Market Insights

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Mergers and Acquisitions in Vietnam: A Complete Guide

Consultant inspecting a factory

 

Increasingly more companies seek to establish a presence in Vietnam through local M&A activities, a result of its growing manufacturing industry and domestic consumption. While the market experienced a slowdown from 2018 to 2020, it started to take off again in 2021.

Due to the increased interest in local M&A activities, we have written this article where we review Vietnam’s M&A market, the regulations, types of transactions, and the outlook.

Vietnam’s M&A Market

The M&A market in Vietnam has been growing fast since 2007, the same year as it joined the WTO.

In the first years, most investors came from foreign companies, including South Korea, Japan, Hong Kong, and Singapore. With that said, domestic Vietnamese investors have joined forces and are actively increasing their presence, both in terms of the number of deals and transaction values.

Acquiring a well-established local entity is a preferable market-entry strategy among many foreign companies, particularly in the consumer-related industries. Many Vietnamese brands are no longer owned by Vietnamese companies, but foreign ones.

For example, Sabeco, a state-owned beverage company with more than 100 years of experience was sold to ThaiBev in 2017, the largest transaction in Vietnam at that time. Kinh Do – who used to be the market leader with a 28% market share of confectionery in Vietnam, was also sold to Mondelez International in 2014.

Capturing the growing middle-income population in Vietnam, several finance-related sectors were also targets of foreign investors. Almost all consumer lending companies are also owned by foreign investors, at least partly. Examples include Home Credit (European), Shinhan Finance (South Korea), HD Saison with the involvement of Credit Saison (Japan), and MCredit with the involvement of Shinsei Bank (Japan).

Recently, SMBC’s purchase of shares in FE Credit from VPBank was known as one of the largest deals in 2021 in Vietnam, with a deal size of roughly 1.4 billion USD.

Graph showing M&A deals in Vietnam

Other finance-related industries, like insurance and banking, also receive more attention from foreign investors. Many non-life insurance companies in Vietnam now receive support from foreign strategic investors. One example includes BIDV Insurance Corporation with support from Fairfax Asia Limited (Canada), AXA (France), and Chevalier (Hong Kong). Bao Viet Holdings is another insurance company that got investments from Sumitomo Life (Japan).

Renewable energy is another industry that gets increasingly more interest from foreign companies. Solar energy projects that had Commercial Operation Dates (COD) before 31 December 2020 can enjoy fixed feed-in tariffs (FIT) set by the government.

This deadline for wind power projects was 31 October 2021. Hence, projects that were eligible for such FIT seem to be more attractive for investors, as their output is secured. With no fixed prices investors have more uncertainty which can be risky in Vietnam.

M&A Regulations in Vietnam

Like in other countries, M&A activities in Vietnam are subject to many regulations. The four most notable ones are the Investment Law, the Enterprise Law, the Securities Law, and the Competition Law.

These laws were revised between 2018 and 2020, in preparation for the booming trend of inbound and domestic M&A activities locally.

The Competition Law

The Competition Law on M&A transactions regulates Economic Concentration (EC). This can restrict M&A activities if they negatively affect competition in the market.

The National Competition Commission oversees this case-by-case and by various factors such as:

  • The combined market share of the related parties to the EC
  • The level of concentration pre- and post-EC
  • The relation of the businesses participating in the EC
  • The competitive advantage that the EC might bring to the market
  • Specific characteristics of each industry

Transactions that make any company own more than 50% of the market shares are not allowed to proceed with M&As, except in special cases. If the market share is 30% to 50%, the company is required to report the transaction to local authorities. However, it has become more difficult to enforce such regulations as the market share can be subjective to estimate, unless obvious.

Tender Offer

A tender offer is often required when buying secondary shares of a listed company, as explained in the Securities Law. This is an effort to ensure fairness among the existing shareholders.

In detail, if an M&A transaction increases a shareholder’s ownership from less than 25% to more than 25%, a tender offer is required. If a shareholder already owns more than 25% of a company and wants to increase the ownership, a tender is also required if the transaction results in ownership of 35%, 45%, 55%, and so on.

This is waived in some cases, especially when fairness has been ensured before the purchase of shares. For example, when it is the purchase of new shares issued by the company, or when the purchase of the secondary shares has been approved by the Board.

Foreign Ownership Limit

Foreign ownership is restricted in some industries. Hence, foreign investors are suggested to consult with local experts and do research carefully before deciding to kick off an M&A strategy in Vietnam. Otherwise, transactions could result in a large waste of money and human resources, as the deal was not allowed from the start.

Let’s take the example of the banking industry. Foreign ownership is capped at 30% for any commercial banks in Vietnam. A foreign individual is not allowed to own more than 5% of a Vietnamese financial institution. Also, a foreign organization is not allowed to own more than 15% of a Vietnamese financial institution, except when the organization is a strategic investor, then the cap is set to 20%.

Another industry that receives much attention among foreign investors is the logistics industry. Companies providing ocean freight or inland waterway transportation can only have 49% foreign ownership. This limit also applies to companies providing other types of transportation, with the cap of foreign ownership between 49% to 51%, depending on the nature of the business.

Veto Right

It is also important to consider the veto right in joint-stock companies (JSC). The Enterprise Law explains that important decisions by Boards require at least 65% approval of the shareholders.

In other words, any shareholder that owns more than 35% of a JSC has the right to disapprove significant decisions, including but not limited to changes in business scopes, changes in the managerial structure, approval of the sales of projects or assets that have the value of more than 35% of the total asset of the company.

The veto right is crucial to take into consideration before acquiring a JSC in Vietnam. Hence, 35% (or 65%) of the ownership of a company is an important threshold. It could help the investor to minimize their paid capital, while remain the right to approve important strategic decisions of the company.

It could also help the strategic investor to eliminate the interference of small shareholders while keeping their investment at the lowest level (only buy 65%).

Types of M&A Transactions in Vietnam

M&A transactions can be structured in different ways, with the most common one being the acquisition of shares or capital contribution of target companies. Each transaction type has pros and cons that can benefit investors, depending on the case. Let us review both below.

Shares or Capital Contribution Acquisition

This is the most common type of M&A transaction where the buyer becomes the shareholder of the target company. This can be done by acquiring the primary (newly issued) shares or the secondary (existing) shares.

The process is comparatively simple with all the assets and liabilities being transferred directly and automatically to the new shareholders. The seller and buyer do not have to go through all items on the asset and liability lists. Hence, it saves time and cost for both sides to manage such M&A transactions.

However, it also brings disadvantages. The buyer automatically “inherits” all financial liabilities and might be facing potential unforeseen disputes or compliance issues later. Hence, it is important to have professional agencies in charge of the due diligence, to ensure transparency and that can foresee the potential risks of the target company.

Asset Purchases

In this method, the buyer purchases assets from the target company and incorporates such assets into an already licensed entity. This is common for asset-heavy industries (energy, manufacturing, or logistics), or when the buyer only wants to acquire a business division (unit) of the target company.

This option allows the buyer to be flexible in choosing the necessary assets to acquire, without taking over the irrelevant ones such as financial liabilities. However, the process of buying each individual asset will take time with complex documents required for each asset type.

The valuation is another challenge for this M&A type, especially when it comes to intangible assets. The investors are also suggested to prepare for a very high tax rate (as much as 20%) for the purchase of the property.

Merger or Consolidation

During a merger or consolidation, the target company transfers all its properties, labor rights, obligations, and legitimate interests to another company. Once done, the target company terminates all its activities.

Under this type of M&A, the most important factor to consider is the conflict of the culture between the two (or more) merging companies. How to balance the interest of all stakeholders (shareholders, employees, or management team) is also a crucial decision to ensure the smooth operation of the merged company afterward.

Outlook for M&A Activities in Vietnam

As mentioned, M&A activities have increased much in Vietnam since 2007. The market has become more active lately with the involvement of both foreign and domestic companies, acting as investors. Experts forecast that the market will keep growing fast, especially when the country is in the recovery phase after three years of being hit by the pandemic.

As mentioned, the growing middle-income population is one of the key drivers that attract foreign investors’ attention to the consumer-facing industries. In 2021, while many countries saw negative GDP growth rates, Vietnam grew by 2.58%, and the most M&A deals and total deal values were recorded.

With no travel restrictions, it’s easier for foreign entrepreneurs to visit and explore business opportunities here. One of the main challenges for M&A activities during the pandemic was the travel restrictions, which prevented investors from visiting the potential targets directly. This is even more difficult when it comes to manufacturing companies, having facilities that must be audited. Most of these assessments were either outsourced to local agencies or carried out remotely (by sending photos or through video calls).

Moreover, the many free-trade agreements signed have made Vietnam an increasingly interesting destination for trade and manufacturing. With wider access to global trade, as well as tariff exemptions, many domestic companies are expected to become more attractive, both as financial investments and as key parts of the global supply chains of foreign companies.

Summary

Vietnam’s M&A market has been highly active, despite the pandemic. The consumer-related industries have and will certainly be one of the key drivers that attract more foreign investment.

Japan, South Korea, and Singapore have long been the top investors in Vietnam, but the country has gained more interest from Western companies, as well as Vietnamese domestic investors. Major challenges that prevent Western investors from inbound investments are the cultural differences and the untransparent legal system.

To minimize such concerns, the Vietnamese government has been working to revise, update and provide a clearer legal system, including key regulations that directly affect M&A activities, such as the Enterprise Law, the Investment Law, or the Competition Law.

It’s fair to say that M&A is a preferred option among many foreign companies who want to get quick access to Vietnam’s domestic market and through inorganic growth. Just be sure to work with credible local partners that can minimize the risk of pitfalls and for proper due diligence.


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    Moving Manufacturing from China to Southeast Asia: An Introduction

    Factory workers in Indonesia

     

    Foreign companies have used low-cost country sourcing strategies for decades with a strong focus on China. In the past years, we’ve seen a new trend where increasingly more companies look for alternative sourcing markets in Asia.

    In this article, we explore why this move is happening, specific brands that already moved parts of their production to Southeast Asia, what should you pay attention to if you are a manufacturer, and which countries are on the rise as alternatives to China.

    Why are companies moving manufacturing from China?

    Increasingly more companies have understood the importance of diversifying their supply chains from China, a trend that was accelerated during the pandemic.

    The increasing labor costs is a major concern, which are around three times higher in China compared to Vietnam, and five times higher than Indonesia on average. Between 2009 and 2014, the Chinese minimum wage almost doubled, resulting in slimmer margins for foreign companies.

    Another reason is the supply chain disruptions caused by the pandemic that sent shockwaves to global manufacturers, urging businesses to rethink their procurement strategies. Some companies have decided to move their production to other countries completely, while many adopt so-called “China plus one” strategies. This means that production is kept in China, while parts of the production is allocated to other countries.

    The increasing import duties due to the ongoing trade war has also aggravated the struggles of businesses that are manufacturing in China. As China faces these and many other problems, Southeast Asia simultaneously rise fast and gain attention as an alternative market to China.

    Companies Moving Out of China

    Let’s review some notable companies that have moved parts of or all their production from China, and their future plans for the new manufacturing destinations.

    Apple

    Under the trade war pressure, Apple has been encouraging its suppliers to move production out of China. Parts of the iPhone’s production lines have been moved to India, some MacBooks are now assembled in the U.S, and Vietnam has been rising as an essential hub to produce Air Pods.

    It plans to have 30% of its classic Air Pods produced in Vietnam instead of China. Foxconn for instance, the major supplier of Apple, invested 270 million USD in a plant to manufacture laptops and tablets in Vietnam in 2020. In fact, Apple tried to move more production to Vietnam in 2021, but the plan was postponed due to the pandemic, but the plan was resumed in 2022.

    Samsung Electronics

    Samsung stopped its smartphone manufacturing in China in 2019, and its TV and PC factory in 2020. Its global production is now based in Vietnam. The revenue of Samsung Vietnam is equivalent to roughly 20% – 25% of Vietnam’s total GDP in 2021 and the company is also a main contributor of FDI flows from South Korea.

    Nike

    Nike’s suppliers have been relocating production to Southeast Asia and Africa for a few years. The brand used to have much production in China with an estimation of 35% in 2006 but the brand has reduced its dependence on Chinese suppliers. In 2021, 51% of Nike’s shoes were made in Vietnam while only 21% were made in China.

    Adidas

    Nike is not the only apparel and footwear giant to shift its production location. About 25% of manufacturers for Adidas in China were shut down as foreign businesses stopped their partnerships with Chinese factories. The reason behind this was the penalty tariffs due to the trade war. Opportunities, therefore, open for counterparts in Vietnam, Thailand, Bangladesh, and Indonesia thanks to low-cost benefits.

    HP

    HP, Dell, and other tech firms planned to reallocate up to 30% of their notebook production out of China. HP has reportedly planned to shift 20%-30% of its Chinese production to Taiwan and Thailand to mitigate the risks of rising costs and disruptions, the US tariffs on tech products also reduced profits.

    Considerations before moving manufacturing from China

    It’s undeniable that China is still crucial for the global value chain, and the country has significant advantages that makes it competitive for manufacturing. Let’s review some important items to consider before relocating manufacturing from China to Southeast Asia.

    Manufacturing capabilities

    It’s easier to say what products cannot be manufactured in China than the other way around. Anything from clothing, machinery, electronics, telecommunication equipment, vehicles, and chemicals are produced here. Not only can you find products that require labor-intensive manufacturing at low costs, but also advanced manufacturing.

    Manufacturing is also concentrated to different regions such as Guangdong province being particularly strong in electronics manufacturing, just to give an example.

    Experience with foreign companies

    Chinese suppliers are flexible and generally more experienced in working with foreign customers. They are nimble, fast, and understand Western standards well. The availability of skilled labor in China still also outweighs other Southeast Asian countries. It’s easy to come across suppliers who happily provide both OEM and ODM products, according to customers’ specifications.

    The business ecosystem and mature supply chain

    The supply chain in China has developed for decades. Foreign companies rely much on Chinese suppliers that are located. Therefore, moving out of China means moving the entire manufacturing and network from the country, which takes a great deal of effort, time, and money. Moreover, manufacturers around the world still depend a lot on Chinese raw materials and semi-final products. For example, clothing producers from Vietnam and Bangladesh must import most of their fabrics and threads from China; European manufacturers of cars must import wiring from China. This ecosystem makes China dominant in global manufacturing.

    Relocation costs

    With the strong concentration of manufacturing in China, relocations to other countries requires much capital and resources. Simply speaking, if you have your factory set up in China and want to shift to Vietnam, much capital is needed to set up a new factory, recruit workers, train the workers, send specialists to Vietnam for quality controls and inspections. You also have to add the work needed to deal with local authorities to get approvals and relevant certificates prior to operations.

    China’s consumer market

    Some enterprises hesitate to move from China due to its large consumer base. With a population of 1.4 billion, China remains the biggest consumer market for many products. If a company already has manufacturing in China, it is also easier getting access to the domestic market and to distribute products locally.

    Otherwise, you would need to export the products to China, which comes with tariffs, customs clearances, additional shipping costs, and more.

    What countries are companies moving to in Asia?

    While China will remain an important manufacturing destination, there are a handful of countries in South and Southeast Asia that gain much attention. Let’s review the most notable ones.

    Vietnam

    Vietnam has traditionally attracted companies in furniture and textile production. Nowadays, multinationals set up production for more advanced products, including electronics, telecommunication equipment, and machinery. The benefits of choosing Vietnam as a manufacturing destination include its low labor costs, many trade agreements, enhanced manufacturing capabilities, and large labor pool. Even if Vietnam won’t replace China as a global manufacturing hub, it gains significantly as companies seek to diversify and set up manufacturing operations here.

    Indonesia

    With a population of 275 million, Indonesia is the most populous country in Southeast Asia and with a workforce of around 135 million. With rapid urbanization and a median age of 29.7, the country is set to become a leading manufacturing hub in Asia.

    Its domestic market is expected to see great growth as disposable incomes increase and more people get access to smartphones, the internet, and modern financing options. At the same time, the country struggles with infrastructure issues, red tape, and regulations that tend to be unclear and change frequently.

    India

    The manufacturing industry is India’s most important. ‘Make in India’ is a program to put India on the map as a manufacturing hub and attract more businesses and investors. India’s main products includes automobiles, chemicals, clothing, consumer electronics, electrical equipment, furniture, heavy machinery, refined petroleum products, and ship building.

    Notably, India has lower labor cost compared to China, yet you will have to deal with a weaker infrastructure, inefficient transport system, and lower domestic consumption.

    Summary

    In general, companies are moving from China due to the increased labor costs, supply chain disruptions, and trade war. At the same time China faces these issues, other countries like Vietnam, Indonesia, and India become more interesting and capable.

    If you are considering a relocation from China, you should consider relocation costs and inefficiencies in new markets, not only looking at labor costs. China also possesses a business eco-system that cannot be replicated in the short-term.

    Southeast Asian suppliers highly rely on imports from China, which drives logistics costs and final prices, so these rising countries can be one of the sourcing bases but cannot completely replace China.


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      Setting Up a Joint Venture in Vietnam: A Complete Guide

      Businessmen talking

       

      Establishing a joint venture (JV) is a popular method used by foreign companies to enter the Vietnamese market. This does not only help to utilize the expertise of all participating parties but is also in line with the local regulation regarding foreign ownership in some industries.

      The procedure of setting up a JV shares similarities with that of foreign-owned enterprises in Vietnam. However, one of the unique challenges of a JV comes from the selection of the local partner, and how to structure this collaboration. The key focus is to benefit all parties while minimizing the potential conflict of interest, especially during the decision-making process.

      In this article, you will learn about the procedure of setting up a JV in Vietnam, together with relevant regulations that foreign investors should be aware of.

      What are the benefits of setting up a joint venture in Vietnam?

      A JV with a local business(es) is sometimes the best option for foreign companies thanks to the expertise of the local partner(s), as well as the low compliance risk. In some cases, it also is the only option for overseas brands to enter the Vietnamese market. This is especially applicable when it comes to the industries that have a limit on foreign ownership of the business. Below are some examples of the benefits that foreign companies can expect from this collaboration model.

      Compliance with local regulations

      Some industries limit foreign ownership as some industries that are considered to be sensitive by the government. Below you can find a handful of industries and the foreign ownership limitations:

      • Banking – 30%
      • Goods transportation by rail or domestic waterway – 49%
      • Goods transportation by road – 51%
      • Cargo handling services – up to 50%, depending on the type of cargo

      Therefore, establishing a JV might be the only way in for foreign companies in certain industries. However, this is more complicated and requires significantly more resources from the investors, both in terms of legal documents and human capital.

      Access to local expertise

      A great benefit of a JV is that you can utilize the local experience and network of the domestic Vietnamese partner.

      Foreign companies can establish their footprint in the domestic market while enjoying external support from someone familiar with the market for years. You and your partner can then bring your own strengths to further develop the JV.

      Your partner will support with related paperwork and documentation, as well as deal with local authorities. They can also provide insights about local practice, as well as established relations with relevant stakeholders, such as suppliers and distributors.

      Meanwhile, the foreign partner is expected to bring experience of globalization, technological innovation, and know-how, which typically are the weaknesses of the local party. Hence, the addition of a foreign company is considered a competitive advantage over local peers in the same industry.

      What are the disadvantages?

      Having a local partner(s) can sometimes bring disadvantages to foreign companies, mostly from the differences in working style. These differences are often associated with cultures, languages, and development plans.

      Conflict of interest

      One of the most common reasons for JV’s to fail is due to disagreement in strategic decisions. Even when they share multiple mutual goals, it is not always possible for the two to align perfectly.

      To prevent this situation, it is strongly suggested to clarify the scope of work, as well as the responsibilities. This shall be agreed upon in the company’s Charter, shareholder agreement, or any other type of agreement between the founding parties.

      When the conflict cannot be solved in goodwill, one might liquidate their stake of ownership, either to the other partner(s) or to an external party. Hence, it is important to consider and carefully discuss the tag-along and drag-along rights before the establishment of a JV, to ensure a smooth exit strategy for all parties, if needed.

      As a result, a 50/50 JV is not recommended, as it creates a deadlock when a disagreement arises. This could be resolved simply by making the equity of a party slightly higher than the other (51/49).

      Cultural differences

      It is a challenging task to select the right business partner, either to purchase from, sell to, or cooperate with. This is even harder when the business partner differs in both language and culture.

      It is often a challenge for a foreign company to understand, adapt and get used to Vietnamese culture at a start. The overseas partner will heavily rely on the local partner at the beginning. This mainly includes the initiation of business relations with relevant stakeholders or the fulfillment of necessary legal requirements.

      The differences in culture and language might lead to delays in decision-making or inefficient operations. To resolve such issues, a common solution is to engage employees of the foreign investor to hold some managerial positions, to act as a bridge between the foreign company and local practices.

      Requirements to set up a Joint Venture in Vietnam

      With a legal framework that is not as efficient and transparent like in Western countries, foreign companies needs to be fully aware of and understand the local requirements to set up a JV. This could be done via either publicly available sources of information or professional local advisors.

      Companies need to follow a three-step procedure, as shown below, to identify if they are allowed to do business in their target sectors:

      1. Identify if the target industry is prohibited

      There are both industries that are prohibited in general, but it could also be specifically for foreign companies.

      Examples of industries that foreign investors (including some JVs with foreign ownership) are prohibited to operate in are:

      • Catching or exploiting seafood
      • Notary services
      • Labor export
      • Direct waste collection from households
      • Import and dismantle used vessels
      • Manufacturing and trading of military weapons, equipment, and devices

      (Source: Decree 31/2021/ND-CP by the Vietnam Government)

      2. Check if the target industry is in the list of “Approach with conditions” for the foreign investors

      This is regulated in Decree 31/2021/ND-CP. Foreign investors (including some JVs with foreign ownership) are required to meet a certain set of conditions, in order to do business within that industry.

      The conditions vary case-by-case, but can be grouped into the following categories:

      • The proportion of foreign ownership
      • The type of the investment
      • The scope of the investment activities
      • The capacity of the investors

      Other conditions as regulated by applicable legal documents from either local authorities or international treaties that Vietnam is a member of.

      3. No restriction or condition for foreign companies

      If the target industry does not fall into any of the categories in Step 1 or Step 2, companies are all treated equally, whether there is foreign ownership.

      Minimum Capital Requirements

      Vietnam has no general minimum capital requirement for JVs. However, some industries are still regulated:

      • Consumer finance company: 500 billion VND (22 million USD)
      • Financial lease company: 150 billion VND (6.5 million USD)
      • Real estate: 20 billion VND (870 000 USD)
      • Audit services: 6 billion VND (260 000 USD)
      • Air transportation (cargo and passenger): 100 billion VND to 1000 billion VND (4.3 million USD to 44 million USD), depending on the nature of the business and the number of aircraft
      • Insurance (life and non-life): 200 billion VND to 1000 billion VND (8.7 USD to 44 USD), depending on the nature of the business

      Apart from the industries that have minimum capital requirements, a general rule for all businesses established in Vietnam (including JVs) is that they should have sufficient and reasonable registered capital that matches their operation. This is typically assessed by the local Department of Planning and Investment.

      Foreign-invested businesses, including JVs, are required to have a direct investment capital bank. Foreign capital must be injected through this bank account.

      How long does it take?

      When establishing a JV in Vietnam, two important milestones are the issuance of the Investment Registration Certificate (IRC), and the issuance of the Business Registration Certificate (BRC).

      The average processing time (from the submission date of proper documents) is 10 to15 working days for IRC and 5-10 working days for BRC. It is worth noting that the IRC might take significantly longer depending on the nature of the business. For example, projects that lease public land from local authorities, or projects that require the transfer of a restricted technology, are both subject to the additional approval of the provincial people’s committee.

      The preparation of proper documents and licenses usually takes the longest time. This is even harder to estimate when it comes to the “Approach with conditions” industries, where the shareholders of the JV need to fulfill a certain set of requirements, either before or after the submission of IRC and BRC.

      What to consider when setting up a joint venture in Vietnam

      As mentioned above, it is important to identify the desired industry of the JV, as some are subject to foreign-ownership restrictions, and some (in the worst scenario) are not allowed in Vietnam. Common conditions to be fulfilled are the percentage of foreign ownership, minimum paid-in capital, or the acquisition of relevant sub-licenses.

      Another factor to consider when establishing a JV in Vietnam is the selection of suitable partner(s) locally, which will impact the development of the company. The reputation and reliability of partners should be assessed from multiple aspects to give a true and fair view of this matter. This can be done either by the company themselves, via their local and international business networks, or independently by professional local market entry specialists.

      Summary

      Setting up a JV brings many benefits to foreign companies, especially those entering Vietnam for the first time. It requires less paid-in capital (as this is shared by the shareholders) from the company than establishing a local legal entity itself. The JV is also a chance for foreign companies to learn, and to take advantage of the accumulated market insights of the local partner(s).

      However, the foreign company in a JV also needs to prepare for many challenges. Some are similar to establishing a normal foreign-owned enterprise, including steps such as complicated legal procedures, the opening of a direct investment capital account, and large paid-in capital for some industries. Moreover, the foreign partner also needs to be ready for unique challenges of JV, such as the conflict of interest with the local partner, or the impact of cultural differences on the collaboration of the founding parties.

      Finally, it is also important for foreign companies to identify if the intended industry of the JV falls into any of the “Prohibited”, or “Approach with conditions” ones. If there are conditions to fulfill before establishing the JV, all founding members should have a clear plan to meet such requirements, as well as to acquire relevant licenses.


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        Electronics Manufacturing & Sourcing in China: An Introduction

        Assembling electronics in a Chinese factory

         

        China has dominated electronics manufacturing for decades. Despite the recent trade with the US and Covid restrictions, China remains a crucial manufacturing destination for electronics. It exports almost half of the cellphones and laptops globally and produces many of the subcomponents used for manufacturing elsewhere. In this article, we review China’s electronics manufacturing industry, what the benefits are of sourcing electronics here, and what other alternatives you have.

        China’s Electronics Manufacturing Industry

        China is the biggest manufacturing hub of electronics globally with much of the production centralized to the Southern region.

        It all started around three decades ago when the government took the advantage of its large labor pool and low labor costs. As automation is applied in most cutting-edge production facilities, the manufacturers also benefit from China’s rapid development in infrastructure and innovation. It remains a key trade partner to all developed economies and is the biggest exporter of electronics to the US, accounting for more than one-third of US’s imports.

        Another reason that helps China to maintain its position in the electronics manufacturing sector is the availability of sub-components. Manufacturers save much on sourcing components locally as these can be supplied domestically. As a result, foreign companies find it difficult to relocating production overseas as they will lose access to these suppliers and face additional logistics costs.

        What electronic products are made in China?

        China produces a large variety of electronics products, it’s easier to explain what electronics that cannot be found here. This ranges from consumer products to industrial components. Factories are primarily located in cities such as Shenzhen and Dongguan in the South, but also in Chongqing and Shanghai. Below you can find examples of electronic products that are widely produced in China.

        Cellphones

        Many global mobile phone brands such as Huawei, Xiaomi, and TCL are originally from China. These brands established strong manufacturing capabilities locally, before expanding sales and manufacturing activities overseas. Naturally, this has benefitted local suppliers of related components, including chips and transistors.

        In addition, China is well-known for having a large rare earth elements reserve (44 million tons out of the global reserve of 120 million tons). These are crucial to produce electronic components, particularly cellphones. The availability of the materials ensures that domestic Chinese manufacturers enjoy a relative advantage over foreign manufacturers.

        Computers, laptops, and accessories

        It’s estimated that China manufactures 90% of the laptops globally and where domestic businesses are capable of supplying most of the components. At the same time, there has been an effort from the government to close the technology gap from foreign manufacturers, especially for semiconductors.

        Despite the reliance on imported semiconductors, China is still an attractive option for world-class laptop brands to set up production. Chongqing and Kunshan are known as the two largest clusters of laptop production, in addition to other well-known electronic manufacturing hubs, such as Shenzhen and Dongguan. Not only laptops, but also components and accessories can be sourced in these areas.

        Much of the electronics production is concentrated which eases the sourcing process and creates synergies.

        Benefits of Sourcing Electronics in China

        We have touched on China’s electronics industry and what kinds of products are manufactured here. Let’s review the underlying reasons behind this.

        Low labor costs and large labor pool

        Despite its increasing wages, China is still considered a low-cost country for sourcing. With wages that are around three times higher than Vietnam on average, companies still see China as a crucial for manufacturing, thanks to its developed supply chains and infrastructure. Relocating production is easier said than done and sometimes not feasible due to other challenges.

        Wages are obviously higher in and around the larger cities like Beijing and Shanghai along the East coast. Some manufacturers therefore target cities and provinces in the central areas, as well as in the South.

        Skilled workforce

        Given the well-established foundation of the manufacturing industry, foreign manufacturers believe that Chinese workers are more skilled compared to competing countries, like Vietnam or Indonesia. With a population of more than 1.4 billion people, 14% are considered skilled workers (approximately 200 million people) 3.6% highly skilled (approximately 50 million people.

        Large reserves of rare earth elements (REE)

        As mentioned, China has the largest reserve of RRE in the world. Although China accounts for roughly 37materials, These elements are important to produce electronic products, rather and wideused in components such as computer hard drives, flat-screen monitors, electronic displays, and more.

        Developed supply chain

        China has built a business eco-system that cannot be found elsewhere in Asia. Its developed supply chain benefits manufacturers in both procurement and distribution processes.

        As mentioned, domestic Chinese companies can provide most of the components used in electronics, which helps manufacturers to lower logistics costs. Apart from savings in logistics costs, the shorter lead times lower the required working capital, which relieves the financial burden for businesses.

        Besides, the transportation infrastructure is comparably high to Southeast Asia. To give an example, four of the five largest seaports in the world can be found in China. In 2019, China handled more goods volumes than all other East Asian and Pacific countries combined. Shanghai port is the only one that can manage volumes of more than 40 million TEUs a year since 2018.

        The many large seaports are located alongside the coastal line, making it easy for domestic and foreign manufacturers to reach global ocean shipping lanes.

        What are the disadvantages of sourcing electronics in China?

        Despite the many advantages of sourcing electronics in China, there are some drawbacks you should be aware of. Manufacturers of electronic goods should understand the following disadvantages.

        Communication issues

        Foreign companies often encounter communication issues when working with Chinese suppliers. This is a reason why many companies set up local organizations with staff that can reduce the risks for miscommunication.

        With that said, China has improved from having “low efficiency” to a “moderate efficiency” in the English language recently, which is a positive sign in the favor of the global companies. However, the business culture is still largely different from Western ones.

        It’s important to employ local persons who understand the Chinese business culture and that can communicate swiftly.

        Perception of Chinese quality

        Chinese brands still face a stigma regarding product quality, even if this has changed much in recent years. Huawei is one example where the product quality is almost on par with that of Apple yet being offered at significantly lower prices.

        We see more Chinese brands entering the global market and that receive positive feedback from foreign consumers. Examples include Xiaomi, OPPO, Huawei, and Lenovo that sell everything from cellphones, laptops, and robot vacuums.

        Shipping costs and lead times

        We’ve seen major supply chain disruptions in recent years, primarily due to the container shortages and Covid outbreak in China. The shipping rates for containers from China increased by ten times compared to pre-Covid levels. This has resulted in near sourcing and diversification trends where increasingly more companies seek to relocate production to Eastern Europe or Mexico, or Southeast Asia.

        In addition to the skyrocketing prices, have also affected companies’ future procurement strategies. Before the pandemic, it took roughly forty days to ship goods from China to the US. In the first half of 2022, this figure reached seventy to eighty days.

        Alternative Markets to Source Electronics in Asia

        Due to increased wages and supply chain disruptions, increasingly more companies seek to diversify manufacturing to Southeast Asia. Below you can find alternative markets in Southeast Asia that should be of interest when sourcing electronics in Asia, and what the benefits are.

        Malaysia

        Electronics manufacturing contribute much to the exports of Malaysia. Particularly global brands from countries like Germany, Japan, and South Korea have manufacturing activities here. Examples of products produced include computers, semiconductors, and cameras where its semiconductor production gets much attention.

        Surprisingly, labor costs are lower in Malaysia on average and blue-collar workers earn around 500 – 800 USD per month. In China, on the other hand, the average salary is more than 1,000 USD per month. Hence, Malaysia’s competitive labor costs, at least when compared to China’s, is something that should be considered.

        India

        Another interesting market for electronics manufacturing is India. Factory workers earn roughly 300 USD per month, which is 3-5 times lower compared to China. India also has a labor pool of 500 million people, which is competitive. Yet, a disadvantage is the significantly low participation of women in its labor force, which is one of the lowest in the world.

        More companies have moved manufacturing to India in the last years, the government also shows an aggressive approach to promote the country as an alternative market to China. The Production Linked Incentive (PLI) schemes launched in early 2020 allows manufacturers to receive cashbacks if products sold are locally produced. The electronic sector is one of the key focuses, with an incentive of up to 5% of the sales of goods that is manufactured in India.

        As a result, dozens of companies pledged to set up mobile phone manufacturing facilities in India, with investments totaling around 1.5 billion USD. Global electronic giants are also showing their long-term commitment to India. Samsung completed the establishment of their display manufacturing factory in India in 2021. Nokia started to produce 5G equipment in India in late 2020. Foxconn, a Taiwanese contract manufacturer, plans to invest 1 billion USD to upgrade and expand its factory in Tamil Nadu. This is one of the two plants of Foxconn that assembles products for Apple and Xiaomi.

        Conclusion

        Even if China is still a major producer of electronics, it sees increasingly more competition from other Asian countries. It’s crucial for electronic companies to review their current reliance on China, global trends, establishing a long-term vision to produce electronics.

        India and Southeast Asian countries are growing as alternatives to China. India, Malaysia, and Indonesia are all promoting attractive investment schemes to attract foreign manufacturers that shift production from China. Apart from the general strengths of each country, the manufacturers are also suggested to consider the tariff for products imported to overseas markets.

        Vietnam, for example, has a free-trade agreement with the EU, and a bilateral trade agreement with the US. At the same time, trade agreements are being discussed between the EU and Indonesia and the Philippines.


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          Clothing Manufacturing in China: An Introduction

          Worker in a Chinese clothing factory

           

          China is the world’s biggest supply market and the first country that comes to people’s minds when discussing manufacturing. Clothing is one of the main strengths of China, with the main export market for Chinese clothing products being the U.S, EU, and Southeast Asia.

          In this article, we give you an overview and trends in the clothing manufacturing industry in China and review the clothing products and the regions in which they are produced the most. We will also tap into the advantages and disadvantages of sourcing apparel in China.

          We finalize the article by suggesting some alternative destinations in Asia for clothing products.

          China’s Clothing Manufacturing Industry

          As the world’s largest clothing manufacturer for more than a decade, China accounted for more than half of the global apparel production.  The country has a revenue of 303 billion USD in 2021 from the apparel market.

          Guangdong province is the hub of clothing production, with more than 28 000 exporting enterprises located here. In solely the first quarter of 2022, the province’s clothing manufacturing already contributed 6.3 billion USD value of export.

          However, since 2015, the clothing sector of China started to show a more sustainable trend, slowing down its expansion on the scale and focusing more on technology to raise productivity. The main motive behind this shift is the rising labor cost, which forces businesses to transform from labor-intensive practices to better-automated ones.

          Another significant trend in China’s clothing industry is the growth of domestic demand. Thanks to rising income, Chinese consumers are now more willing to spend more on clothes and to buy from local brands. Therefore, the Chinese clothing manufacturers are also seeking more opportunities in the domestic market rather than depending on exporting.

          Cities and Regions with Clothing Manufacturing in China

          It’s not an exaggeration to say that almost all clothing products are made in China. There are around 50 textile clusters in China. Guangdong, Shandong, Zhejiang, Fujian, and Jiangsu are the 5 provinces that account for 70% of the country’s total textile production. In this article, we will list out the main manufacturing regions for clothing and the most produced products in those regions so that you can save time when searching for suitable suppliers in China.

          Guangzhou

          Guangzhou is a city in Guangdong province. The city has had its reputation for apparel for a long time with a large fabric market – The Guangzhou International Textile City. In Guangzhou, you can find suppliers for men’s, women’s, and children’s apparel, trousers, sportswear, and even replica clothing. In adjacent to Guangdong, Nanyou also possesses a wholesale clothing market for high-end ladies’ clothing.

          Xintangzhen

          Xintangzhen is a town in Guangdong province where you can find a great number of suppliers for jeans wear. More than 5,000 denim clothing enterprises and factories are located here. It is estimated that the daily output of the town is 2.5 million pieces of jeans wear. This number is equivalent to 60% of the whole country’s denim production capacity. Products from Xintangzhen are exported to the U.S, E.U, Russia, and many other countries.

          Dalangzhen

          As mentioned, Guangdong province is a big hub for apparel, and Dalangzhen is another town in Guangdong with a reputation for clothing. The specialization of the town is knitwear. The largest wool wholesale market in China is in Dalangzhen, with more than 17 000 wool market entities operating in the town. One in every 6 sweaters in the world comes from Dalang, so if you are looking for a good factory that can provide sweaters, cardigans, socks, or woolen mufflers, Dalang is the right place to start.

          Huzhou

          Huzhou city is in Zhejiang province. Zhili town in Huzhou is home to the largest children’s wear industrial zone in China. The town currently has more than 14,000 children’s wear companies. In 2020, the annual output of children’s clothing in the town exceeded 1.45 billion sets, generating about 10 billion USD in sales revenue. Generally, the children’s clothing of Zhili focuses on low and middle-income households, but it is also not hard to find high-end children’s clothing manufacturers here.

          Suzhou

          Suzhou is a city in Jiangsu province, and the Huqiu district in Suzhou is famous for making wedding dresses. Roughly 90% of wedding dresses exported from China are from this district. There is A Wedding Dress Market here, with good quality products and diverse designs for any brides to choose from. Experience shows that it is cheaper to come and buy directly in the district than to shop online. Besides Suzhou, Xiangcheng and Jinchang city also provide wedding clothes.

          There are other cities in China that you can also refer to when looking for clothing producers, such as Hangzhou (in Zhejiang province), Humen (in Guangdong province), and Shishi (in Fujian province). They are mostly located in the East coast regions of China.

          Benefits of Sourcing Clothing Products in China

          Sourcing clothes from China gives businesses multiple advantages. We will explain some of the main reasons to find your suppliers in this big market: good experience and capacity, customization ability of suppliers, and an established business eco-system.

          Experience and Capacity

          Chinese clothing producers, with often 10-15 years in the industry, are very experienced in both manufacturing and exporting. You will not find difficulties in looking for a well-built factory with an understanding of the U.S and EU markets’ standards and certifications, as these two markets have long been the main markets of Chinese clothing products. The factories are mostly built for scale with good equipment, and the capacity for large orders.

          Customization

          If you do not specialize in designing, it’s important to find a supplier that can customize their products based on your rough ideas, or you might waste a lot of time and money explaining back and forth with the traders and the traders may misunderstand and deliver a different idea to the factories they find. Wholesale clothing manufacturers in China usually own a professional research and development team. Therefore, you can discuss your product concepts with them directly and it is much easier to work on adjustments later. The ODM and OEM services are available in most Chinese factories.

          Mature Supply Chain and Business Eco-System

          As a result of its long clothing manufacturing history, China has an ecosystem of businesses. If a manufacturer needs to import or source its raw materials and machinery from far away suppliers, the shipping cost will add up significantly to the final product’s price. Moreover, the lead time will be longer with the risk of disruption in the supply base. Factories within one industry are often placed close to each other. Therefore, it’s undeniable that the availability of components, the supporting systems, and the maturity of the supply chain are the advantages that no other country can compete with China.

          What are the disadvantages?

          In recent years, wages are higher in China and increase at a faster pace than in its Asian peers. In Vietnam, salaries are around a third on average compared to China and increase slower.

          A second issue is a long transportation lead time to Europe and the US, and the currently high freight costs. Due to recent supply chain disruptions and the COVID pandemic, some companies find it unbearable to produce in Asia, turning to nearshoring, at least partly.

          The ongoing trade war with the US has hurt both countries. Imposed tariffs have encouraged foreign companies to look for alternative markets, and to outsource at least parts of their production.

          Alternative Markets for Clothing Manufacturing in Asia

          With those concerns over sourcing in China, many enterprises now consider moving their production facilities or changing to suppliers in other countries in Asia. With clothing products, the most suitable alternatives are Vietnam, India, and Bangladesh.

          Vietnam

          Vietnam hosts the facilities of Nike, Adidas, and The North Face; a large percentage of Mango, G.A.P, H&M, and Zara clothes are also made in Vietnam. The country has the advantage of low labor costs, proximity to China for raw materials, favorable geographic position for shipping, and multiple free trade agreements for tariff exemption.

          India

          India, with a population of 1.3 billion, has a massive pool of workforce to support manufacturing industries. The country is also big in raw material production as the second-largest player in the world cotton trade.

          Bangladesh

          Bangladesh has the lowest wages of these 3 countries. Workers are experts in processing bulk orders and fast delivery, explaining why fast fashion brands like Zara prefer Bangladesh. The industry benefits from the domestic supply of cotton.

          Summary

          China has maintained its position as the world’s manufacturing hub of clothes for decades. This has allowed the country to build up superior supply chains and a business eco-system that is hard to relocate elsewhere.

          Different regions of China specialize in different clothing products, so knowing the right regions will save you a lot of time and effort when searching for suppliers.

          The manufacturers are moving towards more automated manufacturing and focusing more on domestic markets, yet there is still ample room for exports.

          If you consider diversifying your supply base and being less dependent on China producers, we recommend considering Vietnam, India, and Bangladesh for clothing products.


          Read more about our market entry & expansion experience or other consulting capabilities.

           

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            Vietnam’s Fintech Industry is A Natural Magnet for Capital

            Vietnam currently houses nearly 200 fintech firms, offering a broad range of services from digital payments to wealth management, P2P lending, and blockchain-based solutions. The rise of the fintech ecosystem in Vietnam is disrupting the overall financial industry, capturing markets that were once untouched by traditional banking, and along the way, gained a lot of attention from global investors.

             

            Vietnamese fintech working looking at financial charts

             

            A market set for exponential growth

            From a mere 39 firms in 2015, the size of Vietnam’s fintech industry grew dramatically to 112 in 2017, 169 in 2019, and approximately 188 by September 2021 (Tracxn, United Overseas Bank – UOB, 2021). The top sub-sectors accounting for 76% of the total fintech market share in Vietnam include digital payments, peer-to-peer (P2P) lending, cryptocurrencies and blockchain, investment tech, and point of sales.

            Graph showing Vietnam fintech market share

            Vietnam’s fintech industry has come a long way. However, it is still nascent, especially when compared with the other top 6 ASEAN economies (Singapore, Indonesia, Malaysia, Thailand, Philippines, and Vietnam). Vietnam currently has the lowest number of fintech firms in the group. The annual number of newly added firms has also been modest compared to the ASEAN-6’s results.

            Chart showing total fintech firms in operation in Vietnam

            For investors and newcomers, the current small size of Vietnam’s fintech industry makes it particularly attractive for investment, as it still offers numerous gateways to get involved. The fintech market in Vietnam is only heating up, while in other ASEAN-6 countries, it is getting fiercely competitive and relatively saturated.

            The attractiveness of Vietnam’s fintech industry is evidenced by the expansion of capital in both size and value. According to the FinTech in ASEAN 2021 report conducted by UOB, PwC, and SFA, Vietnam gathered 15 investment deals during the January-September 2021 period, placing the country in a joint third position with Malaysia, behind Singapore and Indonesia. The country also ranked third in fintech deal value, with 375 million USD funded in 2021, accounting for 11% of the total deal amount in ASEAN-6 2021. In comparison, funding in Vietnam’s fintech industry took up only 3% of total funding deals in ASEAN-6 in 2020.

            Graph showing Vietnam fintech deal value

            Major deals in 2021 include a 250 million USD investment into the payment solution company VNPay. Followed by two investments, worth 100 million USD (Series D) and 200 million USD (Series E) into e-wallet company MoMo (the second round was concluded in December 2021). Investments into Fintech startups also take up the largest share of investment value in startups in Vietnam 2021, with 26.6% of total investment.

            Chart showing investment in Vietnamese startups

            A Diversifying Landscape

            Vietnam is a predominantly cash-based economy, and more than 70% of the population does not have a bank account. The low financial inclusion is attributable to the limited access to financial information and banks in rural areas.

            Yet, Vietnam is an increasingly tech-savvy market, with a 70.3% internet penetration rate and 63.1% of the population being smartphone users as of 2021. The COVID-19 pandemic also brought about a shift in Vietnamese spending habits. Contactless transactions are becoming the preferred choice of payment. SaaS cloud banking platform Mambu reported that around 85% of Vietnamese banking consumers are more likely to use online and digital banking services in 2021 compared to a year and a half ago. These factors create a huge opportunity for fintech companies to fill the gap.

            Riding on the shift in consumer behaviour, digital wallet providers have proliferated in recent years, especially during the COVID-19 pandemic. The sector is getting intensely competitive with over 40 non-bank payment service providers. Familiar brand names include MoMo, VNPay, ShopeePay, ViettelPay, Moca (GrabPay), and Zalopay, which account for most of the current market.

            Still, even the largest e-wallet companies are struggling to find a competitive edge, as tension is added from traditional banks also developing e-wallet functions. Most competitors are aiming to become super-apps, merging multiple services into one app, while attracting potential customers with marketing efforts and targeted discounts. Various mobile wallet apps have been providing other financial services, such as saving accounts, loan applications, and non-life insurance products in combination with discount vouchers and cashback offers.

            Digital payments remain the most attractive sector for investors. 85% of total capital invested in Vietnam’s fintech during the 2019-2021 period is in core payments, according to the Vietnam Innovation & Tech Investment Report 2021 by Do Ventures and Vietnam National Innovation Center (NIC). UOB explained in FinTech in ASEAN 2021 that due to concerns surrounding the prolonged pandemic, investors have turned to be more risk-averse and preferred to invest in mature fintech companies as they are deemed more resilient.

            Table showing capital invested in Vietnam fintech

            While digital payments will likely continue to dominate the fintech market, P2P lending is peaking up. P2P lending poses an attractive and convenient alternative to bank loans for both individuals and businesses, as most fintech firms in the field offer loans at relatively lower rates than traditional banks. According to a study by the World Bank, about 79% of people in Vietnam do not have access to formal financial services, including lending. There are also around 60% of small and medium enterprises (SMEs) that are not able to borrow from banks due to a lack of assets. The cluster presents a vast ground for development. Morgan Stanley also projected that the P2P lending model will be a global trend of the future.

            Insurtech and wealth tech are also rising in popularity. According to Fintech & Digital Banking 2021 report by MBBank, the use of big data for analysis of demographics, consumer behaviour, social ecology, medical data, and biometrics in insurtech could significantly support the insurance industry in areas ranging from marketing to risk management, product development, pricing, and customer service. Adoption of technology opens opportunities for traditional insurance companies to provide flexibility in insuring policies and variability in pricing. Vietnam’s insurance market is growing at a steady pace. According to the Vietnam Department of the Insurance Supervisory Authority, Ministry of Finance, the total insurance premiums collected by insurance companies rose by 24.98% in 2021 compared to the previous year.

            Several names have been establishing a strong foundation in Vietnam’s rising wealth tech industry. In February 2022, investment app Infina announced they have closed 6 million USD in their seed funding from Sequoia Capital, Y Combinator, and several other venture capitals. Infina, together with Finhay, is catering to the group of young, first-time investors whose needs have not yet been well-addressed by existing solutions in the market. There has been a recent surge in demand for retail investment assets in Vietnam recently. 1.53 million new retail stock accounts were opened in 2021, exceeding the previous four-year total. Purchases of cryptocurrencies as investment assets are also on the rise. It is estimated that approximately 5.9 million Vietnamese people are current holders of virtual assets. That is 6.1% of the total population (TripleA, 2021). Given the rising interest in investment from the overall public, tech firms in the field could easily expect to attract a wider customer base in the future.

            An Ecosystem Strongly Backed by Government

            The Vietnamese government has been encouraging the adoption of advanced technologies by introducing several regulations in favour of the banking and financial services sector. In March 2017, the State Bank of Vietnam (SBV) established a Steering Committee on Financial Technology dedicated to the building of a regulatory framework for the development of the fintech ecosystem and creating opportunities for local fintech companies.

            A five-year project (2021-2025) has been approved to support the development of cashless payments. The project aims to accelerate the growth of cashless payments with improved security, safety, and confidentiality, and to make it more accessible to residents in all areas, including rural, remote, and mountainous places. In numbers, the project aims to increase the value of non-cash payments to be 25 times higher than the GDP, and the proportion of cashless payments in e-commerce to reach 50% by 2025. Additionally, the project attempts to close the current gap in financial inclusion, lowering the rate of the unbanked population to 20% among people aged 15 and over.

            The Ministry of Finance, in collaboration with the SBV, has established a regulatory sandbox to further boost the financial ecosystem. The pilot regulatory program will enable businesses in various fintech sectors, including P2P lending, payments credit, and consumer identification, to participate. A research group is also in place to cover policies for virtual assets and cryptocurrencies. The sector currently has no regulation in place, even though Vietnam is already ranked top 10 among 154 countries in Chainanalysis’ Global Crypto Adoption Index from 2020.

            While there is a need to tighten regulations to hinder malicious acts in the industry, the government is allowing a lot of space for foreign investors to take up ownership of fintech firms.

            A Magnet for Capital

            Vietnam, with a young, urban, and tech-oriented population, is seeing accelerated growth in fintech adoption. Within the last 6 years, the industry has expanded by over 5 times. And yet, there is still an enormous ground for new players to enter the market, given the current small size of the industry in comparison to the vast population of Vietnam.

            Aside from the digital payments sector, which has been in fierce competition, Vietnam’s fintech industry also has rising startups in alternative lending, wealth management, and cryptocurrency, among others. The rate of adoption in each sector has been impressive, for both B2C and B2B business models. For most customers, fintech opens new doors that were once deemed inaccessible with the traditional brick-and-mortar financial services.

            In parallel with the growth of technology integration in financial services, the government has been relentless in rolling out regulatory strategies to adapt to new business models, including the opening of the research centre and regulatory sandboxes. It also strives to sustain a favourable environment for foreign investors, balancing tightening regulations to reduce risks and allowing the market to grow through foreign investments.

            All these factors combined make Vietnam’s fintech industry a promising opportunity for investors. There has been a surge in fintech investment in Vietnam recently, and we could undoubtedly expect to see a much more dynamic inflow of capital in the future.


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              Exporting Food Products from the EU to Vietnam: A Comprehensive Guide

               

              Vietnam has emerged as one of the fastest-growing markets in Asia, being the 10th largest trade partner of the US and the 16th largest of the EU. With a population of nearly 100 million people along with a fast increase in the middle and high-income groups, Vietnam shows increasingly greater demand for imported food products.

              Main import markets include the EU, the US, Korea, Japan, and Australia. Products from these countries are often considered to be of higher quality than domestically produced ones, at the same time as the Vietnamese get an increased appetite for foreign products.

              The EU-Vietnam Free Trade Agreement (EVFTA) came into effect in 2020 and has created ample opportunities for both Vietnam and EU enterprises to expand their businesses locally, with decreased or eliminated tariffs for more than 99% of traded goods.

              In this article, we review what products are in demand in Vietnam, the import process, as well as the import duties.

              What food products are in demand in Vietnam?

              Vietnam is a big producer of food products, and some are already supplied by domestic producers, leaving less room for foreign enterprises. In this article, we only review the most noteworthy categories with a strongly growing demand and explain the trends for these.

              Fresh fruits and vegetables

              In 2020, fresh fruits and fresh vegetables ranked as the first and the third most imported food products by value. Both are important for Vietnamese diets, and it doesn’t come as a surprise that Vietnam is one of the biggest consumers of fruits and vegetables globally.

              The import value of fruit also increases as Vietnamese consumers pay more attention to the quality of the products. Moreover, while tropical fruits used to be dominant as they grow in abundance in Vietnam and are sold at low prices, Vietnamese are now willing to spend more for other types of fruits. Main imports from the EU include apples, plums, peach, grapes, cherries, and olives.

              Among the European Geographical Indications (GIs) indicated by the framework of EVFTA we find:

              • Kiwi Latina: Kiwi fruit from Italy
              • Cítricos Valencianos (Cítrics Valencians): Citrus fruit from Spain
              • Pêra Rocha do Oeste: Pears from Portugal
              • Pruneaux d’Agen (Pruneaux d’Agen mi-cuits): Prunes from France
              • Mela Alto Adige (Südtiroler Apfel): Apples from Italy

              Fresh and processed meat

              Meat consumption has increased much in Vietnam in the last decade and pork accounts for around 70% of the total consumption. It’s currently the second-biggest pork consumer, just behind China, and spent more than 600 million USD in 2021 on imports of pork.

              The demand for fresh beef has risen sharply thanks to the growth of the Vietnamese middle class, as the product is more expensive than pork. Imported beef is mainly used in luxury restaurants, hotels, high-end outlets, and meat-oriented chains. Main export markets include Australia, the US, and Canada, partly due to the lower tariffs.

              Processed meat commonly consumed includes sausage, bacon, and ham. If you are a German sausage producer and plan to enter the market, you already have an advantage in branding as the “German sausage” is widely known among Vietnamese as the best sausage that is worth trying. Sausage is widely used in many dishes such as the famous banh mi, which is a traditional baguette.

              Dairy products

              Vietnam’s domestic production of dairy products only meets around 30% of the consumption, resulting in a need to import dairy products. One of the reasons is the country’s climate, which is not favorable to raise dairy cows. Raw milk is therefore primarily imported from Australia, the EU, New Zealand, and the US.

              Cheese and butter demand is fueled by exposure to Western culture, and consumers often choose imported cheese and butter rather than the limited choice of domestic brands, if they choose quality over price.

              The demand for imported baby formula also continues to increase, thanks to Vietnam’s growing population and the increased disposable incomes. We see significantly higher usage of baby formulas compared to Western countries and around two-thirds of Vietnamese families buy the products.

              Dairy products

              Vietnamese have become more health-conscious and understand the benefits of olive oil, increasing the demand for the product. There is a big demand for vegetable-originated oils, and olive is one of the most popular options. The market relies on imports of olive oils from foreign countries, primarily Spain, Italy, and Greece.

              Process when Importing Food Products to Vietnam

              Most categories of imported food must undergo inspections. Depending on the product types, the following bodies are responsible for different food categories, implementing Law 55/2010/HQ12:

              • Ministry of Health (MOH): Responsible for most pre-packed and processed food products
              • Ministry of Agriculture and Rural Development (MARD): Responsible for agricultural products
              • Ministry of Industry and Trade (MOIT): Responsible for higher-risk foodstuffs, such as alcoholic beverages, processed milk, and edible oil

              Notice that the import procedures will differ depending on your products, make sure to check the regulations from the corresponding authorities mentioned above.

              Some general steps for the imports of fresh fruits are as follows.

              Step 1: Check the import list

              First, you need to check if Vietnam allows imports of your products from the country of origin. For fruit and vegetables, you can check the website of the Plant Protection Department.

              Step 2: Apply for a phytosanitary license (if required)

              The list of items can be found in Circular 24/2017/TT-BNNPTNT, showing that tubers, fruits, and seeds will need a phytosanitary permit before being imported.

              Step 3: Product registration and quarantine at the border gate

              Prior to imports, you must register the products with the customs. The products will also be in quarantine before the products have been tested.

              Step 4: Quarantine sample

              When the registration is completed, and after the goods arrive at the airport or seaport, the importer (or service company) coordinates a visit to the warehouse with the quarantine officer to collect the goods and to take samples.

              Step 5: Import customs procedures

              Currently, the Vietnam custom procedures are defined under Law No. 54/2014/QH13. For processed and packaged food, the importers need to:

              • Perform product disclosure or product self-declaration
              • Apply for a certificate of food safety eligibility
              • Carry out relevant customs procedures for imported food
              • Inspection by a government-appointed authority

              Import Duties for Food Products in Vietnam

              To find the applicable import duties, you should first check the HS codes. More detailed guidelines and full tariff information for EU countries can be found here. Below are HS codes of some of the most imported products in Vietnam:

              • Fruits: Cherry: 08092100; Apple: 08081000; Grape: 08061010; Peach: 08093090
              • Meat: Frozen beef, boneless: 02023000; Frozen pork: 02032900; Canned pork: 16024999; Pork sausage: 16010090
              • Dairy: Mozzarella Cheese: 04061010
              • Olive oil: 15091010 (Olive oil and its fractions, whether refined, but not chemically modified. Packed with a net weight not exceeding 30 kg)

              Under the free trade agreement with the EU (EVFTA), the import duties for the above-mentioned products will be gradually removed by 2027. For example, beef is currently subject to import duties of 20%, but will be exempted from import duties by 2023, giving EU exporters a great price advantage.

              Below you can find a list of food products that will be exempted from import duties from 2023 to 2030.

              Table of food products exempted from import duties by 2030

              Summary

              Vietnam is a high-potential consumer market for food products as its middle and high-income class is growing fast, along with its strong population growth.

              The country’s openness to trade has made the market even more attractive, and food producers from the EU should expect a fast growth in the demand for imported food products in the future.

              EU countries benefit strongly from the European Union–Vietnam Free Trade Agreement (EVFTA), which was introduced as late as 2020. Many exporters are still unaware of this free trade agreement, which will get increasingly more attention in the coming years.

              With that said, it can be complex to manage local registration processes, particularly if you have no or little experience in the Vietnamese market. Assure that you work with a reputable service provider that can help you in the process to avoid any pitfalls later.


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                Vietnam’s Wind Power Opportunities for Foreign Investors

                Vietnam is one of the world’s most energy-intensive economies, consuming more energy per unit of economic output than the Philippines, Malaysia, Indonesia, and India does. The country’s electricity demand is expected to increase at an average rate of up to 9% annually over the next decade (Fitch Ratings). Its onshore, nearshore, and offshore wind power potential is attracting diverse global interest and has been named by the World Bank as world-class in 2021.

                 

                Wind farm in Ninh Thuan, Vietnam

                Vietnam’s Rich Wind Resources

                Vietnam has a significantly higher potential for wind energy than its neighbours Thailand, Laos, and Cambodia. In 2021, Vietnam came 4th on the list of top 10 countries by added wind capacity, meaning the added amount of wind energy generated from wind power plants in the year, and 22nd by total newly installed wind power capacity in 2021, surpassing every other Southeast Asian country.

                The country’s wind resources lie on its coastline of 3,000 kilometres, and in the hills and highlands of the northern and central regions. A study from World Bank ESMAP estimated that over 39% of Vietnam’s area had an annual average wind speed of over 6 m/s at a height of 54m, equivalent to a total capacity of 512 GW. By 2021, the country had installed 4,118 MW (4.118 GW) in wind power, a mere 0.8% of its total potential.

                Out of the installed wind capacity, 3,124 MW is generated from onshore plants and 994 MW from offshore plants. Contrary to the current status, Vietnam’s offshore wind potential generated from wind at sea outweighs its current onshore wind resources. The Institute for Sustainable Futures (ISF) estimated in the development plan, Renewable Energy for Vietnam 2019, that Vietnam’s offshore wind potential could reach 609 GW, while the onshore wind potential in GW is approximated to reach 42.05 GW (the research is based on the meteorology data of 2015).

                According to the World Bank Offshore Wind Roadmap for Vietnam, offshore wind capacity could supply up to 12% of Vietnam’s electricity demand by 2035. World Bank analysts estimated that offshore wind power capacity could increase to 5 GW – 19 GW, while onshore wind power capacity could grow to 17.34 GW by 2030.

                Graph showing Vietnam's wind power capacity

                Offshore wind projects are expected to be the next investment wave for FDI and private-sector investment. Despite their higher cost and complexity, offshore wind projects offer an opportunity to add capacity while providing more relief to the power grid than other renewables. Offshore output tends to fluctuate less than solar or onshore wind projects.

                Several pioneering developers believe offshore advantages outweigh the challenges. Ørsted, Denmark’s largest multinational power company and the world’s largest developer of offshore wind power farms, opened a Vietnamese office and signed a memorandum of understanding with T&T Group to develop several gigawatts of offshore wind projects in Binh Thuan and Ninh Thuan.

                According to Vietnam Electricity Corporation (EVN), out of 146 projects that signed the Power Purchase Agreement (PPA) with EVN, 84 projects have been operating commercially since before November 1st, 2021. Most are located in the central coastal region of Quang Binh in Quang Tri, and the southern coastal region of Ninh Thuan in Binh Thuan. Several wind power plants are in the highland Tay Nguyen area of Gia Lai, Kon Tum, and a large number of them are in the Mekong Delta area (Ben Tre, Tra Vinh, Soc Trang, Bac Lieu, and Ca Mau). Vietnam’s current largest wind power plant in operation is located in Ninh Thuan with 151.95 MW in capacity.

                Map showing Vietnam's wind power locations

                Governmental support

                Feed-in-Tariffs

                The surge in Vietnam’s wind power industry is largely due to the government’s strong support and implementation of generous feed-in-tariffs (FiTs), the Vietnamese government started offering a FiT of 8.5 cents US per kilowatt-hour (kWh) (1,927 VND) for onshore wind projects and 9.8 cents US per kWh (2,223 VND) for nearshore ones as per a 20-year PPA. The FiT was applicable to any project starting before November 2021.

                The FiT was proposed by the government to extend until the end of 2023, mainly due to COVID-19, which hindered the progress of most onshore wind projects. After the expiration of the FiT, the Ministry of Industry and Trade (MoIT) has proposed an auction system starting in 2023 and onwards, similarly to other renewable energy asset classes, that will either 1) auction among developers to sell electricity to a local distributor, or 2) auction among investors to start their projects on the acquired land.

                Power Development Plan PDP8

                The MoIT recently released a draft version of its eighth national power development plan (PDP8) for 2021-2030, which also includes a vision for 2045. The plan includes a higher target of 18.0 GW of wind power by 2030 from a goal of 11-12 GW in PDP7. The ambitious target is expected to be followed with favourable policies to help Vietnam tap into its full wind power potential.

                Tax Exemption and Reduction

                The government also provides tax exemptions for wind developers within the first four years of operation. A tax reduction of 50% is applicable for the next 10 years of operation.

                Opportunities for Foreign Investors

                Foreign investors may own up to 100% equity in wind energy project companies as no foreign ownership restrictions are currently in place for the renewable energy sector under Vietnamese law. Developers are also able to invest in wind power projects on a greenfield basis. Still, most foreign investors currently attempt to participate in a joint venture with a local partner.

                Under Vietnamese law, a project company or a special purpose vehicle will be established in the form of a limited liability company or joint-stock company. Commonly, investors initially find a limited liability company for the early-stage development of the project, before potentially converting the entity into a joint-stock company at a later phase when greater capital and financing requirements are available.

                Foreign investors can also acquire equity interests in pre-existing wind energy projects via the acquisition of charter capital or shares in a Vietnamese project vehicle. Project companies that have already obtained fundamental early-stage investment approvals are viewed as attractive M&A targets by foreign investors to avoid regulatory hurdles of the early-stage investment approvals.

                Vietnam’s very first Public-Private Partnership (PPP) Law, in effect on January 1st, 2021, provides an alternative pathway for foreign investment into greenfield wind energy projects with a Vietnamese government counterpart. In addition to the build-operate-transfer (BOT) model, which has been the most common PPP structure to date in Vietnam, the new law also recognizes build-own-operate and build-transfer-lease as relevant PPP models. While Vietnamese law will govern the project agreements, developers are free to choose a third country arbitration should a dispute scenario arise. Investors may also propose their own projects directly to the relevant state agency. Decree 35, released in March 2021, clarifies that the PPP law applies to renewable energy projects with a total investment value of 500 billion USD and over (approximately 22 million USD).

                The next phase of Vietnam’s wind energy expansion will include larger, more capital-intensive, and more technically complex projects in both onshore and offshore wind. The Vietnamese government is continuing to strengthen its commitment and support in extending the country’s capacity in wind power, setting ambitious goals, and providing multiple benefits for developers. Strategic partnerships with governmental bodies, joint ventures with local entities, and acquisition of equity interests of existing businesses are some of the many ways foreign investors could capture the opportunities of wind power investment in Vietnam.


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                  Working with Distributors in Vietnam: Complete Guide for Exporters

                  Business discussion with Vietnamese distributor

                   

                  Vietnam has become an increasingly attractive market for foreign brands due to its growing middle-class and a stronger preference for foreign products. Product quality, prestige, and taste are just some of the attributes driving this rise.

                  However, entering the Vietnamese market often comes with various challenges that we will review in greater detail later in this article. Working with local distributors is a preferred option for brands selling B2B and B2C, allowing you to get instant market access while reducing risks.

                  In this article, we review the benefits and disadvantages of working with Vietnamese distributors, as well as important items to consider before choosing a distributor.

                  Benefits of Working with Vietnamese Distributors

                  If you have no experience or presence in Vietnam, partnering with a distributor will most likely be the most time-efficient option to enter the market. Let’s review some of the most outspoken benefits of working with distributors locally.

                  Leverage the existing network of your distributor

                  Many distributors have years of experience in selling other brands locally, which has allowed them to build up a large network. Hence, once the distribution partnership is established, your products will quickly reach many end consumers.

                  Supermarkets such as Top Market, MM Mega Market, and VinMart have a large footprint in the bigger cities. These companies work with established distributors for imported goods, especially in the FMCG industry. For consumer electronics, The Gioi Di Dong (Mobile World) and its associated company – Dien May Xanh, are among the first options for electronic products.

                  Another example in the automotive industry is Savico – the largest car dealership in Vietnam that is distributing well-known brands, such as Volvo, Toyota, Ford, Honda, and more.

                  Access to multiple sales channels

                  A distributor can help you import the products in-country, allowing you to get access to all sales channels available. Compare this to cross-border eCommerce sales where you only get access to this single sales channel. Not only do eCommerce platforms have product-specific requirements for cross-border sales, but the sales price and size of the products must also be compatible.

                  On Lazada, for example, it’s long been prohibited to sell both food products and supplements cross-border. Selling perishable food products cross-border is complex to assure refrigeration and cover the higher logistics costs.

                  By working with an experienced and reputable distributor, you will be able to sell both online and offline, which can be beneficial for B2C sales. While online sales might not be as common for B2B sellers, the distributor can sell the products to everything from supermarkets, hotels, convenience stores, and more.

                  A single point of contact

                  Your distributor will be your single point of contact and manage the sales for hundreds or maybe thousands of end customers. This is both time-consuming and requires sufficient experience in managing the process efficiently.

                  The distributor should not only be well-versed in the sales and marketing process, but also in assuring customer satisfaction. This can be particularly difficult for a company that has little or no experience in the Vietnamese market.

                  Product registrations

                  Given the different regulatory requirements when importing products in Asia, you will benefit from the distributor’s knowledge and experience in registering the products locally. This can include both registrations with the customs, product labeling, and facility inspections, for example.

                  Managing the registrations on your own can be a tedious task and result in a scenario where you’re not able to sell the products locally. The registration processes should be managed by both you as a seller and the distributor, assuring that you have the right paperwork in place.

                  Disadvantages of working with the local distributors

                  While there are many advantages of working with Vietnamese distributors, you should also beware of the disadvantages and risks this might bring. Let’s review the most common ones.

                  Losing control over the sales process

                  By partnering with a distributor, you lose control over the sales, marketing, customer service, and warranty activities. Thus, you must work closely with the distributor to assure that maximize sales and meet consumer expectations.

                  A common issue is that distributors, purposedly or non-purposedly, don’t meet the expectations of companies. It’s not uncommon that distributors require exclusivity and intentionally keep sales volumes low, to favor other brands they work with. Including minimum sales quotas on a quarterly basis, for example, is crucial to avoid these kinds of scenarios.

                  This is more difficult if you only work directly with local distributors and have no direct connection with the retailers, for example. The situation is slightly more manageable if the distributor acts as the retailer. This is more common for B2B and non-FMCG products. In these cases, the manufacturer works directly with the retailers, has better insights into the sales process, as well as better negotiating power.

                  Unfavorable commission rate

                  Supermarket commission has long been a challenge for distributors/producers. The more layers a product must go through before reaching consumers, the more commission is paid to the middlemen.

                  In fact, the commission for supermarkets varies depending on the product categories. This is typically ranging from 15% to 30%. Apart from the commission, foreign brands also suffer from other extra fees and taxes, compared to local suppliers. Hence, it is important for the management of the company to stay competitive in terms of pricing while remaining profitable.

                  Conflict of interest

                  It is common that the local distributor works with multiple brands rather than just any single specific one. Hence, leaving the sales control to such a third party can sometimes cause a conflict of interest between competitors.

                  Suppliers with better bonus schemes and relationships with the distributor tend to be prioritized and enjoy privileges. Moreover, retail chains in Vietnam normally have an in-house production team, either directly under their brands, or indirectly through the related companies. These “in-house” products tend to receive massive privileges over other external ones.

                  For example, in 2019 Winmart (previously Vinmart) was acquired by Masan Group – one of the largest producers in Vietnam of FMCG products. Hence, we can see today many Masan’s products at every corner of Winmart, ranging from fresh vegetables/meat to snacks, drinks, instant noodles, and more.

                  Another example of this challenge is Bach Hoa Xanh and Co.op Mart (two leading supermarket chains in the South of Vietnam). Several consumer products such as bin bags, cling film, or cotton buds under their brand are now competing directly with the same products from external suppliers. Such “internally-sourced” products often come with a price competitive advantage, compared with others.

                  What to consider when working with the local distributors

                  Before you decide to enter a partnership, you must confirm that the distributor is capable of managing your local sales activities. Below are some examples of items to be reviewed beforehand.

                  Sales network and logistic capabilities

                  It’s crucial that your distributor has a sufficiently large network so that the products can be sold in sufficient volumes. At the same time, it’s equally important that you understand what retailers the distributor sells the products to.

                  Items to be reviewed and included in the distribution agreement include, but are not limited to, the number of stores that have/sell to, current brands they are distributing, the typical clients, and sales volumes per annum.

                  In case the distributor is present on local eCommerce platforms, other items to check are what platforms they are active on, buyers’ reviews, and how fast the products are delivered. Customer service and warranty should be reviewed as well.

                  Some specific products require certain conditions of storage. For example, cold storage of frozen food, chillers or fridges for F&B and pharmaceutical products, aseptic room for certain medical equipment. Foreign companies also need to make sure that such facilities from local distributors are qualified to deliver the best quality to end-users.

                  Geographic coverage

                  Distributors sometimes focus on sales in certain regions. This is particularly the case in bigger countries like China, but also in Vietnam. A market analysis should therefore be conducted prior to the selection of a distributor, to understand where the biggest sales potentials are.

                  To have the right penetrating strategy, companies are suggested to have at least a fair overview of the relevant market, such as the competitive landscape, consumer trends, competition, and applicable regulations. This could be done either through publicly accessed sources or through a professional market research agency that is familiar with the local market.

                  Conclusion

                  Working with local distributors is an effective way for foreign brands to establish a footprint in the Vietnamese market. Benefits can include lower initial investments, reducing compliance risks, and the avoidance of setting up your own local organization and sales team.

                  However, it is also important to highlight the disadvantage of working with distributors, especially from financial aspects. Each additional layer between the manufacturer and the consumer reduces profit margins.

                  It’s important to understand both the benefits and advantages of working with local distributors. While distributors might have great experience and established networks that can generate sales instantly, they might not work in your best interests. This might be the case if the distributor already sells one of your competitor’s products and prevent market access.

                  Prior to selecting a distributor, it’s of great importance to verify its sales and marketing capabilities by reviewing its previous sales performance, existing network, and creating a waterproof contract.


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                    The Cement Industry in Asia: Major Producers & Trends

                    Cement factory in Thailand

                     

                    The cement industry plays a vital role in infrastructure development and urbanization drives the demand for cement greatly. Concrete is currently the second-most used substance on the planet after water, which explains its importance.

                    In this article, we review the cement industry in Asia and what countries account for much of the exports and the consumption. We will also explain current issues that governments work actively trying to resolve, and how these affect the markets.

                    The Cement Industry in Asia

                    Production and consumption of cement are largely concentrated in Asia, accounting for 73% of the output globally and a consumption of 81%. Yet, the cement production industry is also facing a capacity surplus due to lower demand from the construction industries.

                    The largest producers of cement include China, Vietnam, India, and Indonesia where China produces and consumes the most by a big margin. In Southeast Asia, there is a large gap between Vietnam and the second-largest cement-producing country, Indonesia, which has 15 integrated plants and 66 million metric tons of production per year.

                    Thailand, the Philippines, and Malaysia all also possess large cement markets, despite not being as big as the above-mentioned countries.

                    The EU imports the most cement from China, Thailand, and the Philippines, while Vietnam is in the top 5 exporters of cement and clinker to the US. Having said that, both the EU and the US aren’t dependent on cement from Asia as most of their cement producers operate on a global scale and can provide enough for the domestic markets.

                    Worth highlighting is also the close ties between the US, Mexico, and Brazil, where the latter have large-scale cement manufacturing.

                    In recent years, China has tried to cut down on cement production due to environmental issues. It’s said that if the cement industry was a country, it would be the third-biggest polluter in the world, after the US and China. The governments of Vietnam and Indonesia have also implemented measures to counter the surplus of cement capacity with new regulations that limit new cement investment projects. The new regulations and limits will also help to reduce the cement output, preventing oversupply and increased competition among suppliers.

                    What countries are the biggest cement producers in Asia?

                    Four of the ten biggest producers of cement globally can be found in Asia, as well as the world’s biggest exporter of cement. Keep in mind that we must make a distinction between “producers” and “exporters” as countries like China consume much of their locally produced cement.

                    Vietnam

                    Vietnam is the biggest exporter of cement globally with an export value of 1.4 billion USD in 2020, equaling 12.5% of the global cement exports. Clinker is a nodular material used as a binder in cement products, and Vietnam also exports this product in large quantities.

                    Vietnam exports around 10% to 15% of its cement, having China, the Philippines, and Bangladesh as its biggest trading partners. China doesn’t have a shortage of cement, yet the cost for Chinese producers to transport products to the coastal region is higher than importing from Vietnam. This explains why China remains the biggest importer of Vietnam’s cement and clinker for many years, accounting for 57% of the total export volume.

                    At the moment, Vietnam faces an oversupply of cement. While the current domestic demand is around 65 million tons, the industry’s capacity has reached nearly 107 million tons. The situation is particularly serious in the North of Vietnam, which will increase its dependence on the export market.

                    China

                    China is the biggest cement producer, consumer, and importer in the world. It produces almost 60% of the world’s cement and accounts for most of the colossal carbon footprint of the industry. In 2020, the production volume reached almost 2.4 billion metric tons. To match China’s urbanization need, the domestic production of cement grew rapidly between 2002 and 2014.

                    However, the demand for cement is expected to decline due to the shift from mass urbanization to more sustainable infrastructure, along with the slowdown in the Chinese real estate market. Therefore, the country is reportedly trying to limit cement imports.

                    In addition to restricting imports, China has a plan to cut down on cement production as the manufacturing process requires much coal, which emits CO2 and dust. This causes a negative and long-lasting impact on the environment. This is part of its five-year plan to reach the CO2 emission reduction goal.

                    India

                    Being the second-largest cement producer with 7% of the global installed capacity, India has a positive outlook on its cement industry. Until February 2021, India’s overall cement production reached 262 million metric tons in 2021, which is around 10% of China’s.

                    The demand for housing in rural areas and the Indian government’s strong focus on infrastructure development will drive the cement production to double-digit growth. Examples of infrastructure development projects include the goal of creating 100 smart cities, expanding the capacity of railways, and adding 125,000 km of roads in the coming five years. We will also see an increase in storage and handling facilities to reduce transportation costs. The demand for cement will remain high for at least until 2030.

                    South India is the main hub for cement production that has several big producers, accounting for 33% of India’s total output. On the international trade aspect, India exports mostly to Bangladesh, Sri Lanka, and Nepal, while it imports much clinker from Vietnam.

                    Indonesia

                    Indonesia is an emerging exporter of cement, having a production volume of around 66 million metric tons of cement in 2021. It’s rapidly increasing exports of cement and clinker where Bangladesh and the Philippines are major importers of clinker, and Mauritius and the Maldives are the biggest importers of its cement.

                    The cement industry is dominated by four major producers, including the state-owned Semen Indonesia, which has a 44% market share. The other major producers include Indocement Tunggal Prakarsa, Holcim Indonesia, and Semen Baturaja.

                    Like Vietnam, Indonesia also struggles with an oversupply as domestic consumption only accounts for 60% of its production capability. Despite the massive infrastructure projects across the country, the low utilization rate results in inefficiencies that have hurt many cement producers.

                    Summary

                    Asia has four of the ten biggest cement producers globally, including China, Vietnam, India, and Indonesia. While Vietnam exports much of its cement, China consumes much of its locally produced cement and where most of the supply is allocated to the construction industry. Worth highlighting is also the overcapacity that countries struggle with, including Vietnam, which will result in the need for more exports.

                    At the same time, Europe is facing a crisis due to a shortage of building materials, which is partly related to the increased energy costs. Turkey and China have traditionally been interesting supply markets for such products, but we might well see Southeast Asian countries becoming new options for foreign companies.


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