According to Decision No. 177/2004/QD-TTg dated October 05th, 2004, promulgated by The Prime Minister, approving the planning on development of Vietnam’s automobile industry till 2010, with a vision to 2020, Vietnam has to achieve the goal of developing Vietnam’s automobile industry by acquiring and applying world’s advanced technologies. By exploiting and gradually improving existing technologies and equipment, Vietnam’s automobile industry, at first, has to meet most of the requirements of domestic automobile market, and then, moving toward exporting automobile and accessory. Specific goals need to be achieved: - Popular automobiles: meet 40-50% of the domestic demand in terms of quantity and get a localization rate of 40% by 2005; meet above 80% of the domestic demand in terms of quantity and get a localization rate of 60% by 2010 (For engines, the localization rate shall reach 50% by 2010, and for gearbox, it shall reach 90% by 2010). - For special-use automobiles: meet 30% of the domestic demand in terms of quantity and get a localization rate of 40% by 2005; meet 60% of the domestic demand in terms of quantity and get a localization rate of 60% by 2010. - For high-class automobiles: Tourist cars manufactured by joint ventures must reach the localization rate of 20-25% by 2005, and 40-45% by 2010. For high-class buses, the localization rate shall reach 20% by 2005 and 35- 40% by 2010, meeting 80% of the domestic requirement. Although specific goals were set, almost all of the goals have not been met till now. For instance localization rate just reaches 12% and the prices are too high compared to the income of Vietnamese. It could probably be caused by many different reasons, among of which the main reason is we did not foresee the difficulties and complexity of automobile industry. For example, Thailand, a leading country in East Asia in automobile manufacture with production of 1.2 million vehicles/year, does not have its own brand name cars. It does not mean that Thailand automobile industry is underdeveloped because it has 700 car components manufactures and 1000 auxiliary manufacturers, turning Thailand into a reliable supplier to most of car manufacturers in the world. In China, automobile industry has been developed for 30 years and protected by the government. Till now, there are just few so-called “big manufacturers” out of 2500 car manufacturers and car components manufacturers in China. Annual turnover of China’s Automobile Industry is lower than car sales of a medium-sized car manufacturer in Japan, USA or Europe. In India, the first car appeared in 1898. Since then, India has attached special importance to development of automobile industry. However, due to its economic characteristics, cars manufactured in India serve middle class or lower classes only. India automobile industry is more and more developing and becomes a “power” in automobile industry worldwide. India is now the second biggest motorcycle manufacturer in the world; ranks 11th in manufacturing tourist cars and ranks 13th in manufacturing commercial cars. India is now an ideal destination for many big manufacturers in the world and realizes its ambitions to be a leading center for automobile manufacturing in 2016 with “Action Plan of Motors”. Its goal is to reach production of 32 million vehicles in period of 2015-2016 with total investment of 35-40 billion US dollars. Above analyses help to produce the judgment that it takes many years to develop our automobile industry, depending on the development of our economy and on related industries. Therefore, it is necessary to analyze development ability of Vietnam’s automobile industry based on its current status, requirements and ability to satisfy the requirements.
Trang 1SOLVAY-BRUSSELS SCHOOL OF
ECONOMICS AND MANAGEMENT
NATIONAL ECONOMICS UNIVERSITY
Vietnam – Belgium Master Programs MASTERS IN PUBLIC MANAGEMENT AND ECONOMICS
FINAL PROJECT
ROLE OF STATE IN THE DEVELOPMENT OF VIETNAM’S AUTOMOBILE
INDUSTRY FOR THE PERIOD 2011 - 2020
Prepared by: Hoa Ngoc Tu Supervisor: Do Thi Hai Ha PhD
Hanoi 2011
TABLE OF CONTENTS
ACKNOWLEDGEMENT 2
TABLE OF CONTENTS 3
LIST OF ABBREVIATIONS 5
LIST OF TABLES & FIGURES 6
Chapter 1 INTRODUCTION 7
1.1 RATIONALE 7
1.2 RESEARCH OBJECTIVES 8
1.3 RESEARCH METHODOLOGY 8
1.3.1 Research methods 8
Trang 21.3.1.2 Main factors influencing Vietnamese automobile industry: 10
1.3.1.3 Assessment of role of the government: 12
1.3.1.4 Recommendations to improve the current situation: 12
1.3.2 Data collection 13
1.4 SCOPE OF RESEARCH 13
1.6 PROJECT STRUCTURE 13
Chapter 2 OVERVIEW OF VIETNAM’S AUTOMOBILE INDUSTRY 14
2.1 THE FORMATION AND DEVELOPMENT OF VIETNAM’S AUTOMOBILE INDUSTRY 14
2.1.1 Development of car assembly joint venture enterprises 14
2.1.2 Development of domestic automobile manufacture/assembly enterprises 16 2.1.3 Vietnam’s domestic automobile market 17
2.2 CONTRIBUTION OF VIETNAM’S AUTOMOBILE INDUSTRY 19
2.2.1 Contribution to economic development through investment 19
2.2.2 Contribution to state budget 19
2.2.3 Creating jobs 20
2.2.4 Technology transfer 21
2.3 FACTORS AFFECTING THE DEVELOPMENT OF VIETNAM’S AUTOMOBILE INDUSTRY 21
2.3.1 Internal factors 21
2.3.2 External factors 23
Chapter 3: ROLE OF STATE IN THE DEVELOPMENT OF VIETNAM’S AUTOMOBILE INDUSTRY 26
3.1 STATE’S ORIENTATION ON THE DEVELOPMENT OF VIETNAM’S AUTOMOBILE INDUSTRY 26
3.3 INCENTIVE POLICIES 28
3.4 SUPERVISION ON REGISTRATION AND QUALITY CONTROL 29
3.4.1 Government apparatus 29
3.4.2 Assessment of coordination among government apparatus 31
3.5 OVERALL ASSESSMENT OF STATE’S REGULATIONS ON THE DEVELOPMENT OF VIETNAM’S AUTOMOBILE INDUSTRY 32
3.5.1 Achievement 32
3.5.2 Shortcomings 33
Trang 33.5.3 Reasons for shortcomings 34 3.5.3.1 Internal factors 34 3.5.3.2 External factors 34
Chapter 4: RECOMMENDATIONS FOR IMPROVING STATE’S
REGULATION ON THE DEVELOPMENT OF VIETNAM’S
AUTOMOBILE INDUSTRY FOR THE PERIOD 2011 – 2020 36 4.1 FORECASTING THE TREND OF DEVELOPMENT OF VIETNAM’S
AUTOMOBILE INDUSTRY IN THE PERIOD 2011-2020 36 4.1.1 Three main trend for global automobile industry: 36 4.1.2 Development orientation by government in other countries for
development of automobile industry 37 4.2 Development orientation for Vietnam’s automobile industry 38
4.3 RECOMMENDATIONS FOR IMPROVING STATE’S REGULATION
ON THE DEVELOPMENT OF VIETNAM’S AUTOMOBILE
INDUSTRY FOR THE PERIOD 2011 – 2020 39
REFERENCES 47
Trang 4LIST OF ABBREVIATIONS
ASEAN: The Association of Southeast Asian Nations
CP: Government
GDP: Gross Domestic Product
R&D: Research and Development
SUV: Sport Utility Vehicle
VAMA: Vietnam Automobile Manufacturer Association
WTO: World Trade Organization
2.5: Engine capacity of 2.5 liter
Trang 5LIST OF TABLES & FIGURES
Table 2.2 The sale of cars of VAMA’s members in 2010 17
Table 2.3 Comparing prices between domestic cars and foreign cars(brand new cars)
18
Table 2.4 Investment capital of some VAMA’s members 19
Table 2.5 Contribution to state budget from car manufacture joint venture enterprises
20
Table 2.6 Number of employees working in car manufacture joint venture
enterprises 20
Table 2.7 Comparing income of employees in Vietnam and in other countries 22
Table 2.8 Number of annual exported cars 23
Trang 6Chapter 1 INTRODUCTION
1.1 RATIONALE
According to Decision No 177/2004/QD-TTg dated October 05th, 2004, promulgated
by The Prime Minister, approving the planning on development of Vietnam’s
automobile industry till 2010, with a vision to 2020, Vietnam has to achieve the goal of
developing Vietnam’s automobile industry by acquiring and applying world’s advanced
technologies By exploiting and gradually improving existing technologies and
equipment, Vietnam’s automobile industry, at first, has to meet most of the
requirements of domestic automobile market, and then, moving toward exporting
automobile and accessory Specific goals need to be achieved:
- Popular automobiles: meet 40-50% of the domestic demand in terms of quantity
and get a localization rate of 40% by 2005; meet above 80% of the domestic demand in
terms of quantity and get a localization rate of 60% by 2010 (For engines, the
localization rate shall reach 50% by 2010, and for gearbox, it shall reach 90% by 2010).
- For special-use automobiles: meet 30% of the domestic demand in terms of
quantity and get a localization rate of 40% by 2005; meet 60% of the domestic demand
in terms of quantity and get a localization rate of 60% by 2010.
- For high-class automobiles: Tourist cars manufactured by joint ventures must
reach the localization rate of 20-25% by 2005, and 40-45% by 2010 For high-class
buses, the localization rate shall reach 20% by 2005 and 35- 40% by 2010, meeting 80%
of the domestic requirement.
Although specific goals were set, almost all of the goals have not been met till now For
instance localization rate just reaches 12% and the prices are too high compared to the
income of Vietnamese It could probably be caused by many different reasons, among
of which the main reason is we did not foresee the difficulties and complexity of
automobile industry For example, Thailand, a leading country in East Asia in
automobile manufacture with production of 1.2 million vehicles/year, does not have its
own brand name cars It does not mean that Thailand automobile industry is
underdeveloped because it has 700 car components manufactures and 1000 auxiliary
manufacturers, turning Thailand into a reliable supplier to most of car manufacturers in
the world.
In China, automobile industry has been developed for 30 years and protected by the
government Till now, there are just few so-called “big manufacturers” out of 2500 car
manufacturers and car components manufacturers in China Annual turnover of China’s
Automobile Industry is lower than car sales of a medium-sized car manufacturer in
Japan, USA or Europe.
In India, the first car appeared in 1898 Since then, India has attached special
importance to development of automobile industry However, due to its economic
characteristics, cars manufactured in India serve middle class or lower classes only.
India automobile industry is more and more developing and becomes a “power” in
automobile industry worldwide India is now the second biggest motorcycle
manufacturer in the world; ranks 11 th in manufacturing tourist cars and ranks 13 th in
manufacturing commercial cars India is now an ideal destination for many big
manufacturers in the world and realizes its ambitions to be a leading center for
automobile manufacturing in 2016 with “Action Plan of Motors” Its goal is to reach
Trang 7production of 32 million vehicles in period of 2015-2016 with total investment of 35-40
billion US dollars.
Above analyses help to produce the judgment that it takes many years to develop our
automobile industry, depending on the development of our economy and on related
industries Therefore, it is necessary to analyze development ability of Vietnam’s
automobile industry based on its current status, requirements and ability to satisfy the
requirements.
1.2 RESEARCH PROBLEMS
To get the goals set for the period of 2011-2020, some research problems to
be implemented are as follows:
1 Current status of Vietnam Automobile Industry;
2 Requirements for developing automobile industry; and
3 Ability to satisfy the requirements
1.3 RESEARCH OBJECTIVES
Proposing comprehensive solution to develop Vietnam Automobile
Industry for the period of 2011-2020
1.4 RESEARCH METHODOLOGY
1.4.1 Research methods
In order to analyse the existing problems of Vietnamese automobile
industry and the current role of Vietnamese government in supporting the
industry, as well as to make recommendation for a better government role
in supporting the industry, the following approaches are undertaken: (i)
SWOT anlysis where strengths, weaknesses, opportunities and threats to
Vietnamese automobile industry are analysed; and (ii) knowledge and
approaches learnt from the classes on Role of State in a Market Economy
which was lectured by Prof Daniel Van Houte;Throughout this thesis, the
roles played by the following actors and the interactivity of these actors
will be analysed carefully
The approaches undertaken have helped identify the following findings:
1.4.2 Actors involving in the Vietnamese automobile industry
Government: The government has played a significant role in Vietnamese
automobile industry Through the tax policies, protectionism policies,
environment rules, liberalisation of automobile sector (under its FTA
negotiations) and infrastructure development, the ministries and agencies of
Vietnamese government has created substantial influence on the industry
CONSUMERS
Trang 8Domestic car makers: The domestic car makers comprises mainly two
groups They are joint venture companies between a Vietnamese partner
and a FDI enterprise These joint ventures companies in fact mainly
assembled cars based on the supplies of car parts imported into Vietnam
Cars importers: They include two main groups as follows: importers of
Completely Built Units (CBU vehicles - - brand new cars), and importers
of used cars Currently, the car importers operating in Vietnam are mainly
Vietnamese trading companies, but there is a tendency showing that some
domestic car makers are expanding their business to importing CBU
Association: The Vietnam Automobile Manufacturing Association
(VAMA) is the only one association represeting the car makers and car
importers By the end of 2010, VAMA had eighteen members This
association is having a stronger voice influencing the government’s
policies Nonetheless, its recommendations about policies to the
government are mainly encouraging protectionism because the VAMA
members, most of them are car makers, enjoy lots of benefits from
protectionist policies
Accessories industry: Vietnam has a very premature accessories industry
which lack capital, advanced technologies, and skilled workers Most
importantly, the accessories industry of Vietnam fails to create a strong link
with car makers, and at the same time does not have a development
strategy for itself
Consumers: The role of Vietnamese consumers in this respect are evolving
rather quickly They are moving from preference for cheap used cars to the
choice of medium priced vehicles as their income get improved in the
recent years However, besides the improving purchase power, Vietnamese
consumers have not yet had an influential voice to protect themselves
because of the limited role played by the Vietnamese Consumers Protection
Association
1.4.3 Main factors influencing Vietnamese automobile industry:
SWOT analysis, as described briefly in the table below, will go closely with
all details of this thesis In particular, the factors reflecting the environment
in which the automobile industry operates are more clearly seen through
Trang 9- under-developped accesory industry;
OPPORTUNITIES
- Improving incomes of people;
- Huge market of 86 million
people;
Potential exports of CBU and car
parts under existing and future
Government direct policies: The policies enacted by the government of
Vietnam create the strongest direct and indirect influence on the situation
of the automobile industry Strong protectionist policies on tariffs, mostly
seen before 2007, the year when Vietnam officially joined the World Trade
Organisation, and particularly before 2000 induced the establishment of
many domestic car makers Meanwhile, the trade liberalisation policy of
the government, which commenced with Vietnam’s WTO membership in
January 2007 and intensified with the signing of several FTAs (CEPT with
China and ASEAN, Vietnam-Japan FTA, FTA between Vietnam and
Australia-New Zealand…), has resulted in the growing number of trading
companies operating in cars importation
Government indirect policies: The indirect policies of the government
such as stimulus measures applied by the government in 2009 and 2010
have shown significant increase in the purchase of cars At the same time,
pending policy on environment tax (which is under the discussion of the
National Assembly in a draft Law on Environment) is believed to create
discouragement to car users The government’s investment in construction
of roads a bridges are certainly influencing the consumers’ decision on
buying cars
Technology and capital availability: This factor depends a lot on foreign
investors In fact, most of the technologies currently used by domestic car
joint ventures are not advanced Model of cars assembled in Vietnam are
often two years later than those made in foreign countries Regarding
capital source, Vietnamese car assembling joint ventures depend a lot on
foreign partners with as much as 70% of the capital contributed by foreign
partners The under-developed accessories industry of Vietnam, which
Trang 10lacks both capital and technologies, is strong evidence for the weakness of
the automobile industry in this respect
Consumers’ habits and income: Vietnamese consumers’ income is
improving quickly from a GDP per capita worth USD331 in 1996 to more
than USD1156 in 2009 As a result, more and more Vietnamese people can
afford a car Importantly, because the number of people having cars in
Vietnam presently is relatively low, thus the potential of this market is
huge The consumers’ habit has similar importance on business decisions
of car makers and importers
To determine the appropriate role of the government in developing the
automobile industry of Vietnam, the above factors should be taken into full
consideration
1.4.4 Assessment of role of government:
The government’s decision on supporting the development of Vietnam’s
automobile is legitimate and right given the important source of tax
collection, jobs creation, and the industrialisation and motorisation targets
However, the policies taken by the government are not well-coordinated
and not visional The policies are even conflicting and keep changing
during different periods of time which are demonstrated through the
changing import tariffs, special consumption taxes, and changing
orientation of priortised types of vehicles Now time does not support the
government of Vietnam especially since Vietnam signed a number of FTAs
with foreign partners, in which bound rates for CBU cars of below 9
seaters are foreseen to be 60% in 2013 to 0% in 2018 under the CEPT
The government is now facing a big question: (i) continuing its support to
domestic car makers, so that Vietnam may have a car brand Made in
Vietnam in future; (ii) and/or developing a strong accessories industry to
become part of the regional supply chain of car parts It is crucially
important to have a secure and visional answer to this question sooner
rather than later The analysis, as presented later in this thesis, has proved
that the policies taken by the government of Vietnam so far are inconsistent
and partially unsuccessful
1.4.5 Recommendations:
The government of Vietnam should review the development strategy for
automobile industry in a practical manner and well-connected with its
macro development policies Priorities should be given to development of
accessories industry where Vietnam can reap considerable benefits from its
participation in the regional supply chain of car parts At the same time, the
government should maintain a consistent support to two types of vehicles
affordable to and mostly used by Vietnamese people They are: (i) the first
Trang 11type of car recommended in this thesis is five-seaters sedan below 1 litre
engine This type of cars is friendly to environment, cheap price, and not
subject to any commitment of FTAs liberalisation; (ii) the second type of
vehicles/ cars is bus of 30 seaters, which can be used more efficiently in
future given the demand of public means of transport
1.5 SCOPE OF RESEARCH
Research objectives:
Research objectives of this thesis are problems related to Vietnam’s
automobile industry including manufacturing sector, supporting industries,
sale and import, supporting policies of the state
The research focuses on the elements of Vietnam's automobile industry On
the basis, appropriate and feasible solutions to develop are proposed
Scope of research:
Time: from the establishment of the first automobile manufacturing joint
venture company (1991) to 2010
Space: The research focuses mainly on development activities of VAMA’s
members and refers to activities of some other automobile enterprises
In addition, the research will have study on success of the automobile
industries of Thailand, China and India The research tries to give a more
comprehensive view of the automobile industry of Vietnam and
development orientations for the automobile industry in Vietnam
3 Chapter 3: ROLE OF STATE IN THE DEVELOPMENT OF
VIETNAM’S AUTOMOBILE INDUSTRY
4 Chapter 4: RECOMMENDATIONS FOR IMPROVING STATE’S
REGULATION ON THE DEVELOPMENT OF VIETNAM’S
AUTOMOBILE INDUSTRY FOR THE PERIOD 2011 – 2020
5 Conclusions
Trang 12To properly assess the formation and development of Vietnam’s
automobile industry, we can start from beginning of the past 1990s
Before 1990, there were about 38,212 registered cars in Vietnam, including
Gat, Lada, Zil, Volga, Zil, Uaz, Lada, Gat, Peugeot, Ford, Jeep, Paz, etc
In 1991, many famous car manufacturers in the world such as Ford, Toyota
and Mercedes-Benz participated in automobile joint venture enterprises in
Vietnam In 2003, there were 11 joint venture enterprises in Vietnam with
total investment capital of 543,429 million US dollars, total production of
148,900 cars/year and creating jobs for more than 3,000 employees
Until now, there are 18 automobile enterprises nationwide joining in
Vietnam Automobile Manufacturer Association (VAMA), not including
some other automobile manufacturers such as 1/5 motor factory, JRD
motor factory, Cuu Long motor factory, etc
It can be said that the formation of joint venture enterprises which
specialize in manufacturing, assembling cars in Vietnam recognizes
Vietnam as a potential automobile market
2.1.1 Development of car assembly joint venture enterprises
Table 2.1 Establishment of car assembly joint venture companies in
Vietnam
No Car makers/ status of capital Status of Operation
1 Mekong auto company:
JV between Vietnam, Japan,
and South Korea;
- Operation started in1992;
continues;
Trang 14- Operation continues;
- License withdrawn;
13 Hino Motors Vietnam:
JV between Vietnam and
Japan
- Operation started in1996;
- Operation continues;
Trang 15JV between Vietnam,
Denmark and Japan
- Operation continues;
- Operation continues;
- Operation continues;
Source: Ministry of Planning and InvestmentWe find that most of the
world’s leading car manufacturers from three automobile centers of USA,
Europe and Japan are present here in Vietnam Total investment capital is
over 700 million USD, total legal capital is over 400 million USD and total
designed capacity is about 200,000 cars/year Joint venture enterprises play
a key role in automobile industry They turn Vietnam’s Automobile
Industry from zero into fulfilling domestic automobile demand
State-owned enterprises such as Transinco, Veam also contribute to
development of Vietnam’s automobile industry although their contribution
is still small We have now 52 domestic enterprises involving in
assembling vehicles but the production is still low and the technology is
Trang 16still underdeveloped Therefore, referring to Vietnam's automobile
industry, most people only talk about the operation of 11 automobile
manufacture/assembly joint-venture enterprises
On the other hand, production and assembly of automotive joint venture
companies in Vietnam has not shown modernity in automobile
manufacturing A standard car factory must have at least four basic
processes, including stamping, welding, painting and assembly, whereas
the automobile joint ventures in Vietnam (except for Toyota which has
stamping process) have only 3 last processes (welding, painting and
assembly) All these 3 processes do not require high technology, thus not
improve the localization rate of products
After this period, the joint ventures develop more car styles, pay attention
to importing cars (e.g., Mercedes, Toyota) Besides, there are some
motorcycle manufacturing joint ventures investing in automobile
production They are VMEP and HONDA These joint venture companies
have created a quite busy automotive market in our country
2.1.2 Development of domestic automobile manufacture/assembly
enterprises
After the appearance of the car manufacturing joint venture enterprises,
domestic automobile factories have gradually formed and developed as
Truong Hai, Vinaxuki, Cuu Long, Veam, etc
In domestic car assembly enterprises, they focus primarily on light trucks
providing mainly for domestic market and avoiding competition with other
brands of joint venture enterprises such as Truong Hai with Proto, Force;
Xuan Kien with Vinaxuki; Cuu Long with TMT Afterwards, some
domestic factories have begun to assemble individual cars (sedans) with
little-known and low price brands such as Xuan Kien with Chinese brands,
Truong Hai with Kia, Hyundai (Korea) and more recently, Mazda (Japan)
Overall, the domestic automobile factories are less developed, they only
specialize in car assembly, and they do not have private car brand because
of weak financial resources and automotive technology
Currently, Vietnam’s automotive industry specializes in assembly only,
including the following types:
- SKD (Semi Knocked Down): cars to be assembled from
components, cluster, imported unconnected details
- CKD (Completely Knocked Down): is a complete kit needed to
assemble a product There are two forms of this type: CKD1 and
CKD2
- IKD (Inteopally Knocked Down) cars to be assembled from
components, cluster, unconnected details Unconnected details can
Trang 17be imported or made in Vietnam Body and chassis are made in
Vietnam
While some regional countries like Thailand, Indonesia is focusing in depth
on the type of IKD, both 11 automobile joint ventures in Vietnam have
recently moved from simple assembly (SKD) to detailed assembly (CKD)
2.1.3 Vietnam’s domestic automobile market
In December, 2010, turnover of members of VAMA got 12,485 vehicles,
17% decrease compared to that of December, 2009 In which, sale of
multi-purpose vehicles fell 19%, cars 21% and commercial vehicles 13%
Output of entire sales in 2010 reached 112,224 vehicles, 6% decrease over
the same period last year with decrease of commercial vehicles of 4%, cars
of 3% and multipurpose vehicles of 13% (See summary table below)
Table 2.2 The sale of cars of VAMA’s members in 2010
North Central South Total
Vehicle consumption is reduced compared to that of the previous year due
to inflation in the economy and high exchange rate between Vietnam dong
and the dollar Also, it can also be seen that car consumption in our country
is quite low compared to that of the region and the world The reason is:
- First, Vietnam's market is too small compared with the car industry,
per capita income is low According to calculations by economists, a
country must achieve GDP per capita of about $ 1,000 per year to
create a large enough market for the automotive industry with stable
profit and over $ 3,000 per year to ensure a rapidly-developed
automobile industry Whereas, Vietnam has achieved GDP of
approximately U.S $ 800-1000 per year per person
- Second, massive import of old cars, which are cheaper than cars
manufactured by automobile joint ventures, reduces market share of
automobile joint ventures in Vietnam Massive import of new cars
Trang 18with equivalent price also affects the market share in the same way
in one hand and in the other influences to demand side
- Third, the price of cars produced and assembled in Vietnam is much
higher than the price in the region and in the world The reason is
that most of the parts and components are imported
One important reason is that the automobile industry of Vietnam is very
young, only developed in about 10 years so most plants are new with high
capital investment and long period of depreciation These should lead to
high cost and low competitiveness
Table 2.3 Comparing prices between domestic cars and foreign cars(brand
2.2 CONTRIBUTION OF VIETNAM’S AUTOMOBILE INDUSTRY
Being a young industry in Vietnam, Vietnam’s automobile industry has
certain contribution to Vietnam economy, as follows:
2.2.1 Contribution to economic development through investment
Vietnam’s automobile industry contributed a very big amount of
investment capital to the economy For joint venture enterprises, till June,
2001, total investment capital was 326,813 million USD, making up 2.39%
of total foreign investment capital This amount of capital is equivalent to
total capital of Vietnam’s mechanical industry after 40 years of
establishment This is a very high rate, initially confirmed the role of the
automotive industry for the economic development of Vietnam
According to VAMA, investment capital of several members of VAMA is
as follows:
Table 2.4 Investment capital of some VAMA’s members
Trang 19No Name Total investment capital
(USD)
Legal capital(USD)
Compared with the initial capital investment (Table 2.1), the investment
level increased significantly
2.2.2 Contribution to state budget
In the early 2000s, the automobile production joint ventures have
contributed significantly to the state budget The total contribution of joint
ventures to the state budget by the end date of 30/06/2001 is 154,323,000
Dollars If calculated by the method of simple averages, the average
contribution rate in the period 1996-2000 is $ 30,864,600 per year
In 2000, the vehicle sale is increased sharply; the joint ventures have
contributed to state budget with a record amount of $ 45,467,846
Table 2.5 Contribution to state budget from car manufacture joint venture
Trang 20Source: Ministry of Industry
According to VAMA, only 18 members of VAMA for 6 years from 2000
to 2006 have contributed $ 1.2 billion in taxes to the state, creating stable
jobs for 8,500 employees in the automotive sector in particular and about
35,000 workers in supporting industries
Some domestic automobile enterprises are successful in making their own
automotive brands such as Samco Vietnam, Truong Hai Auto, Vinaxuki…
Their products are more or less known to the domestic market These
enterprises play an important part in economic development Their
products involve in the public sector, agriculture, industry and services
Source: Ministry of Industry
For Truong Hai Company, till 2010, number of employees was up to 1,500
persons
Trang 212.2.4 Technology transfer
Most production lines contributed by the foreign partners of the joint
venture enterprises were made in the early of the 90s in leading
industrialized countries Therefore, these lines are still in good condition
with high performance and enable the production of modern products
However 100% of these production lines are only for assembly form of
CKD2 (some components have not been assembled into the frame), IKD1
(localization ratio below 10%) will not stimulate the production of parts
and accessories in Vietnam, but mainly develop assembly technology In
addition, all the R& D are conducted in foreign firms, not Vietnam, so
Vietnamese engineers just follow all the instructions from the foreign side
and they do not have condition to develop their professional ability
2.3 FACTORS AFFECTING THE DEVELOPMENT OF
VIETNAM’S AUTOMOBILE INDUSTRY
2.3.1 Internal factors
In general, according to development strategy of Vietnam’s automobile
industry in period of 2001-2010, goal of protection of domestic automobile
industry was got basically Otherwise, prices were too high compared to
world’s price level and the goal of development of Vietnam’s automobile
industry failed There are many reasons for that but one important reason is
we have regulated the industry with a single tool in more than 10 past
years It is tax Whereas, we ignored many other factors such as new
technology, quality control, etc
Another reason for that is ability of management levels They do not
distinguish between domestic manufactured cars and domestic assembled
cars
Hereafter, we consider some internal factors affecting the automotive
industry as follows:
Low income:
People's income remains very modest compared to other countries in the
region and the world Therefore, most people are using less expensive
vehicles, such as buses, motorcycles, bicycles In a past few years, although
the number of people belonging to the middle class in Vietnam has
increased but the number of people buying cars is still low
Table 2.7 Comparing income of employees in Vietnam and in other
countries
(USD/year)
Difference(times)
Trang 22Inconsistency and frequent change of policy:
According to feedback from the domestic automobile enterprises,
production and business environment in Vietnam still lacks the conditions
for them to focus on long-term plans such as investment in manufacturing
components and parts, investment in production of heavy-duty vehicles,
multiple-seat buses They said that government policies, particularly tax
policy, often change and are unreasonable causing many troubles At
present, we only have two tax levels (CKD1 and CKD2) for CKD tariff,
one tax level for spare parts For example, tax level for importing spare
parts of under 5 seat cars is 60% of CIF value Therefore, fewer than 5 seat
cars assembled in Vietnam are protected by tariffs and excise taxes of
320% of CIF value Whereas the imported components for assembly in the
form CKD2 pay only 20% import duty and VAT of 5% The lack of
uniformity was one of the causes of fraud and tax evasion of opportunists
Within about tariffs for imported components, the Ministry of Trade and
Industry and Ministry of Finance has not yet agreed Therefore, they can
not support domestic production
Poor infrastructure:
Currently, many Asian countries have quite good high-speed road system
like Singapore, Malaysia, Korea, China, etc., in which the ratio of the
length of the highway and the total length of road network is relatively high
(for example, 4.4% for Singapore and 2.5% for Korea) Whereas Vietnam
does not have a highway in the true sense of the word though Trung
Luong-Ho Chi Minh highway has just been put into operation 602
communes throughout the country also has no motor roads to the center
Furthermore, Vietnam is still in a serious lack of parking lots and garages
which are considered as indispensable static traffic system for
transportation by car