GLOBALIZATION IN THE AUTOMOBILE INDUSTRY:

CHANCE FOR THE VIETNAMESE AUTOMOBILE INDUSTRY

Nguyen Bich Thuy 
Trường Đại học Thương Mại
ĐT: 01266555838

Abstract

Automobile industry has been selected to be a key industry by Vietnamese

government with the expectation of its positive influence on the economy of
Vietnam. However, so far the production is just limited at simple automobile
assembling with limited localization of labor-intensive autoparts.
The Vietnamese automobile industry is currently in the grips of a vicious
circle, in which small size of the market prevents automotive makers from reaping
the mass-production merits, with the result that market growth is hindered by high
production cost. The globalization waves in the world’s automobile become
challenge to this infant industry due to strong competition from overseas. But it
can bring about a chance for Vietnamese automobile industry to join in the global
automobile production network. To realize this chance needs an enthusiasm from
the enterprises and a wise policy from the government.

Keyword: Automobile industry, autoparts, globalization, marketing,

production scale.


Vietnam Commerce University

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I. INTRODUCTION
Promotion of the automobile industry has become a target of Vietnam for its
industrialization because it not only provides high value-added products but also
has positive influence on the development of an economy. In fact, Vietnam is a
new emerging and potential market and production base for automobile products
due to its dramatic economic growth and its big population of more than 84 million
with low car ownership rate1,2 and possibility to grow as manufacturer with good
and cheap labors. However, as a late comer in the world’s automobile market, the
Vietnamese automobile industry is still behind of well-developed automobile
industries in the region (ASEAN-Association of Southeast Asian Nations) and
around the world in the context of free trade also3,4 ,5,6. Globalization that happens
strongly in the world’s automobile industry7,8,9,10 questions the survivals of the
Vietnamese automobile industry. To find out a way to break the current stagnation
of the Vietnamese automobile industry is essential.
This research was based on primary data from the questionnaires, surveys,
interviews and field trips to automakers which belong to Vietnam automobile
manufacturers association and secondary data from various related Ministries of
Planning and Investment, Ministry of Finance, Ministry of Transportation and
Vietnam Auto Manufacturers Association to have overall image of the Vietnamese
automobile industry. Data collected from various journal entries and published
texts will be utilized to understand real state of globalization in the world’s
automobile industry.

II. CURRENT ISSUES OF THE VIETNAMESE AUTOMOBILE INDUSTRY

1 Phi Long, ‘Thành phố Hồ Chí Minh quyết tâm phát triển ngành công nghiệp ô tô’, Ấn phẩm thông tin, Vol. 1,
August 2004,pp.8-10.
2 Sturgen, Timothy J., The automotive industry in Vietnam: Prospects for development in a globalizing economy,

Report prepared for Development strategy Institute- Vietnamese Ministry of Planning and Investment and
Medium-term Industrial Strategy Project- United Nations Industrial Development Organization, July 1998.
3 Ohno, Kenichi, Early industrializers and late comers in ASEAN, Vietnamese development forum Hanoi,

National Graduate institute for policy studies, 2006.

4 Guiheux, Gilles and Lecler, Yveline, Global Strategies and local realities, Macmilan Press Ltd, Great Britain,

2000.
5 Ishizaki,Yukiko, ‘New phase in Asia strategies of Japanese-affiliated Automobile and Parts Manufacturers’,

RIM Pacific Business and Industries, Vol.I, No.31, 1996, pp.17-31.

6 Hideo, Kobayashi, Post war Japanese economy and South East Asia, New Day Publishers 11 Land street,

VASRA, Philippines, 2002

7 UNCTAD, The competitiveness challenge: Transnational corporations and industrial restructuring in

developing countries, United Nations, New York, 2000.

8 UNCTAD、 World Investment Report 1993: Transnational Corporations and Integrated International

production, United Nations, New York, 1993.

9 Tiasiri, Vallop, Can Thailand maintain its competitive edge, The 2002 automotive news Asia-Pacific Congress,

May 23 2002.
10 Ishizaki, Yukiko, ‘The automobile industries of ASEAN countries: Toward greater regional cooperation and

competitiveness’, RIM Pacific Business and Industries,Vol.I,1994, pp.17-33.

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Overview of the Vietnamese automobile industry
Since 1991, the Vietnamese automobile industry has begun to dramatically
change and gradually take shape owing to the open policy and various incentives
of the Vietnamese government. Foreign automakers started investing in Vietnam
and joining with some Vietnamese prominent state-owned automobile enterprises
to establish their production bases in Vietnam. By the end of 1990s, there were up
to 11 JVs11 in Vietnam and currently there are 14 JVs12.
Since 2003 pure Vietnamese automakers (PVCs) have particularly
blossomed when the Vietnamese government approved the strategy of Vietnamese
automobile industry development to the year 2010, vision 2020 in which the
government encouraged all economic sectors participating in the automobile
industry and eagerly accelerated state-owned automakers. So far 35 PVCs were
built up, but majority of which remains at simple assembling. The highest
localization rate achieved by JVs is stated 30% in the case of Vios model by
Toyota Vietnam Corporation. Some PVCs sources more autoparts locally,
which are low-technology such as tires, tubes, seat sets, door console boxes,
quarter trims, wire harness, tool sets, alpine radios, manual antennas, batteries and
exhaust pipes.
Currently, Vietnamese automobile industry completely depends on foreign
companies’ technology, management and marketing while its supporting industry
has not yet developed. Vietnam is in the early stage of CKD assembling (import
almost autoparts, bodywork welding, stamping, painting, assembling, and testing
done in Vietnam). Vietnam is far behind world’s automotive production countries,
even at the lower development stage than ASEAN-4 (Thailand, Malaysia,
Indonesia and Philippines).

Current issues of the Vietnamese automobile industry

In spite of receiving much incentive from the Vietnamese government, the
automobile industry shows no bright prospect. It is in the grips of vicious circle
and cannot break a way for development. What are its difficulties?
First of all, small market is competed by many automakers (including 18
automakers belonging to Vietnam Automobile Manufacturers' Association and
some tiny auto assemblers) which produce many models of cars. Up to now, the
products of local automakers are mostly to serve the domestic market and focus on
high-income people in big cities, while there are a limited export number of
automobiles according to the state agreements. In fact, total sales volume of

11 Report on Strategy to develop the Vietnamese automobile industry, 2003.

12 Quy hoạch phát triển ngành ô tô, Plan to develop the automobile industry, Vietnamese Ministry of Industry,
2007.

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automobile in Vietnam was just 117.000 units in 2009 (chart 1), just equivalent to
Thailand’s automobile sale in 1998 when its autoparts production is very limited
with localization rate only 35%. This small market is even narrowed down by too
many models. There are up to about 50 models of automobiles assembled in
Vietnam including passenger cars, van, truck, MPV... Additionally, the small
market of automobile triggers small production scale that makes the automobile
production in Vietnam costly and ineffectively. Most automakers in Vietnam
have annual sales of only some hundreds to some thousands units a year.
Toyota Vietnam topped the list of auto sales in Vietnam, selling over 20,000
domestically-assembled vehicles, accounting for 25% of total sales of 2007 13.
Small market makes assembled cars in Vietnam so expensive due to high
production cost including autoparts imports for automobile assembling and
repairing and high depreciation fee. Currently, price of car assembled in Vietnam
is 3 times higher than one in Japan. For example, price of a Toyota Camry 2WD
2007 is 57,000 USD in Vietnam, but it is 20,000USD in Japan and the most
fashion of Camry 2WD model 2010 is only 32.000 USD in Japan. Moreover, the
small market also causes to limit investment in autoparts. Because, autoparts
makers decide to establish their production bases if domestic demand is enough to
cover production cost. Up to now, only Toyota built up an autoparts export center
supplying valve, antenna… to MPV model assemblers in Southeast Asia. Other
automakers are not interested in calling for foreign autoparts makers to invest in
Vietnam.

13 Sale volume record of VAMA 2009.

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 Chart 1: Automobile sales in Vietnam1998-2009

140000

120000

100000

80000

60000

40000

20000

0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Vietnam automobile manufacturers’ Association.

Secondly, autoparts production is rather weak. There is a modest domestic

production of low technology autoparts such as tires, tubes, seat sets, door console
boxes, quarter trims, wire harness, tool sets, alpine radios, manual antennas,
batteries and exhaust pipes while there is a limited investment of foreign ones. So
far, there are totally more than 70 autoparts makers14 including pure Vietnamese
ones and foreign invested ones, very small in comparison with 300 autoparts
makers in Thailand supplying autoparts to 13 automakers. Usually, an automaker
needs at least 20 supporting autoparts makers, but up to now on average an
automaker in Vietnam has one or two autoparts makers. Additionally, there exists
loosen linkage among automakers and autoparts makers triggering incoherent
automobile production network in Vietnam. There is a big difference in quality,
price and delivery between pure Vietnamese invested autoparts makers and foreign
invested autoparts makers. Generally, products of pure Vietnamese autoparts
makers are supplied mostly to Vietnamese automakers and unable to be supplied to
foreign ones because their quality and delivery do not meet with requirement of
JVs and products of foreign autopart makers are just supplied to foreign ones and
exported while scarcely sourced by Vietnamese invested automakers because of
their high prices. In fact, foreign invested automakers just accept battery, tool sets
supplied from pure Vietnamese autoparts makers while Vietnamese invested
14 Tổng kết cuối năm về đầu tư trong ngành ô tô –Report on Investment in Vietnamese automotive industry,
Vietnamese Ministry of Planning and Investment, 2009.

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automakers source only paint, tires or tubes from foreign invested autoparts
makers. This difference is even deepened by viewpoint of delivery management in
which foreign invested automotive makers especially notice storage minimization.
For example, Toyota Company has built up its own just-in-time production system,
in which autoparts are supplied just-in-time to assemble and no storage.
III. GLOBALIZATION IN THE AUTOMOTIVE INDUSTRY

In the current wave of globalization in the automobile industry, labor

division is happening around the world and in spite of visible or invisible obstacle,
automotive products are exported and imported. Global and regional network of
automobile production are established and expanded quickly. However, Vietnam
has not yet fully participated in the global production network.
First of all, globalization in automobile industry is shown in the concept of
global production of car. Designing a car designed is not only to serve one market
of a city, of a country but all over the world. Up to now, most foreign automakers
set up their production bases in a place in order to supply their cars to neighboring
places and to the world. Recently, Asian car concept was born to explain the car
model serving the Asian region which satisfies Asian people’s criteria as
inexpensiveness, convenience and multi-purposed uses. And since Asian crisis late
1990s, Thailand has been selected by many world’s leading automakers like
Toyota, Nissan, isuzu, Daihatsu, Hino, Honda, Mercedez, GM… as automobile
production base of Southeast region, especially pick-up truck.
Secondly, World’s leading production automakers of Japan, US and Europe
tend to branch out their production abroad because of expensive production cost of
labor, land, environment in their own countries. Therefore, they are ready to
transfer technology, know-how and management skills to local production
manufacturers. The matter is only how to create an attractive investment
environment to convince them to select your country.
Thirdly, the liberalization process also stimulates changes in industrial
policies. In the past, policies of automobile industry development of Asian
countries were to protect a fledgling industry. However, the approach of
liberalization is now prompting governments to move away from protectionist
policies toward a policy that places emphasis in deregulation and provision of
incentives. ASEAN countries are working to expand automobile production and
improve competitiveness of their automobile industry for trade liberalization.
Vietnam needs to adapt to trade and investment liberalization regulation as
member of World Trade Organization (WTO), the ASEAN Free Trade Area
(AFTA) and the Asia Pacific Economic Cooperation (APEC). And Vietnam has
steadily rejected regulations which go against free trade. Thus, Vietnamese

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automobile industry has a short time left to be ready for competition and prompt
changes in corporate strategies and industrial policies.

IV. CHANCE FOR THE VIETNAMESE AUTOMOBILE INDUSTRY 3pg

Market protection measure is not an effective way to promote the

automobile industry. This suggestion is proved by the fact of various countries’
automobile industries like Thailand, Malaysia, Indonesia, the Philippines and
Australia.15 Automotive globalization wave can bring about good chances for the
Vietnamese automobile industry to shorten time for development, to overcome
other countries in the race of automobile industry building up. The question is how
to take advantage from automobile industry globalization to solve the issues of the
Vietnamese automobile industry.
 First of all, globalization can expand market to the automotive
makers. They can sell their products to more customers, exchange more products
to their partners, specify and diversify their products. Open market doesn’t mean
compete for survival but chance of development.
Secondly, this globalization brings about a chance to expand production
scale of automobile. Because gaps among automakers and autoparts makers in
different countries are abolished gradually and the world’s automobile production
are gathered, in which each country, each region is divided to produce a certain
kind of vehicles or autoparts and exchange them to each others. However, it is
difficult to participate in the fully-founded regional and global production network
in which each country specialize in production of some certain kinds of autoparts
and exchange to each other because Vietnamese automotive makers have no
experience of marketing domestically and internationally. Hence, cooperation in
automobile production will be a chance for automakers and autoparts makers in
Vietnam to find an appropriate position in the global production network.
 Thirdly, the globalization can ease transferring technology, know-
how, management skills and even experts to other countries. Currently, the world’s
leading automotive makers tend to branch out abroad to find out cheap workers,
cheap land and better production conditions. If a country prepares well to welcome
these transfers, they are pleased to do. For example16, Thailand, Malaysia,
Indonesia and Philippines (ASEAN-4) aggressively compete to invite foreign
investments and convince the world’s leading automakers to set up production
centers in their countries17. And Japanese automakers have almost set up their
15
Guiheux and Lecler, 2000. pp. 200-219
16
Guiheux and Lecler, 2000. pp. 201-219
17 Ishizaki,Yukiko and Takayasu, Kenichi, ‘The imminent advent of the age of global competition for the
automobile industry in Southeast Asia’, RIM Pacific Business and Industries,Vol.III,1996, pp.2-48.

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production bases in Thailand for pick-up truck with locally-produced autoparts
account up to 80%. Even Honda automakers transferred design shop in Thailand.
Foreign automakers are thirsty for educated labors and ready to train local workers
if they are good enough. But Vietnam seems to be outside of this competence.

V. SUMMARY AND POLICY IMPLICATION

Globalization in the automobile industry makes the use of production
resources in the world more efficiently to produce competitive automobiles. In this
context, development of an independent and isolated automobile industry by
production of every items and self supply to its domestic market is infeasible.
However, the globalization can be a good chance for Vietnam to deal with
difficulties in its automobile industry, including market and autoparts production.
What Vietnam should do to promote the automobile industry?
First of all, the government should be eager in encouraging automotive
makers to utilize globalization as follow:
- Creating a fairly competitive environment via transparent, stable and
unique regulations. In details, the government should approve concrete
development plan for the automobile industry which is consulted by the
automotive makers and researchers.
- Encouraging domestic autoparts makers to join in regional production
network via their cooperation with foreign invested autoparts makers and autoparts
makers abroad. Because efforts of the Vietnamese autoparts makers in this
production cooperation helps them marketing their products and updating
technology as well as receiving assistance of technology and capital from the
foreign autoparts makers who are ranked higher level in production hierarchy.
Consequently, Vietnamese autoparts can develop well and locate themselves in the
regional production network accordingly. To do it well, Vietnam should engage in
ASEAN autoparts complementation scheme-AICO (according to it, import tariff
for autoparts and components would be half if they are originated from ASEAN
countries), so Vietnamese automotive makers can exchange products with ASEAN
countries, especially utilize chance from Thai automotive makers who want to
cooperate autoparts production with Vietnam for cheaper labor and more favorable
land.
- Selecting one-two- ton pickups as strategic production cars because it
is highly demanded in Vietnam owing to its suitability to real state of Vietnam. In
fact, this pickups can fit to majority of Vietnamese people as cargo transportation
as well as passenger carrier, so it may help increasing people’ demand, and thus it
may attract automakers and accordingly autoparts makers to enjoy economy of
scale. This suggestion is proved by strategy to develop the Vietnamese automobile

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industry to the year 2010, vision 2020, in which it estimated demand of under-2-
ton pickups 57,000 units a year and under-9-seat car 70,000 units a year by 2010,
and 50.000 units and 144,000 units by 2020 respectively. Hence, domestic market
of one-two ton pickup can achieve 100,000 units by 2010 and 200,000 units by
2020. Such an expected domestic demand plus export prospect from participation
in regional automobile production networks is enough for automotive makers to
utilize economic scale of production. Moreover, the pickups are also quite popular
in Southeast Asian countries, so exchanging autoparts products among AICO’s
members is facilitated.
Secondly, the automotive makers should do the following suggestion:
- Actively engaging in planning strategy and suggesting measures to
promote automobile production in Vietnam. In details, automotive makers need to
propose assistant policies for promotion of one-two-ton pickups such as land for
factories of automotive products, infrastructures for delivery and production,
import tariffs of autoparts and materials.
- Actively calling for foreign autoparts makers to invest in Vietnam and
cooperate with Vietnamese autoparts makers.
In short, to promote the integration of the Vietnamese automobile industry
needs a wise policy from the government to facilitate and promote automotive
makers joining in regional and then international production network and an
enthusiasm from the automotive makers to suggest feasible policies and effectively
implement them.

REFERENCES

1. Phi Long, ‘Thành phố Hồ Chí Minh quyết tâm phát triển ngành công nghiệp ô
tô’, Ấn phẩm thông tin, Vol. 1, August 2004,pp.8-10.
2. Sturgen, Timothy J., The automotive industry in Vietnam: Prospects for
development in a globalizing economy, Report prepared for Development
strategy Institute- Vietnamese Ministry of Planning and Investment and
Medium-term Industrial Strategy Project- United Nations Industrial
Development Organization, July 1998.
3. Ohno, Kenichi, Early industrializers and late comers in ASEAN, Vietnamese
development forum Hanoi, National Graduate institute for policy studies, 2006.
4. Guiheux, Gilles and Lecler, Yveline, Global Strategies and local realities,
Macmilan Press Ltd, Great Britain, 2000.
5. Ishizaki,Yukiko, ‘New phase in Asia strategies of Japanese-affiliated
Automobile and Parts Manufacturers’, RIM Pacific Business and Industries,
Vol.I, No.31, 1996, pp.17-31.
6. Hideo, Kobayashi, Post war Japanese economy and South HEast Asia, New

9
 Day Publishers 11 Land street, VASRA, Philippines, 2002
7. UNCTAD, The competitiveness challenge: Transnational corporations and
industrial restructuring in developing countries, United Nations, New York,
2000.
8. UNCTAD、 World Investment Report 1993: Transnational Corporations and
Integrated International production, United Nations, New York, 1993.
9. Tiasiri, Vallop, Can Thailand maintain its competitive edge, The 2002
automotive news Asia-Pacific Congress, May 23 2002.
10.Ishizaki, Yukiko, ‘The automobile industries of ASEAN countries: Toward
greater regional cooperation and competitiveness’, RIM Pacific Business and
Industries,Vol.I,1994, pp.17-33.
11.Report on Strategy to develop the Vietnamese automobile industry, 2003.
12.Quy hoạch phát triển ngành ô tô, Plan to develop the automobile industry,
Vietnamese Ministry of Industry, 2007.
13.Sale volume record of VAMA 2009.
14.Tổng kết cuối năm về đầu tư trong ngành ô tô –Report on Investment in
Vietnamese automotive industry, Vietnamese Ministry of Planning and
Investment, 2009.
15.Ishizaki,Yukiko and Takayasu, Kenichi, ‘The imminent advent of the age of
global competition for the automobile industry in Southeast Asia’, RIM Pacific
Business and Industries,Vol.III,1996, pp.2-48.

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