The Hanoitimes - Vietnam’s policy on tightening control over imported automobiles can encourage South Korean investors to set their car parts production bases in Vietnam, according to the Nhip Cau Dau Tu magazine.
While Huyndai Group is considering where to locate its factory, Vietnam or Indonesia, Pyeong Hwa Automotive, a South Korea-based company specialized in auto parts manufacturing has poured US$16.7 million in a project at DEEP C 2A IZ, in Dinh Vu-Cat Hai economic zone.
Frank Wouters, general director of Dinh Vu Industrial Zone JSC, explained special incentives the company gives to Pyeong Hwa. Firstly, this is currently the biggest client in DEEP C II and the first private client in the automotive industry.
Secondly, Wouters affirmed, the South Korean firm has planned the next phase of its its project quite early while shaking hand with South Korean suppliers in producing car parts.
That South Korean businesses invest in making car or car parts in Vietnam is nothing new.
In a diplomatic note sent to the Vietnamese government in early 2018, the then South Korean Ambassador Lee Hyuk to Vietnam said, new regulations of the country, including Decree 116 that tightens control over imported automobiles, “positively influence” South Korean auto firms’ investment decisions.
Yet, the decree is not the only reason that urges South Korean investors to pour money into projects on making car parts in Vietnam.
There are other factors as well, including the saturation of the world market which has led to a drop in exports, domestic sales and manufacturing in South Korea.
According to a report by the Korea Automobile Manufacturers Association (KAMA), the country made 2,162,000 vehicles in the first six months of 2017, a 1.5 % year-on-year decline against 2016, marking the lower production since 2010.
However, the auto industry of South Korea owns an effective supply chain which its leading firms can take of advantage to reach out to international markets.
After one year examining seven Southeast Asian countries, Lee Jae Seung, chairman of Pyeong Hwa Automotive said he picked Vietnam as the firm’s production base due to the country’s “young labor force and strategic geographic location.”
As planned, the plant of Pyeong Hwa in Vietnam will be operational by September 2019 with the target of 7.5 million items to be produced per year.
Lee said the major goal of Pyeong Hwa is selling automobile parts to Southeast Asia, which may include Vietnam’s Vinfast - the automotive arm of conglomerate Vingroup.
"We plan to turn the Vietnam plant into the biggest one among Pyeong Hwa's 18 factories worldwide”, Lee Jae Seung noted. The plant, once in place, would help reduce the cost and raise the convenience for supplying our products in the Southeast Asian market, the leader of Pyeong Hwa specified.
Vietnam auto industry is in its dawn, Lee Jae Seung said. Hence, in the short term Pyeong Hwa will purchase auto parts from South Korean suppliers. In the long term, the group would choose made-in-Vietnam auto parts for its manufacturing, said Lee Jae Seung.
Investment from South Korea in Vietnam remains strong. The Northeast Asian country is the second largest source of foreign direct investment (FDI) for Vietnam in the first six months of this year, second only to Japan. During the reviewed period, South Korean firms invested US$5.06 billion or 24.9% of total investment to the country.
The number of auto parts investors in Vietnam remains modest, though it would bounce in the time ahead with some firms eyeing the country as their next play ground, said the Chairman of Pyeong Hwa.
Vietnam’s auto sales in the first six months of 2016 decrease 6% against the same period last year to 125,659 units, according to the Vietnam Automobile Manufacturers' Association.