Vietnamese mechanical engineering companies do the outsourcing to survive

A large trade fair taking place in HCM City early next month has 800 stalls booked. The enterprises displaying products are from different industries, including electrical engineering & electronics, technological toys, and machinery. An exhibition on five metals and hand tools will also take place at the same time.

However, most of the companies at the trade fair and exhibition are foreign enterprises.

“The number of Chinese enterprises is always high. Enterprises from South Korea, Taiwan and Japan have been joining in the last few years,” said Nguyen Khac Luan, chair of Vinexad, a professional organizer of exhibitions and trade fairs.

And at Vietnam Export trade fair, about 140 enterprises from South Korea, to be headed by trade promotion agencies, will be present, Luan said. 

Meanwhile, according to HAMEE (HCM City Association of Mechanical – Electrical Enterprises), its member companies will only attend the event as visitors. 

With weak marketing capability, Vietnamese enterprises are not confident enough to attend the event.

Chair of HAMEE Do Phuoc Tong admitted that Vietnamese mechanical engineering enterprises are meeting difficulties in the home market. They have problems in making complete machines and machine components.

In order to import machines for the pharmacy industry, enterprises have to import stainless steel plates which bear a tax rate of 10 percent and automatic regulatory devices which bear a tax rate of 15 percent. However, a zero tax rate is imposed on imported CBU (complete built unit) machines. 

The current tariff doesn’t encourage Vietnamese enterprises to set up production workshops.

To survive, Vietnamese enterprises make components for large companies. However, they also have to compete with foreign invested enterprises and are at a disadvantage.

According to Tong, foreign invested enterprises have bigger opportunities to become component suppliers to big companies as they have the same nationality. 

“Joining the supply chain in the home market is the ‘chicken or egg’ story,” the director of a mechanical engineering company said.

“We don’t dare make investments to set up factories because we are not sure if we can become vendors for large companies. They only make decisions after examining our production capability,” he explained. 

“Therefore, many enterprises decide to do outsourcing for overseas companies,” he said. “The demand from overseas markets has increased a lot.”

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