Vietnam – Automotive Industry – What Must Be Done Urgently:

1. VIETNAM – AUTOMOTIVE INDUSTRY – WHAT MUST BE DONE
URGENTLY:
“RECOMMENDATIONS TOWARDS DEVELOPMENT OF AUTOMOTIVE SUPPLY
CHAIN AND INTEGRATION OF LOCAL COMPANIES BY FDI COMPANIES IN
VIETNAM – OUTLOOK ON THE EU VIETNAM FREE TRADE AGREEMENT
(EVFTA)
The Vietnamese vehicle market is not one of the biggest in ASEAN. Up to now, the domestic
demands were provided with local suppliers, but due to the AFTA tariff elimination in 2018 and
the import of vehicle manufactured in ASEAN (Thailand, Indonesia) in a foreseeable future, the
development of local industry could be slowed down.
The development of the automotive supply chain in Vietnam implies the expansion of the
domestic market and more precisely the increase of the domestic demands and suppliers. The
supply chain involves multi-layered suppliers, as thousands of parts are needed to manufacture
vehicles.
Since the local industry is composed of smaller businesses, fewer economies of scale are made
and it appears more difficult for both local and foreign suppliers to meet the quality/cost/delivery
(QCD) requirements. In addition, other requirements such as Research and Development (R&D)
are necessary to keep up with the market, the purchasers’ needs and to maintain a continuous
growth of sales.
Nevertheless, not all requirements are expected from suppliers, as it depends on their position in
the supply chain. Currently, Vietnamese suppliers have to meet QCD requirements but, as they
are not always fulfilled, local production still relies on imported parts. The development of local
production may not prosper without resolving first the issue of insufficient capability of local
suppliers.
Thus, regarding the changes Vietnam is about to face, market policies such as registration tax
should be upheld and policies on local production should be clarified. A task force devoted to
policies improvement would hasten the process.
Moreover, knowledge of foreign suppliers’ knowledges could benefit local ones and should be
promoted through technology assistance and cooperation organization. By sharing foreign
expertise with local suppliers, we obtain a win-win solution: foreign suppliers or original
equipment manufacturers win in terms of competitiveness and local suppliers win in terms of
knowledge.

2. Outlook on the EVFTA
The EVFTA signed on December 2nd 2015 opens new opportunities for both Vietnamese and
European markets. As European companies are among leaders in the automotive industry,
Vietnam offers a unique opportunity to extend to a promising market in South East Asia. Indeed,
domestic demands are growing and expected to rise from 300,000 to 1,5 million cars sold by
2025. This can be explained by Vietnam’s young population – half is under thirty years old – and
constant need of new industrial products. Human resource is one of Vietnam’s great advantages
due to its young population and fast-growing middle class.
The most important issues
- Local suppliers are not ready yet to take over the automotive supply chain and still need
foreign suppliers to teach them the know-how and to meet with the standard requirements.
- The policies are not conceived to promote local production and should be reviewed to open
the market even more before the AFTA enters into force (2018).
- Competition within the ASEAN will shake the local production and it is important for
Vietnam to oblige domestic suppliers to meet with strict requirements as to prevent foreign and
local demands from turning to foreign suppliers.
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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you
have any questions or want to know more details on the above. Oliver Massmann is the General
Director of Duane Morris Vietnam LLC.
Thank you!”