VietnamElectronics2019

Copyright Tractus Asia Ltd. 2019

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CONTENTS1. Vietnam electronics industry

2. Vietnam electronics in the global value chain

3. Vietnam electronics FDI

4. Vietnam electronics export

5. Opportunities and challenges

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03

05

07

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Vietnam Electronics IndustryVietnam electronics started booming after joining WTO in 2007

1,237 companies

612,000 people

14% of GDP

28.9 of total export

Source: GSO Vietnam

*JETRO: Japan External Trade Organization

VIETNAM ELECTRONICS INDUSTRY

113 256

613

1,145 1,237

200

400

600

800

-

500

1,000

1,500

2000 2005 2010 2015 2016

1,00

0 pe

ople

No.

com

pan

ies

No. of companies Employment

In the early 1990s, most of the electronics manufactures in Vietnam were state-owned, small-sized enterprises focused on assembling television, radio cassette recorders, VCDs and DVDs from imported components. From a hundred companies in the 1990s to 256 companies in 2005, the big boom happened after joining WTO in 2007. Currently, there are more than 1,200 enterprises employing 612,000 people.

The electronics industry (EI) plays a crucial role in the vibrant Vietnam economy. It accounted for 28.9% of all exports in 2017, up from 5% in 2010. The sector has boosted Vietnam GDP, accounting for 14 % of GDP in 2017, up from a mere 5.2% in 2010.

Vietnam’s EI is dominated by foreign-invested enterprises, generating 95% of Vietnam electronics export turnover. Domestic enterprises participation is very low. Global MNCs like Samsung, LG, and Intel are the industry drivers. Most of the tier 2 investors are linked to their supply chains.

According to JETRO*, the localization rate of Japanese electronics companies in Vietnam was 32.1% in 2015, much lower than the rate in other countries in the region (36% for Malaysia, 40.5% for Indonesia and 55.5% for Thailand)

The domestic production of electronic components is growing but still underdeveloped. Domestics firms participate mainly in packaging, simple plastics, and metal parts. The supply of electronic components and supporting products come mainly from imports and have only been produced in Vietnam in recent years by FDI companies. Main items include printed boards, TV CRT, capacitors, plastic parts, mechanical parts for CRT, antennas, and packaging.

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Vietnam Electronics in the Global Value ChainVietnam electronics export accounted for 3% of the world in 2016 and grew at CAGR 20% from 2012 to 2016

ELECTRONICS FINISHED PRODUCTS 2016

Asian countries dominate electronics exports. China, Singapore, and Korea, the three leading exporters, accounted for 45% of world export value. Among top electronic export countries, Vietnam electronics exports including electronics finished products, subassemblies and components skyrocketed by 60% from 2008 to 2016, from a mere $3.6 billion in 2008 to nearly $57 billion in 2016, accounting for 3% of world export in 2016.

From 2012-2016, Vietnam maintained strong growth for all electronics finished products, and though the total value is still small, an average growth of around 20% is much higher than other countries in the region. The world growth rate of electronics finished products is negative at 0.9%. For the electronics finished products group, Vietnam has achieved a 5% market share, behind only China and driven by telephones exports.

The bubble size represents the export value

China

Vietnam

KoreaSingaporeThailand

Malaysia

Japan-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

0% 10% 20% 30% 40%CAG

R 20

12-2

016

World market share 2016

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Vietnam only engages in the lowest midstream activities of the electronics value chain. These are the lowest value-added activities in the electronic value chain. Vietnam is very dependent on imported components and subassemblies as local production is very limited and component imports keep growing to support exports. Vietnam supply chain is mostly located in Asia with China, Korea, and Japan being the main suppliers. Asia’s share of components in Vietnam is slowly being reduced in favor of other locations like the United States.

Upstream activities in Vietnam are very weak. Designing is carried out abroad, the main components (electronic chip, etc.) are imported from other countries. Only a few MNCs have limited R&D activities in the country. Ex. Samsung, Renesas Design Vietnam.

Down-stream: these activities are done by foreign companies and produced outside Vietnam. Local companies have limited international exposure and marketing capabilities due to a lack of experience and capital.

Upstream

Research and Development Design

Inputs

Silicon Intergrated Circuits

PCV

PCBA

Consumer Electronics Consumer Retailers

Industrial: Firms

Public-Use: Institutions

Communications

DisplayPassives

Cables

Batteries

IC Design Circruitry Design Software New productDevelopment

Metal

Plastic & Glass

Chemical

Packaging

Components

Elec

tron

icEl

ectr

onic

al

Mid-stream

Subassemblies Finished product/Market Segments

Distribution/Sale channels

Downstream

ELECTRONICS “3C” GLOBAL VALUE

Semiconductor Wafers

Active DiscreteProduct Special Parts

Enclosure/Housing

Computers/Storage/Office

Vietnam’s integration in global value chain

Sources: Frederick, 2017; 3C refers to consumer electronics, computers and communication devices

Vietnam has mainly engaged in the lowest value-added activities in the global electronics value chain

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Sources: Tractus

Vietnam electronics FDI

Peak investment years were 2013 and 2014 with huge investments by Samsung and LG. Samsung and LG alone, with their megaprojects, represent US$ 14 billion or 50% of the total investment. Samsung committed US$ 9 billion in projects in Bac Ninh, Thai Nguyen, and HCMC. LG invested US$ 3 billion in Haiphong. However, the number of annual FDI projects continues to grow with investments typically linked to large MNCs’ value chain. Other companies with investment projects larger than US$ 1 billion are Intel chip testing and assembly facility and Taiwan Wintek LCD module. Other big investors include Canon, Compal, Seoul Semiconductors, Nokia, Meiko, Heesung Electronic and Jabil.

VIETNAM ELECTRONICS FDI AND EXPORT VALUE

Foreign investment into Vietnam electronics sector is dominated by Samsung & LG

$0$10$20$30$40$50$60$70$80

$0

$5

$10

$15

$20

$25

$30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Cumulative Investment Capital Electronic exports

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In the last decade, Korea has become the main investor in Vietnam electronics, accounting for 69% of the total investment capital, followed by Japan. This trend became more evident after the Samsung and LG mega projects in 2013 and 2014. The high number of projects after 2013 are related to the Samsung and LG suppliers that followed them into Vietnam and continue arriving. In the period 2006-2018, there were 653 projects related to electronics from Korea.

Electronics FDI has concentrated in two main regions, the Red River Delta and HCMC. Location wise the Red River Delta region, around Hanoi, is the preferred location for Electronics companies. .

While Thai Nguyen and Hai Phong provinces have received the largest investment capital (Samsung and LG), the real center of the cluster is Bac Ninh province with 137 companies (each project is larger than US$ 1 million). In the South, the main location is the Saigon High Tech Park in HCMC that hosts Intel, Samsung, Nidec, and Jabil, followed by Binh Duong province. The southern region only accounts for 10 of the 75 largest projects.

FDI CAPITAL BY COUNTRY OF ORIGIN 2006 - 2018

Electronics FDI has concentrated in two main regions, the Red River Delta & HCMC

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Others5%

Taiwan7%

Hongkong7%

South Korea69%

Japan12%

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Vietnam Electronics export

Vietnam electronics exporters:

Global Lead Firms - Firms that coordinate GVC and retain most of the added value and profits. There are several MNCs present in various market segments and their brands are globally recognized. Key Players in the Vietnam industry include Samsung, LG, Canon, Panasonic.

Platform leaders - Companies with leading technologies (software, hardware or both) widely used by other companies. The main player in Vietnam is Intel

Contract Manufacturers - Companies in Vietnam are focused on manufacturing for a range of lead firms around the world. Key players in Vietnam include Foxconn, Compal, Jabil Circuit.

Vietnam ranks #2 globally in mobile phone exports

$45s40$35$30$25$20$15$10$05

$0

2008 2009 2010 2011 2012 2013 2014 2015 2016

Final Subassemblies Components

CAGR of total export value 36%

VIETNAM ELECTRONICS EXPORT VALUE BY CATEGORIES

US$ billion

Source: World Bank WITS, Tractus

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Vietnam hardware exports are concentrated in a few narrow product groups. Telephones are the largest export product from Vietnam, accounting for 50% of all electronics related exports. Though telecom related products can reach as high as 75% of the total value if one accounts for components and subassemblies linked to telephone production. This product group is dominated by Samsung which accounts for 98% of the telephone exports.

Other important product groups are computers, storage devices, and consumer electronics. The main companies in consumer electronics include LG, Panasonic, Samsung, and Canon. Electronic components group is limited and dominated by Intel. Intel’s export revenue is around $1 billion each year.

Communication equipment

50.14%

Electronic Components

12.90%Industrial

assemblies0.22%

Industrial final products0.15%

Customer Electronics

7.84%Computer Equipment

10.38%

Subassemblies18.37%

SHARE OF VIETNAM ELECTRONIC CATEGORIES EXPORT, 2016

Source: World Bank WITS, Tractus

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Opportunities and challenges

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• If Vietnam doesn’t move up in the value chain, other countries in the region will also compete in costs and labor availability. Ex Myanmar

• Vietnam electronics industry is very linked and dependent on very few mega companies ex. Samsung. Should these companies shift their focus to other regions the impact would be very negative.

THREATS • A strong presence of global tier1 companies that are attracting their suppliers and driving the development of an ecosystem.

• Skills and industrial capabilities are improving as the government is promoting the development of supporting industries such as R&D activities.

• Growing demand for components together with the lack of local suppliers offer opportunities for foreign investors to produce and sell locally.

• Opportunity to replace certain activities from China as a result of Trade wars.

OPPORTUNITIES • Weak supporting industry and unclear development prospects.

• Vietnam is only participating in the lowest value-added activities of the value chain. Upstream and downstream are off the table for the moment.

• Electronic production mainly depends on imported components from Korea, ASEAN, China, Japan and the localization rate is low.

• Domestic enterprises only supply low value-added plastic components, metal parts, and packaging.

WEAKNESS• Vietnam still has advantages in labor availability making it advantageous for large operations with thousands of employees.

• Labor cost share of total electronic costs is very low in Vietnam, and are in fact lower than other countries in the region.

• Geographic proximity to global suppliers Ex. China, Korea, and Japan.

• Stable economic, business and social environment.

• Strong international economic integration through FTAs with the main economic regions make it easier to source globally and sell globally.

STRENGTH

Key contacts

Authors

Antonio SequerosConsulting Manager, Vietnamasequeros@tractus-asia.com

Thuy, Le NgocBussiness Manager, Vietnamthuy.le@tractus-asia.com

Rebecca Giang AnConsulting, Research Analystgiang.an@tractus-asia.com

http://tractus-asia.com/© Copyright 2019 Tractus Asia. All rights reserved. This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been based on sources we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report is accurate or complete. Any views expressed in the report reflect our judgment at this date and are subject to change without notice. Statements that are forward-looking involve known and unknown risks and uncertainties that may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report.

Copyright Tractus Asia Ltd. 2019