"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
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
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
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
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
– 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.
Disclaimer:This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm's
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