To the same design of reflective clothing item required by an American buyer, Vietnamese partners can only sell at FOB (free on board) US$55/item, while Chinese companies are selling at US$27/item. With tariffs added, Chinese companies can still provide at lower costs than Vietnamese companies, according to a report by FiinGroup. The reason is that Vietnamese companies have to import most of the raw materials (fabrics, reflective piece) from China, leading to the fact that many US customers continue to buy from their partners in China, or from FDI companies manufacturing in Vietnam.
In US – China trade, top four export items to the US include electrical machinery and equipment; machinery; furniture; and clothing represents 61% of total export value while it is 65% for Vietnam with the same items.
Given this similarity and the geopolitical landscape, the trade ward between US and China has resulted in a shift of import orders from China to Vietnam by the US importers. This happened at all four main import items especially electrical machinery & equipment where import from Vietnam witnessed 87% growth over the first five months of 2019 compared to the same period last year while it is a decline of 13% with China, revealed FiinGroup’s data.
However, the main exporters are foreign-invested enterprises (FDI). Local companies only accounted for a small proportion of Vietnam’s export to the US.
Export of Clothing
This is the main export item from Vietnam to the US. However, Vietnamese companies only accounted for 16% of the export value for the last 12 months. Although export value grew exponentially, it is mostly attributed to FDI companies based in Vietnam.
During this context, South Korean and Japanese companies and especially Chinese (mainland and Taiwan) have established their facilities Vietnam to take advantage of the country’s open policy and FTAs.
South Korean clothing manufacturers is the biggest winner of US – China trade war, with 143 South Korean companies accounting for approx. 50% of the export value. Most of them are subsidiaries of giant South Korean OEM manufacturing corporations such as Hansoll, Sae-A, Nobland and Hansae.
These corporations entered Vietnamese in early 2000s and have developed well-established supply chains. Some companies such as Hansae and Nobland even opened supporting factories such as fabric dyeing factory, packaging factory in Vietnam to support its main production.
Local companies’ presence in export remained modest at 16% throughout June 2018 – June 2019. Only prestigious local manufacturers such as Ha Phong, Gia Phu, Song Hong, L&T, among others, have sufficient capacity and experience to approach foreign buyers. The majority of Vietnamese companies are still small-sized and do not meet foreign buyers’ requirements regarding quality, quantity and cost.
Export of phones and parts
South Korean and Taiwanese companies contributed 98% of Vietnam’s total export of phones and parts, whose majority is composed of export from Samsung and Foxconn. Exponential growth (87%) of export value of electrical machinery, equipment in first five months of 2019 was also thanks to these two corporations.
Vietnamese companies only contribute indirectly to export growth: Without enough raw materials, skills and supply chain, most local companies only manufacture mobile phone parts and accessories to supply for Samsung and Foxconn. Benefits to Vietnam is also very limited at increase in tax revenue, employment rate, among others.
Key players in Furniture and Machinery sectors
For Furniture and Machinery, again, top players by revenue are foreign invested. However, each has a Vietnamese company on the top five.
Most companies that registered the highest growth value are from Greater China, United States and Japan. The production of these companies mostly serve foreign market; thus, their performance is directly influenced by the US – China trade war.
Meanwhile, very few Vietnamese companies witnessed exceptional revenue growth in 2018. Like clothing and electrical equipment and machinery industries, furniture and machinery also suffer from the lack of raw materials. Having to import goods, machinery parts from overseas, production cost of local companies might be much higher than that of FDI companies.
