Chances in Vietnam’s manufacturing sector

Vietnam is a nation of high industry potential in its manufacturing sector. Automation, energy efficiency, economic control and quality & safety are Vietnam’s top areas within this sector, that contributes a large portion to its economy.

High Potential Sectors in Vietnam

One leading high potential sector is the furniture industry with an increasing demand for modern equipment and technology in the furniture manufacturing process. With a 59% Compound Annual Growth Rate (CAGR) in the period 2009 to 2013, the Electronics industry is the second largest sector here. The Vietnamese electronics industry has a large contribution from Foreign Direct Investments (FDI). The third highest potential industry is the fast growing Food and Beverage sector with high investments in the areas of technology and equipment. And lastly, Garment, Textiles and Footwear manufacturing is a high potential industry and is the leading export sector, with a high demand for labor. All these industries have a high export chances and can be provided by foreign players.

Lower Potential Sectors in Vietnam

Industries with less relevance or demand including automotive industries that operate at a minimum efficiency level are considered to have low potential. Included in this category is the Vietnamese chemical industry that is underdeveloped and therefore, has a low growth rate. Other low potential industries include industries that create machinery & other equipment but lack government and investment support. The local metal manufacturing industry is small, fragmented and limited to only steel, aluminum and iron production. These factors make these sectors undesirable for foreign players.

Vietnam’s increasing demands

A sizeable output in the food and beverage processing industry

Since 2011, the annual demand for food and beverages in the country has greatly increased. The food and beverage processing sector in Vietnam has rapidly grown at a CAGR of 14% from 2010 to 2014.

The demand for automation in this sector will be boosted by strong investment initiatives from the local and international players.

Two leading contributors to the increasing growth of the local industry are alcoholic beverages and processed milk, followed by canned food, soft drinks and confectioneries.

Though the key F&B companies in Vietnam are Unilever and Nestle, there are a number of local companies operating in this industry. These include:

  • Kinh Do (one of the largest contributors for building new facilities)
  • Masan
  • Vinamilk
  • TH True Milk
  • Nutifood
  • Visanov

The growing electronics industry

As one of the leading sectors and as a high potential industry, the Vietnamese electronics manufacturing business relies mainly on exported goods and FDI. The exported products in this industry include automatic data processing machines, mobile phones, printers, integrated circuits and spare parts.

Since 2009, the exported value of 2.5 US million dollars rapidly increased to 35 million US dollars in 2013. This contributed 59% to the country’s CAGR value during this period.

The leading foreign companies that contributed to the increased exports are Samsung, LG, Microsoft, Intel, Panasonic and Canon.

Though local added value had been increasing since 2011, future potential lies in automated solutions as international companies are opting to produce most of their spare parts in Vietnam.

Furniture as a strong export growth 

Furniture is one of the country’s biggest contributors to its export industry, with an increasing export sale of 3.5 million US dollars in 2011 to 6.8 million US dollars in 2014 that lead to a CAGR value rise of 20% during this time. This is due to due to Vietnam being one of the largest wood sourcing locations.

The major export destinations and percentages of export value are:

  • US – 36%
  • China – 18%
  • Japan – 14%
  • EU – 11%

There exists a high demand for improvement and upgrades in production lines since most of the manufacturing companies are still using outdated machinery and tools, especially in processing fine products and surface technology.

Looking at country data, increased production fueled by large investments is inevitable. International firms are setting up manufacturing units in Vietnam and this is a promising trend and can result in a strong and competitive business environment. The only factor holding Vietnam back however, is a lack of awareness among local private companies, about the importance of improving product quality and productivity via automation.

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