Vietnam's mechanical engineering industry

Tuesday - 10/01/2017 18:19
The government has asked the engineering industry to increase technological transferring and international cooperation
gearmotor
gearmotor
in personnel training and scientific research to boost its development.

1. Industry overview
 
The mechanical engineering sector in Vietnam has experienced an extremely-rapid growth in demand over the last decade, about 40% annually since 1995.
 
Domestically supplied products have grown remarkably from only 10% of the national demand in 1995 to 35% in 2004. Plan-makers at the Ministry of Industry have forecast that Vietnam will be able to meet 50% of its domestic needs for mechanical engineering products and export 30% of its production by 2010. The official target for domestically-manufactured automotive parts is to reach 60-70% of the market share.
 
 
 
Viewed as the core of the national industrialization, the mechanical engineering industry has been given a high priority in the national development strategy. Especially, it is playing an important role in the economic development of the Mekong Delta region.
 
The goal of the industry strategy is to increase efficiency so as to achieve a technological level and competitiveness on par with other regional countries. In 2003, the government began the process of privatizing state-owned enterprises (SOEs) in the mechanical engineering sector. Outdated machinery and heavy reliance on imported machinery are the main constraints the sector is facing with.
 
 
 
2. Products and Markets
 
Vietnam’s mechanical industry turns out such major products as: complete equipment, machine tools, ship-building, engines, motorbikes, construction machinery and equipment, machinery used in the forestry, agriculture and industry processing, electrical devices and materials, and machinery used in the light industry and consumer goods.
 
 
 
The domestic mechanical industry represents 13% of the industry’s output and most of it is for domestic use. In the agricultural sub-sector, Vietnam produces small tractors, specialized movers, excavators and mowers primarily for the domestic market. Engines below 30 HP are produced entirely in Vietnam. 70% of rail car output in Vietnam is completed with locally-made parts while automobiles produced in Vietnam satisfy 70% of domestic demand.
 
Around 80% of motorbike parts have also been produced domestically. The automotive sub-sector is capable of producing 45-seat buses. Some air conditioners, refrigerators and washing machines have been made in Vietnam. The domestic industry also produces screws, nuts, bolts, steel pipes for gas conduction, steel tanks, steel girders and other mechanical engineering products.
 
 
 
More than 90% of demand for metalworking products has been sourced domestically, but corporations manufacturing these products have had to import most of their machinery. The demand for metalworking equipment rises by 30% annually, with the sheet metalworking sub-sector demanding the most. Shearing machines, press brakes and rolling machines are the types of sheet metalworking equipment in bad need.
 
Local engineering businesses still mainly involve in subcontracting activities and command only 40 percent of the local market.
 
Export of engineering products earned more than 2 billion USD last year and the figure is estimated at 900 million USD in the first six months of this year.
 
 
 
3. Number, size and ownership of enterprises
 
Currently, there are nearly 1,700 mechanical enterprises across the country, 393 of which are state-owned and half of them are under the central authority’s management. The remainders are under the provincial authorities’ management.
 
The number of private corporations remains modest, over 100 enterprises. There are 127 foreign invested mechanical engineering corporations in Vietnam, of which 57 are wholly foreign financed.
 
 
 
There are around 1,000 mechanical collective units and these collectives are typically smaller in size compared to the state-owned and private enterprises. Estimates place the total number of informal machining establishments and workshops at about 29,000.
 
The total workforce is estimated at 253,000 laborers, of which 40% are female. About 42% of the enterprises employ between 10 and 50 workers each and over 80% less than 200 employees, (as a result, about 300 enterprises are employing over 200 employees each).
 
 
 
Assembly and manufacture of spare parts for the automobile industry is the main mechanical mainstay. Some 39% of mechanical workers are working in the automobile sub-sector which accounts for 51% of capital investment and 50% of the annual net turnover of the industry.
 
The manufacture of electrical machinery and apparatus attracts 24% of the labor force of the industry, working with 19% of total industry capital and making 19% of industry turnover.
 
 
 
4. Geographical location
 
Roughly half of automobile assembly, for example, is located in the North of Vietnam and the other half is located in the South. Shipbuilding facilities are also located in the North, South and Center of Vietnam. Manufacturers of agricultural machines are located in and around Hanoi and Ho Chi Minh City. Electronic manufacturing is centered upon Ho Chi Minh City.
 
 
 
Many provinces are offering incentives to attract investments in their mechanical engineering industry. Binh Duong province, nearby Ho Chi Minh City, has channeled foreign investment into ten industrial zones. The Ministry of Planning and Investment (MPI) has allowed Binh Duong to license investment projects of less than US$40 million, an advantage not only possessed by Ho Chi Minh City. Binh Duong boasts a quicker investment licensing time-limit (3 days) than most other provinces (15-30 days).
 
 
Plan-makers in Hanoi want to make the mechanical engineering industry the capital city’s spearhead industry by 2010, forecasting that the industry will account for 37% of the capital’s output. To encourage the industrial development, Hanoi plans to build a 300-350 ha industrial zone in the city’s Soc Son district by 2010.
 
Industrial zones in the city of Hue, Bac Ninh province and Ha Tay province also give great incentives to mechanical engineering enterprises.
 
5. Government’s policies on the development of the mechanical engineering industry
 
The Government’s strategy for the development of the industry between 2002 and 2010 encourages more domestic research and advocates less dependence on imports. By 2010, the government envisions a domestic supply of 60% to 70% of prime movers and the capability to produce 50 horsepower (HP) agricultural tractor engines.
 
Companies are encouraged to produce mechanical products under the terms of Resolution No. 11/NQ-CP dated 30 July 2000. It stipulates that mechanical manufacturers can secure soft loans for 12 years at a low interest rate of 3% per year, and they will enjoy a two-year grace period.
 
The mechanical engineering strategy pledges exemption or reduction of tariff rates on imported raw materials and necessary components. The government also pledges to lower or impose zero tax rates on certain mechanical products which are made in Vietnam for the first time.
 
It also promises to offer financial support, when possible, to mechanical engineering firms that wish to acquire specialists, designs or technologies from foreign transferors if the cost of the transfer is beyond the Vietnamese firm’s financial ability.
 
 
 
The trend of international cooperation and integration urge consistent and comprehensive policy of the government as well as adequate investment in the field. It is targeted that by 2010, the capacity of Vietnam mechanical industry will be 10.7 times higher than the current capacity and the total annual revenue will mount to US$5.7 billion. The government has asked the engineering industry to increase technological transferring and international cooperation in personnel training and scientific research to boost its development.
 

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