Vietnamese enterprises lose their home market as they focus on land deals

Many enterprises would rather use their capital to buy and sell land than make investments to scale up their production.

Vietnamese enterprises lose their home market as they focus on land deals

A director of a mechanical engineering enterprise that acts as a vendor for a multinational in Vietnam said: “We are quite confident about our technology. But we have difficulties in expanding investment because of a lack of capital. Even when our revenue is high at VND500 billion a year, our profit is modest, just several billion dong."

Though the enterprise’s products are highly appreciated by foreign partners, the director is still reluctant to invest hundreds of billion of dong more to scale up the production.

He said some of his friends don’t want to expand production, but just want to maintain the current production scale to maintain revenue and generate jobs, while others have sold their businesses to get money to inject into financial investments or real estate.

Explaining this, he said that some investments require a lot of exertion and money but profits are modest despite high risks.

He said that it is more profitable to trade in land than run a manufacturing plant. In some localities, land prices have surged by 100-200 percent just over a short time.

This has prompted businesses to pour money into land deals.

Even if manufacturers succeed in expanding their production, the profits they make will be modest. Meanwhile, they can easily make a profit of billions of dong if they buy land now and sell it after several years.

Foreign enterprises flock to Vietnam

Vietnam is a signatory to many FTAs, which allows enterprises making goods in Vietnam for export to enjoy big preferences.

The 2020 PCI Report (provincial competitiveness index) showed that there have signs of foreign invested enterprises getting smaller in size in recent years.

While the number of FIEs in Vietnam has been increasing rapidly, their capital and labor scale is getting smaller.

The Vietnam Chamber of Commerce and Investment (VCCI), for the first time in the 11 years of PCI reports, found that the number of FIEs with fewer than five workers accounted for more than 10 percent, while the proportion of FIEs with 5-9 workers increased from 10.6 percent to 11.3 percent.

Regarding stockholder equity, only 9.8 percent of FIEs had capital of less than VND0.5 billion in 2019, while the figure rose to 13.1 percent in 2020.

Only 3.7 percent of FIEs had stockholder equity of VND200-500 billion in 2020, and 4.6 percent had more than VND500 billion. Meanwhile, the figures were 5 percent and 5.1 percent, respectively, in 2019.

The figures are similar to PCI surveys in recent years, which showed that the number of FIEs shifting to use Vietnamese vendors is on the decrease.

In 2015, more than 68.9 percent of FIEs bought products from private enterprises and 19.3 percent bought from business households. The figures decreased in 2020 to 62.5 percent and 14.8 percent, respectively.

 

As for state-owned enterprises, 12.1 percent of FIEs bought products form them in 2016, and the figure decreased gradually in the following years to 8.2 percent in 2020.

FIEs in Vietnam mostly invest in manufacturing industries (more than 50 percent). In the manufacturing sector, analysts are witnessing a strong shift to industries with high technology content, such as computers, electronics and automobiles.

FIEs have also flocked to Vietnam to work as vendors for large FIEs.

A report from the Ministry of Industry and Trade (MOIT) on the electronics manufacturing industry released recently showed the relatively strong growth rate of electronics manufacturing and trade.

In 2020, Vietnam exported $95 billion worth of products of these kinds, including $51 billion worth of smartphones and smartphone components, and $44.58 billion worth of electronics, computers and computer parts.

However, the locally made content of the electronics industry remains very low, just 5-10 percent, while the number of Vietnamese enterprises providing components to multinationals remains modest.

Samsung Vietnam has only 35 Vietnamese vendors, while there are hundreds of components that need to be localized.

Canon Vietnam has 147 vendors in Vietnam, but only 20 Vietnamese vendors. Panasonic has four Vietnamese vendors which produce 10 percent of the input material value.

Land trade preferred to screw manufacturing

According to VCCI, Vietnam’s private enterprises are mostly operating in the fields of trade, service and construction, while enterprises in the manufacturing sector account for a small proportion and use outdated technology and have poor management skills.

The problem doesn’t lie in Vietnam’s capability, but in the low expected profits.

It took one enterprise four years to meet the requirements to become a second-class vendor to a multinational that has many factories in Vietnam. And the enterprise does not intend to make further investments to improve its position. It would rather trade in land because of the attractive profits.

This trend is attributed to the current policies on the supporting industry, which are seen as unattractive. If trading land, investors can expect huge profits of 30-50 percent per annum, or even 100 percent. 

Tran Thuy

Ministry urged to submit National strategy on digital economy and society in August

Ministry urged to submit National strategy on digital economy and society in August

Prime Minister Pham Minh Chinh has recently tasked the Ministry of Information and Communications (MIC) to finalize and submit a national strategy on developing digital economy and digital society this August.

VEPR: Vietnamese economy could grow by 6.3 pct in 2021

VEPR: Vietnamese economy could grow by 6.3 pct in 2021

The Vietnamese economy could grow by about 6-6.3 percent in 2021, said chief economist Pham The Anh from the Vietnam Institute for Economic and Policy Research (VEPR) 

 
 

Other News

.
Hard-hit bsinesses still paying high interest on loans
Hard-hit bsinesses still paying high interest on loans
FEATUREicon  25/05/2021 

The latest Covid-19 outbreak has pushed enterprises into new difficulties at a time when it is nearly impossible to access cheap capital sources.

Tourism sector suffers another hit from recent Covid outbreak
Tourism sector suffers another hit from recent Covid outbreak
FEATUREicon  25/05/2021 

Businesses have sustained a new blow from the fourth recurrence of Covid-19.

People's spirit in fighting Covid-19
People's spirit in fighting Covid-19
FEATUREicon  25/05/2021 

Recently, some businessmen told me that they are willing to contribute money to the Government to buy vaccines against the SARS-CoV-2 virus if the Government launches a fund to supplement the budget shortage.

KPIs for National Assembly deputies considered
KPIs for National Assembly deputies considered
FEATUREicon  24/05/2021 

The National Assembly should study and develop a set of key performance indicators (KPIs) of delegates, including qualitative and quantitative values.

Vietnamese litchis: five years of waiting for the nod to enter Japan
Vietnamese litchis: five years of waiting for the nod to enter Japan
FEATUREicon  22/05/2021 

In mid-June, Vietnam’s litchis officially hit the supermarket shelves in Japan, priced at VND500,000 per kilogram and selling out after several hours.

"Tiger" mom in Hanoi helps daughter win Harvard scholarship
"Tiger" mom in Hanoi helps daughter win Harvard scholarship
FEATUREicon  22/05/2021 

Ngoc is very sparing with her praise. She said that compliments may make her kids conceited and believe they are good enough and don't need to continue to study.

Vietnam’s universities keen to 'go digital'
Vietnam’s universities keen to 'go digital'
FEATUREicon  22/05/2021 

Truong Tien Tung, former rector of the Hanoi Open University, one of the first schools going digital with 15,000 students following online courses, said he was familiar with the concept of ‘open education’ and ‘distance education’ as early as 1994.

Hanoi expands suburban areas, aims for sustainable development
Hanoi expands suburban areas, aims for sustainable development
FEATUREicon  22/05/2021 

Urban development in the 1960s and 1970s in Singapore and Seoul could be valuable lessons for Hanoi to map out its sustainable development.

Five female provincial Party Committee Secretaries run for National Assembly election
Five female provincial Party Committee Secretaries run for National Assembly election
FEATUREicon  21/05/2021 

Five female provincial Party Committee Secretaries have made strong commitments and shown their priority issues while running for election to the 15th National Assembly (NA).

Former rector says universities should share lesson plans, resources to improve quality
Former rector says universities should share lesson plans, resources to improve quality
FEATUREicon  25/05/2021 

Educators in Vietnam need to share resources, materials and experiences to enhance educational outcomes, said Do Van Dung, former rector of the HCMC University of Technology and Education.

20 years for Vietnam to become rich and strong
20 years for Vietnam to become rich and strong
FEATUREicon  24/05/2021 

If developing countries do not make breakthroughs during the golden population period, they will find it difficult to overcome the middle-income trap to become developed countries.

VN e-commerce platforms may lose home ground
VN e-commerce platforms may lose home ground
FEATUREicon  24/05/2021 

Vietnamese businesses need to prepare and move ahead to win the e-commerce race.

Renowned duckling ‘staff’ hang out at florist shop
Renowned duckling ‘staff’ hang out at florist shop
FEATUREicon  22/05/2021 

The pair of lovely ducks has become a source of joy for traders and children in a corner of Thiec market.

Young man uses social media networks to help people in need
Young man uses social media networks to help people in need
FEATUREicon  23/05/2021 

Hundreds of millions of VND have been called for through social networks by a young director in Binh Duong who aims to help unfortunate victims on the road and the homeless.

Failure of Vietnamese literary film adaptations
Failure of Vietnamese literary film adaptations
FEATUREicon  19/05/2021 

The tragic level of box office revenue of most films that have been adapted from books is examined by cinema critic Nguyen Phong Viet.

Giving up medical school in Vietnam, student pursues neuroscience research in US
Giving up medical school in Vietnam, student pursues neuroscience research in US
FEATUREicon  23/05/2021 

When she was 10 years old, Mai Ngoc Hien, who won a scholarship in 2018 worth $160,000 to study neuroscience at Ohio Wesleyan University, read a book that she had borrowed from a friend about Issac Newton’s research activities. 

21-year-old attends fifth grade in Nghe An
21-year-old attends fifth grade in Nghe An
FEATUREicon  19/05/2021 

After a serious illness at the age of 6, Mua Ba Tenh was unable to walk normally because of a leg problem. He had to put off school for 10 years.

Covid-19 vigilance still needed as Vietnam continues negotiations on vaccination purchases
Covid-19 vigilance still needed as Vietnam continues negotiations on vaccination purchases
FEATUREicon  20/05/2021 

Vietnamese Deputy Prime Minister Vu Duc Dam and the World Health Organization (WHO) representative Kidong Park have both noted that Covid-19 has been quietly spreading in the community.

Enterprises worried as steel prices escalate globally
Enterprises worried as steel prices escalate globally
FEATUREicon  20/05/2021 

The domestic steel price hike has been attributed to a global price increase. To reduce steel prices, production costs need to be cut.

Fixing technological vulnerabilities and fighting coronavirus
Fixing technological vulnerabilities and fighting coronavirus
FEATUREicon  20/05/2021 

Although the VHD, NCOVI and Bluezone apps have helped people make health declarations, there are still loopholes that allow people to avoid the declarations.

 
 
 
Leave your comment on an article

OR QUICK LOGIN