When Vietnam is no longer a paradise, Chinese home appliance enterprises are looking for the next highland for going global. | Zhiliao
Text｜Hu Yiting
Editor｜Yuan Silai
Vietnam, bordering Guangxi, has a long and narrow land close to the sea. With Ho Chi Minh City and Hanoi as the north and south centers, it has attracted a large number of Chinese home appliance and electronic industries, and now it has become a hotspot for them to radiate overseas.
Familiar home appliance enterprises such as TCL, Haier Zhijia, Midea, and Gree have all set up factories in Vietnam and expanded the local market. TCL entered Vietnam in 1999, and currently, a large local factory can produce 8 million TV products per year.
Midea began to lay out Vietnam in 1997, then bought land and built a factory in 2006, and officially put it into production in 2007. Now it has nearly 2,000 employees, mainly producing eight categories such as rice cookers, fans, induction cookers, and heaters.
When Chinese home appliance enterprises arrived, Japanese and South Korean brands such as Samsung, LG, Panasonic, and Sony had already set foot in Vietnam earlier. In order to meet the production needs of its multiple production lines, in the 1990s, Samsung entered Vietnam with its suppliers, and gradually built production parks and infrastructure with policy support. Now, Samsung's production bases have taken root in the north and south of Vietnam, employing nearly 100,000 local employees.
The ambitious enterprises from China, Japan, and South Korea have come to Vietnam one after another, promoting the local industrial chain to gradually improve and become a new site for the transfer of the manufacturing industry. When the tariff dividend arrives, enterprises with the need to go overseas intensively go to Vietnam to export to high-consumption markets such as Europe and the United States.
According to the data of the Foreign Investment Bureau of the Ministry of Planning and Investment of Vietnam, as of August 2023, Vietnam has accumulated 287.1 billion US dollars in foreign investment project funds. While foreign capital is flocking to Vietnam, the local Vietnam has begun to transform, tilting towards high value-added industries, and enterprises are also facing a new stage of choice.
Targeting Vietnam
As early as the 1990s, Vietnam has been highly concerned by enterprises from China, Japan, South Korea, and other countries.
The early Chinese home appliance enterprises that went overseas to Vietnam are represented by TCL. Since TCL invested in building the first TV factory in southern Vietnam in 1999, it has subsequently built TV intelligent manufacturing bases and intelligent audio and video terminal product manufacturing bases in southern Vietnam and the northern region bordering China.
TCL in Vietnam, Source: Enterprise
According to Wang Cheng, COO of TCL Technology, as of this year, TCL has accumulated an investment of more than 100 million US dollars in Vietnam through the two major platforms of TCL Technology and TCL Industrial, providing more than 10,000 local jobs. TCL expects its revenue in Vietnam to exceed 1.5 billion US dollars in 2024.
Midea and Haier Zhijia, which have also been laying out overseas for many years, have not missed Vietnam either.
After observing for many years, Midea began to build its first overseas factory in Vietnam in 2006. At that time, the local home appliance manufacturing supply chain in Vietnam was not perfect. In order to improve efficiency and brand discourse power, Midea's Vietnam factory moved the domestic supply chain, re-cultivated it in combination with the local situation, and attracted non-home appliance suppliers to shift.
Midea's first overseas factory in Vietnam, Source: Enterprise
Until 2023, Midea's Vietnam factory achieved a cumulative annual profit, with revenue increasing by approximately 30% year-on-year. The factory mainly manufactures eight categories such as vacuum cleaners, rice cookers, and fans. With the significant growth, Midea will expand categories such as air fryers and microwave ovens, turning the Vietnam factory into the production base with the most overseas categories.
Facing the Vietnamese market that prefers Japanese and South Korean brands, Midea also launched its acquired Toshiba white goods business. Toshiba drum washing machines began to be sold in Vietnam in 2018, and two years later, the product has become the number one in the local market.
When Midea gradually became familiar with Vietnam, its To B business segment also entered the local market. Up to now, Midea has invested a total of 1.47 billion yuan in the 3.5GW high-efficiency solar cell project of JA Solar Technology Vietnam Base to cover overseas photovoltaic markets such as North America.
Similar to Midea's path, Haier Zhijia acquired Sanyo Electric's white goods business in Southeast Asia from Panasonic in Japan in 2011, and carried out sales and production layout in Vietnam with its sub-brand "AQUA".
Since its establishment in 2012, AQUA Vietnam has invested in building factories for refrigerators, washing machines, and household air conditioners. Currently, in addition to supplying the local market, AQUA also sells products to countries such as Indonesia, the Philippines, and Malaysia.
By increasing investment in Vietnam, Chinese home appliance enterprises have obtained more production capacity to cover overseas markets, but in terms of brand power competition, they are still difficult to compete with enterprises such as Samsung, LG, Panasonic, and Sony.
Continuously increasing investment in Vietnam, as of now, Samsung has become one of the major enterprises with large-scale foreign investment in Vietnam. According to its unaudited financial report for 2022, the revenue of Samsung's Vietnam factory has accounted for 30% of Samsung's total business revenue. The sales revenue of products produced from the Vietnam factory has reached nearly 71 billion US dollars.
In the local market, Samsung is dominant. According to a report released by GfK, as of the third quarter of 2023, Samsung has occupied a 44.7% market share in Vietnam.
In fact, as early as the 1990s, the Vietnamese government attracted foreign-funded enterprises with preferential policies such as providing free production sites and exempting corporate tax for the initial four years. Samsung came to Vietnam with some suppliers and began to build production lines in the north.
In 2008, Samsung invested in Samsung Electronics (Vietnam) Factory No. 1 in Bac Ninh Province in northern Vietnam, and later established Factory No. 2 in Thai Nguyen Province.
After the consumer electronics production lines were gradually implemented, Samsung introduced other electronic products such as TVs, chips, and displays in Vietnam, and the scale of investment and operation continued to expand.
According to Vietnamese media reports, Samsung plans to add an additional 1.2 billion US dollars of investment in Vietnam in 2024 to support the continuous growth of its Vietnam industry.
Under the layout of the government and enterprises such as Samsung, a more significant industrial cluster effect has emerged in Vietnam.
In the local area, high value-added industrial chains such as consumer electronics are concentrated in the northern region, bordering domestic provinces and cities such as Guangxi; home appliance industrial parks are mainly distributed in southern regions such as Ho Chi Minh City, Dong Nai Province, and Binh Duong Province.
Industrial Upgrading
When large multinational enterprises enter Vietnam and regard it as the first stop for going overseas, Vietnam has received more attention and attracted a higher level of capital injection.
According to VNA, the data of the Foreign Investment Bureau of the Ministry of Planning and Investment of Vietnam shows that as of August 31 this year, the registered capital of foreign direct investment flowing into Vietnam exceeds 20.52 billion US dollars, and the actual in-place funds of foreign-funded projects are about 14.15 billion US dollars, reaching a new high in the past five years.
In the first eight months of last year, China accumulated about 3,949 investment projects in Vietnam, with an agreement amount of nearly 25.8 billion US dollars, ranking sixth among all countries and regions investing in Vietnam.
China's large-scale investment in Vietnam did not occur suddenly. Five or six years ago, a large number of enterprises set their sights on Vietnam.
Bai Longze came to Vietnam in 2017 and runs a spare parts processing business locally. He told 36Kr that the main incentive for terminal enterprises and upstream factories to come to Vietnam is tariffs.
In 2018, the United States imposed additional tariffs on goods exported from China, and some upstream and downstream enterprises that mainly export have partially relocated.
US Tariff Increase Data, Source: Changjiang Securities
And Vietnam, which is adjacent to China, promised when it joined the WTO in 2007 that the import tariffs of household appliances such as TVs, air conditioners, and washing machines will be reduced to 25% within 3 - 5 years; however, if they are produced and sold locally in Vietnam, the tariff is zero.
Under the tariff preference, Vietnam has attracted a large number of suppliers of European and American terminal products and domestic export-oriented home appliance enterprises. According to the statistics of the General Administration of Customs, in February 2023, the monthly quantity of household vacuum cleaners imported by the United States from Vietnam exceeded that from China for the first time.
However, Vietnam's attitude towards home appliance enterprises is changing. With the influx of enterprises over the years, Vietnam has the capital to choose. Words such as high value-added, industrial transformation, and green economy frequently appear in official statements related to attracting foreign investment.
Bai Longze told 36Kr that the early low value-added industries that entered Vietnam, such as clothing and textiles, have gradually withdrawn and flowed to neighboring countries such as Myanmar and Cambodia. Facing such enterprises, the Vietnam investment promotion department is also rather indifferent.
Industries that only import raw materials from abroad and use local labor for processing have low profits and low efficiency. Completing the local supply chain in Vietnam has increasingly become the focus of its national planning. Nguyen Hong Dien, Minister of Industry and Trade of Vietnam, once said at a public inquiry session this year that the transfer of enterprises such as clothing and textiles and leather to other countries is a normal phenomenon. The four national department plans such as the energy plan proposed at present can help create raw materials to meet production and export needs.
While Vietnam builds its own supply chain, Chinese companies will certainly follow the trend of industrial transformation. In 2019, TCL, which has already entered Vietnam, began to expand production on a large scale. Tongli Technology and Moka Technology under the group have respectively set up production bases in Vietnam. Among them, Tongli Technology is located in the northern region with a high concentration of high value-added industries, producing intelligent audio terminal products; Moka Technology is responsible for the manufacturing of TV and Monitor complete machines. In addition, TCL also said that it will build an LCD panel display module production base in Vietnam to improve the upstream supply chain industry.
In the sales end, Chinese home appliance enterprises are beginning to move towards high-end prices. In recent years, Midea and Haier Zhijia have upgraded in product technology and performance. Midea has launched home appliance products equipped with technologies such as frequency conversion, voice control, and the Internet of Things; Haier Zhijia has adopted technologies such as frozen constant temperature preservation technology and double sterilization for refrigeration and freezing, and launched high-end refrigerator products.
When Chinese companies want to go deeper into Vietnam, use local production capacity or carry out sales, it is inevitable to follow the trend of industrial transformation and increase investment.
The Next Stop, Latin America
When the layout in Vietnam is gradually stabilizing, it is also difficult for Chinese home appliance enterprises to miss the opportunity to find the next highland for going overseas.
At the same time, the large-scale settlement of foreign-funded enterprises has led to a significant increase in land costs in major cities and industrial zones in Vietnam, gradually breaking the impression that the landing cost in Vietnam is low.
The Hong Kong-based South China Morning Post recently reported that in the past four years, the average rent in the northern region of Vietnam has increased by 7% per year, while in the southern region where home appliance enterprises are concentrated, it has increased by 13%.
Bai Longze observed that since the same period last year, house prices in Hanoi, the capital of Vietnam, have doubled, and the rigid demand for housing has continuously increased the rental cost in the city center. The rent for a two-bedroom apartment of 100 square meters has reached 1,000 US dollars, and there is still a shortage of supply.
Under the soaring land cost, even though foreign capital has entered for many years, the local industrial chain has been in an incomplete state for a long time, and the weak heavy industry foundation makes its local supply capacity weak, and it has a great demand for external raw materials.
Due to geographical proximity and other reasons, China has become one of the main countries from which Vietnam imports raw materials. According to the statistics of the General Statistics Office, in the first seven months of 2024, Vietnam's import value from China reached 79.2 billion US dollars, with a year-on-year increase of 34.9%, including machinery, equipment, etc.
Nowadays, it has gradually become a consensus to regard Vietnam as a production and export concentration area. However, when various costs rise, finding the next new destination for transfer has become the next goal of home appliance manufacturing enterprises.
Mexico, due to factors such as its proximity to the United States and the fact that its produced goods can enjoy zero tariffs when entering the United States, has been favored by enterprises such as TCL and Hisense.
Hisense Mexico Monterrey Industrial Park under Construction, Source: Enterprise
As early as 2004, TCL has started to enter the local market to carry out business. Its factory in Mexico mainly produces large-screen smart TVs of 55 and 65 inches and above, and it achieved mass production in 2020, which can meet the demand for large-screen TVs in North American families.
In fact, compared with color TVs, the layout of white goods has been more active in recent years. This is also closely related to market demand. According to the calculation of the United Nations trade data by the China Household Electrical Appliances Association, in 2021, the import value of refrigerators and freezers in the United States reached 10.46 billion US dollars, of which the combined import of these two types of products from Mexico was 4.087 billion US dollars, accounting for about 39.1% of the total share.
Under multiple stimuli, multinational enterprises are targeting this trend and are laying out refrigerator and other refrigeration production lines in Mexico. Hisense has built three factories for refrigerators, air conditioners, and kitchen appliances in the local