ores, natural rubbers, and oil refinery side-products.
In many countries around the world with developed automobile industries, they are recognised as high-tech sectors. In fact, passenger car electronics and material production industries involve advanced methods and the most modern equipment.
As China is the biggest automobile market of the world in sales volume, at 25.8 million units last year, most of the world automotive electronics and material production enterprises have their production bases there.
Under COVID-19 influences, those enterprises in China are planning to relocate their production bases to other countries in Asia. Vietnam needs to well prepare to welcome new waves of foreign investment in automobile electronics and material production industries.
To be successful in this, Vietnam has to better consider and set up some automobile industry clusters (AIC) in which automobile manufacturers and tier-1 and tier-2s are located. Advantages of an automobile industry cluster are increased productivity, specialised workers, retrieving investors, and rapid innovation.
A northern AIC could supply its products to VinFast, Hoa Mai Motors, and Chien Thang Motors in Haiphong city; Ford Motors in Hai Duong city; Toyota Motors, Honda Motors, and Daewoo Bus in Vinh Phuc province; TC Motors and HINO Motors in Hanoi, and the Ninh Binh TC Motors factory in Ninh Binh province.
A central AIC could supply products to the THACO and TCIE factories in Danang city. Additionally, a southern AIC can supply products to Mercedes-Benz, Suzuki, ISUZU, SAMCO, and Daehan Motors in Ho Chi Minh City; Mitsubishi Motors in Binh Duong province, and Do Thanh Auto in Dong Nai province.
Efforts from numerous sides
On May 22, the prime minister agreed to establish a special working team with new thinking to welcome waves of foreign investment and strong transition from overseas after the COVID-19 disease.
Members of this special working group are advisable to include senior officers from related ministries like those of industry and trade, finance, transport, planning and investment, and science and technology; as well as senior officers from the aforementioned cities where the automobile industry clusters would be located; and independent senior consultants/experts on automobile industry and business.
The special working group will work out and consult with the PM to promulgate special incentives and support policies on the establishment, management, and operations of the AICs. These policies (if any) must be clear, easy to implement, feasible, and attractive enough in order to boost investment in such clusters.
Special incentive and support policy contents that are expected by the industry include tax incentives (corporate income tax, personal income tax, import tax, special consumption tax); technology transfer fee support (a part or whole of the technology transfer fee); support in technology purchases; and support in contacting and working with potential foreign partners.
Meanwhile, the local governments of cities where the AICs are to be located can provide them with more incentives and support, within their responsibilities and duties.
These incentives and support from local governments consist of clean land being available for investors in the AICs; land-leasing incentives (land-leasing cost, land-leasing fee, and reduction durations); land support (no costs for land compensation and land levelling); manager and high-skilled technician training fee support; and strong support in infrastructure of the AICs (power and water supply, and solid and water waste treatment).
In addition, local governments are advisable not to create additional investment procedures, to delete all unnecessary procedures, and to support investors in arrangement of housing and/or apartments for workers, technicians, and experts at low renting fees or for free.
By working with many businesses in the automobile supporting industries, it can be seen that many of them are weak in financial capacity, poor in business and human resource management, and limited in international relations and integration.
Strong preparations by both the central and local governments will be of no value when businesses do not make enough effort. Therefore, it is highly recommended that busineses operating in the automobile supporting industries will have to arrange enough finances for investment, improve their corporate management skills, enhance international relations and integration, boost human resources, and become stronger in business-to-business connections. VIR
Local supporting industries remain limited, with almost all components for assembly being imported. Localised automotive parts like tubes, tyres, seats, mirrors, glasses, wires, batteries, and plastic elements still have low technological content. Up to 80-90 per cent of the main raw materials for the production of such components, like aluminum and steel alloy, plastic resin, and high-tech rubber are imported as well as moulded materials. This is costly in transport, packaging, and import taxes.
The weak capacity of supporting industry enterprises is also a concern. Mould makers either do not have a large scale or lack co-ordination for development, while the casting industry precision is low with a high rate of defects not up to standard. The lack of coherent government automotive policies over time, combined with incentives considered weak by completely-knocked down (CKD) assemblers and poor supplier presence, has resulted in a local manufacturing environment in Vietnam less attractive for automakers than other ASEAN countries.
Because multinationals invest in projects producing vehicles in large scale within the ASEAN, the Ministry of Industry and Trade (MoIT) estimates that Vietnam’s market size is equal to one-tenth of Thailand’s and one-fifth of Indonesia’s. Therefore foreign-invested, large-scale investment projects are unlikely to take place in Vietnam. Thus, the MoIT focuses on supporting domestic projects like THACO, Thanh Cong, and VinFast to increase automobile production and assembly.
Decree No.125/2017/ND-CP dated November 16, 2017 on amending and supplementing a number of articles for the preferential import tax, which took effect in 2018, applies zero per cent import duty on CKD components that cannot be produced in Vietnam for manufacturers who can achieve a high-production volume within five years. The minimum volume to qualify in 2018 was 16,000 vehicles in general, including 6,000 of a specific type at Euro 4 emission level.
Amongst local assemblers and manufacturers, THACO, Toyota Vietnam, Ford Vietnam, and Hyundai Thanh Cong are the only four major automobile companies that may qualify.
Source: Vietnam Business Forum
Vu Tan Cong
Current US-Vietnam economic relations ‘unimaginable’ in 1995: BTA chief negotiator
No one had thought trade turnover between Vietnam and the U.S. would ever reach $80 billion when negotiating the bilateral trade agreement in 1995, he said.
Import-export turnover between both countries was only $450 million at the time, said Nguyen Dinh Luong, Vietnam’s chief negotiator for the U.S.-Vietnam bilateral trade agreement (BTA) signed on July 13, 2000.
The U.S.-Vietnam Comprehensive Partnership, which set an overarching framework for advancing the bilateral relationship between the two countries, launched by former U.S. President Barack Obama and former President of Vietnam Truong Tan Sang in 2013, was also an “unimaginable outcome”, he said.
Negotiation of the sweeping trade agreement had been particularly difficult, as Luong had only ever negotiated with socialist countries, which had similar institutions and legal systems with Vietnam, it was added.
“At the time, our leaders had objectivized negotiations to normalize economic and trade relations with the U.S. to fully normalize relations with the country which Vietnam only had normalized diplomatic relations. The BTA would also set the basis for Vietnam’s accession to World Trade Organization (WTO),” he noted.
“The biggest obstacle to reaching an agreement was trust. The legacy of the war was heavy and painful. Both leaders and the people were wary of accepting the return of U.S. presence, suspecting a ploy to harm Vietnam, while the Americans, who had lost the war, had doubts about Vietnam’s goodwill,” he added.
The BTA was initially scheduled for signature in September 1999, in Auckland, New Zealand, but this did not take place for lack of mutual trust. Negotiators from both countries had struggled to build social consensus for the agreement, particularly for Vietnam, when the people had little access to information on WTO or BTA, and it was taboo for the press to praise the U.S., Luong said.
Between 1995 and 2000, Vietnam’s negotiators had also extensively researched U.S. history, culture, politics, law, as well as agreements that the U.S. had signed with other countries to understand their negotiation partners.
The BTA’s value was forcing Vietnam to abandon its subsidized, planned and monopolized economy, which had been a mess, for having trivialities such as a two-price system for domestic and foreign consumers of items like electricity, water, or air and rail travel. It gave Vietnam impetus to play by international rules, and reform its legal system to satisfy these requirements, he said.
“The BTA conferred to Vietnamese exports to the U.S. most-favored-nation (MFN) status, meaning if any of the two parties gave better concessions, privileges, or immunities to goods of another country, it must also confer them to the other.”
“After 25 years, the U.S. and Vietnam had grown from enemies to friends. The economy had been the keystone to this development. As economic growth speeded up, the more we interacted, understood and built trust with each other. We have even gone on to cooperate on issues such as national security and defense,” Luong maintained.
Geopolitics had also been key in the two countries’ partnership, with Vietnam now playing an important role, a country whose support the U.S. cannot ignore when implementing its foreign policy in Asia, he added.
The way forward
Vietnam should not be too optimistic over the prospects of the U.S. shifting its supply chain from China to Vietnam as a result of the novel coronavirus pandemic (Covid-19) impacting China’s economy, and U.S.-Sino trade tensions, as profits plays a key role in their decision-making, regardless of U.S. President Trump’s or anyone else’s policies, he stressed.
“There will likely not be an exodus of corporations to Vietnam as some people predicted. Talk of the U.S.’s intentions to restructure its global supply chain has only been an idea, I have not seen any concrete policy for this yet.”
Vietnam still has challenges to face in order to attract more FDI from the U.S., such as creating a good and transparent legal and business environment for U.S. firms, who do not like to gamble but prefer to have long-term strategies, to invest, he added.
And with each U.S. presidential era comes a different approach to globalization. Under Bill Clinton and Barack Obama, the U.S. had always promoted globalization, allowing their corporations to access the openness and resources of the world economy, a strategy that had brought great benefits to the U.S. economy, Luong explained.
“However, President’s Trumps tenure has brought changes. He believes America should stop subsidizing the world, U.S. corporations should stop moving out to benefit other countries, and that America should come first.”
“He does not abandon globalization but his policy is protective. However, the U.S. economy cannot be separated from the global economy. Therefore, President Trump wants to rewrite the rules,” Luong said.
“It is not immediately possible for him to fix the rules of the game formed by global economic organizations, so President Trump is trying to change things bloc by bloc, country by country, such as the North American Free Trade Agreement, South Korea, Japan, and soon the U.K. and EU.”
At present, Vietnam’s biggest problem with the U.S. is the latter’s trade deficit with it, which came to around $40 billion last year. “The U.S. had put forward this issue, but had not been too heavy on us.”
Vietnam has been proactive in showing interest in improving the situation, and both sides have set up mechanisms to jointly review trade relations.
“Vietnam is also been actively buying more American goods, from agricultural products, to aircraft. But it would be better to continue improving our business environment to attract investment from America, to help economic and trade relations become more balanced and sustainable,” Luong said.
Recent statistics show trade revenue between Vietnam and the U.S. had climbed to $19.5 billion in the first quarter of 2020, with Vietnam enjoying a trade surplus of $12.4 billion, according to the General Department of Vietnam Customs.
Vietnam’s trade turnover is likely to have reached $238.4 billion in the first half this year, down 2.1 percent year-on-year, according to the government portal.
Digital transfomation expected to bring prosperity
HÀ NỘI — Việt Nam has a comparative advantage in digital transformation thank the country’s large number of strong telecommunications and IT businesses and a top official has said it’s time for the country to make a breakthrough in the field.
Nguyễn Mạnh Hùng, Minister of Information and Communications made the statement at the launch of the Viet Solutions 2020 contest in Hà Nội on Wednesday.
The contest was organised by the Ministry of Information and Communications (MIC) and Viettel Group to search for innovative technology products or solutions that can integrate into social industries in the national digital Transformation programme.
Viet Solutions is searching for products and applications in telecommunication, health care, education, finance and banking, agriculture, transport, logistics, energy, natural resources and industrial production.
The competition is for people around the world. Candidates will be connected with potential partners and participate in training courses to improve financial management skills and marketing to seek investment.
The initial pilots have been carried out by Viettel for two years. This is also the first time the country’s IT industry has organised an annual contest like this.
“Digital transformation is a universal revolution. Products and solutions will be found, nurtured as well as widely applied and honoured. Digital transformation is the cradle for the birth of Vietnamese digital technology businesses. From here, Vietnamese firms, products and solutions will go abroad and make Việt Nam famous. Therefore, this competition is to find solutions to Vietnamese problems, but also to solve global ones,” he added.
He said the best solution to accelerate digital transformation is to quickly develop platforms, especially Vietnamese ones.
“A successful digital transformation platform can solve problems for millions of people and thousands of businesses. In particular, if data is considered a resource, then this resource must be stored in Việt Nam, by the Vietnamese platform.”
Lê Đăng Dũng, acting chairman cum general director of Viettel Group, said as the largest technology and industrial group in Việt Nam, Viettel will be ready to work with technology enterprises whose products are selected through this competition.
“Việt Nam’s problems are many. This is an opportunity for technology companies. Solving these problems is to contribute to building the digital citizens, digital society and nation that the Government is aiming for. Once we have the same goal, we can share our advantages, complement each other and create a resonance in the community,” Dũng said.
Viettel with more than 100 million customers in 11 international markets will help competitors complete technology products at national and global scales.
The winning team will receive a cash prize of VNĐ200 million (US$8,593). The second and third teams will receive VNĐ100 million and VNĐ50 million, respectively.
In addition, the winning teams also have the opportunity to sign business co-operation contracts with Viettel and enjoy profit-sharing of up to 75 per cent.
Viettel also pledged to sponsor all expenses for the three winning teams participating in the C1 Start-up Cup competition in the US with a total prize value of $50,000 or attending the World Mobile Conference (MWC) 2021 in Barcelona.
Submissions should be sent online at website: vietsolutions.net.vn from now till September 20. —
Logistics costs account for up to 25% of farm produce value
|Workers process corn for exports – PHOTO: VNA|
HCMC – High logistics costs have eroded the competitiveness of domestic produce, said Truong Gia Binh, chairman of the Vietnam Digital Agriculture Association (VIDA), at a conference on how to cut logistics costs for Vietnamese farm produce on July 9.
Logistics costs normally account for up to 25% of the value of Vietnamese farm produce.
Stressing that Vietnam is integrating deeply into the global economy, Binh told the conference jointly held by VIDA and the Vietnam Logistics Business Association (VLA) that bilateral and multilateral trade agreements have helped Vietnamese products including farm produce penetrate more foreign markets.
Besides advantages such as abundant natural resources and a diversity of farm produce, small-scale production, low quality and especially high logistics costs have made Vietnamese farm produce less competitive.
According to VLA general secretary Nguyen Duy Minh, logistics costs accounted for 16.8% of Vietnam’s gross domestic product in 2017. Factors that lead to the high costs included high transport costs, underdeveloped logistics infrastructure, highly specialized inspection costs and informal fees.
Minh cited a report as indicating that logistics costs make up 21% of Vietnam’s fruit and vegetable supply chain. Among the logistics costs, transport costs account for 61%, while loading, storage and packaging costs account for 20%, 14% and 5%, respectively.
Vo Quan Huy, general director of Huy Long An Company, said that the company exported 14,000 tons of bananas to Malaysia, Singapore and South Korea last year, with logistics costs accounting for 30% of post-harvest costs. In the first half of 2019, logistics costs shot up by 45% due to the impact of the Covid-19 pandemic.
Le Van Quang, board chairman of Minh Phu Corporation, said it costs VND41 million to transport a container of shrimp from Vietnam to the United States and VND16 million to Japan. However, transporting the container from HCMC to the Mekong Delta province of Ca Mau costs VND10 million, while it costs VND80 million to be transported to Hanoi.
Quang pointed out that there are too many toll stations in Vietnam, leading road transport costs to soar. Sea and waterway transport is much cheaper but the port system is underdeveloped. Therefore, he suggested the Government invest more in developing the sea and waterway port system to help enterprises reduce logistics costs.
Nguyen Quoc Toan, director of the Department of Farm Produce Processing and Market Development under the Ministry of Agriculture and Rural Development, said there should be regional logistics plans to promote a connection between localities and develop modern logistics centers.
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