Vietnam is "sharing" the global TV manufacturing business. What opportunities and challenges do Chinese companies face?
2024-08-07
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On August 7, a cargo ship from Shenzhen sailed into a Vietnamese port. Containers loaded with TV panels were unloaded from the ship and then transported by land to TCL Vietnam Manufacturing Base in Binh Duong Province, adjacent to Ho Chi Minh City. The journey was more than 50 kilometers and took about 1.5 hours.
This is the most common channel in the global TV industry. Every month, there are 1,200 to 2,000 such containers. Xu Linjun, general manager of the Vietnam base of TCL Industrial Pan-Smart Screen BU Manufacturing Center, told the First Financial reporter that compared with the containers shipped from China, more containers are shipped from the factory to North America.
The TVs produced by this factory are supplied to North America together with the Mexican factory adjacent to the United States. In the past six years, Vietnam has become a major region for the transfer of Chinese TV production capacity. The tariff for TVs shipped from Vietnam to the United States is 3.9%, while the tariff for TVs shipped from China to the United States is 11.4%, a full 7.5 percentage points difference.
Samsung and TCL were the first major TV manufacturers to set up factories in Vietnam. In recent years, BOE, Hisense, HKC and other names have been added to the list of factories. With more manufacturers settling in, southern Vietnam has become a gathering place for the TV industry, and together with the north where mobile consumer electronics factories are spread, they have become the two ends of Vietnam's industry.
From the perspective of the TV industry, in addition to the most important factor of tariffs, other considerations behind Vietnam's factory construction boom include local economic vitality and young manpower, as well as corporate globalization strategies. Looking outward from the TV industry, the local industrial base and the extent to which it can accommodate capacity transfer are other issues worth pondering.
From Vietnam to the United States
It is easy to feel the impact of globalization when you leave the airport in Ho Chi Minh City. Among the various Vietnamese billboards, the most recognizable one is Samsung. Vietnamese people like to use branded consumer electronics, but Samsung is not only one of the best-selling mobile phone brands in Vietnam, but also produces nearly half of Samsung mobile phones in Vietnam and sells them worldwide.
The same is true for televisions. Locals prefer to use overseas brands, while more overseas manufacturers come to Vietnam for export.
Recently, a reporter from China Business News visited a large home appliance store in Ho Chi Minh City and saw that most home appliance brands are from Japan and South Korea, including Sony, Samsung, LG, Sharp, Daikin, Toshiba, etc. The main Chinese TV brands are TCL and Hisense, and white appliances are Midea and Haier. TCL and Midea have set up factories in Vietnam or plan to set up factories. The reporter learned from the relevant person in charge of Midea that Midea's Vietnam factory is mainly for export, and the proportion of supply to the local market is only in the single digit. TCL's Vietnam manufacturing base is also mainly for export. The proportion of sales to Vietnam and other Southeast Asian markets in Binh Duong Factory does not exceed 10%, and more than 90% is shipped to North America.
With export as the core, TV factories in Vietnam are more likely to change with the global trade trend. TCL first entered Vietnam manufacturing in 1999, when it acquired Hong Kong Lu's Dong Nai TV Factory in Vietnam. The annual output of this factory was only 200,000 units, which were sold locally in Vietnam. In 2019, the old factory stopped service, and TCL selected a piece of land in Binh Duong Province in the south to build a new factory. This time, it took a bigger step and planned to cover the Southeast Asian market.
The roads are wide, the greenery is good, the factory is well planned, and the TV industry chain in southern Vietnam is relatively complete. Xu Linjun told reporters that this was the reason for choosing this piece of land in Binh Duong Province. At that time, TCL's land price was not high, and corporate income tax was exempted in the first two years. Unexpectedly, in 2019, trade frictions emerged, and the biggest mission of this factory suddenly became to undertake domestic production capacity and supply the North American market. With the expansion of production capacity, the factory initially planned an annual production capacity of 2.5 million units, with production reaching 3.79 million units in 2022 and increasing to 5.27 million units in 2023. This year, it is expected to produce more than 6 million units.
Even with trade frictions, overseas markets are still indispensable. "The domestic market is growing slowly, and companies need to find opportunities in other markets around the world and take the skills learned at home to overseas markets," TCL founder and chairman Li Dongsheng told reporters. "But the trend of globalization has changed a lot in the past few years, and supply chains have become regionalized and localized, adding more barriers to global trade and investment. After the trade frictions, we needed to adjust the supply chain for exports to the United States, otherwise we would have to give up this market. There was a lot of pressure at the time because the United States is still our largest single country market. We lost a lot of money defending the market, but we survived."
It is worth pondering that Vietnam is not the only option to deal with trade frictions. TCL and Hisense have also built factories in Mexico, which has zero tariffs on exports to the United States, but the Vietnamese factory is still important. Last year, more than 5.5 million TVs were imported from the Binh Duong factory in Vietnam to North America, which is the main source of TCL's more than 6 million TVs sold in the United States. The location of production has been strictly calculated. TVs produced in Mexico tend to be large-screen and high-end, and it is relatively cost-effective to avoid shipping costs. Other TVs have lower overall costs in Vietnam.
According to the production plan, the planned output of the TCL factory in Binh Duong, Vietnam, in July will nearly double that of the previous month. The reporter saw that the workers were distributed in four production lines: movement, assembly, injection molding and stamping. These TVs are planned to be sold during the "Black Friday" sales peak season in November on the other side of the Pacific Ocean. The TVs are shipped from this factory to the United States by sea, and the journey takes 28 to 40 days.
In addition to TCL, MTC, HKC, BOE, and Hisense have also come to Vietnam. In April this year, BOE's Vietnam Smart Terminal Phase II project started construction with a total investment of 2.02 billion yuan. The factory will be oriented to the Asia-Pacific, EU and North American markets. In June, TV OEM manufacturer MTC announced that it plans to increase the capital of its subsidiary Hong Kong MTC by US$24 million (about 170 million yuan). The latter will invest in setting up a company in Vietnam and invest in the construction of a production base to produce optoelectronic devices, digital TVs, etc., to radiate North America, South America and Southeast Asia. Hisense has been selling TVs in Vietnam for the past two years. Industry insiders told reporters that its Vietnam factory may be put into production in August this year. The reporter called the secretary of the board of directors of Hisense Video and learned that Hisense Video's Vietnam factory has just been registered and should be put into production this year.
Most of the above TV factories are near Ho Chi Minh City. According to statistics from the China-India-Vietnam Electronics (Mobile Phone) Enterprises Association, a home appliance industry cluster dominated by TVs has been formed in and around Ho Chi Minh City in southern Vietnam. It is expected that the TV production capacity in the south will reach 40 million units within two years, mainly concentrated in Ho Chi Minh, Dong Nai, Binh Duong, Vung Tau and other places. The industry roughly estimates that Samsung's TV factory in Ho Chi Minh City has a complete machine production capacity of about 11 million units, the new BOE factory in Vung Tau has a complete machine production capacity of about 10 million units, and Hisense's factory in Dong Nai Province is expected to be put into production with a complete machine production capacity of about 3 million units. Last year, global TV shipments were about 200 million units.
Li Dongsheng previously revealed that Chinese-made TVs account for 57% of the global market share. In addition, Lu Yong, secretary general of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, told the First Financial reporter that the three regions with the largest overseas TV production capacity are Mexico, Vietnam, and Europe (and Turkey). If we look at the investment capacity of complete TV sets, Vietnam's local investment capacity is estimated to be about 60 million units, at least higher than 40 million units, but the specific capacity in the future will be determined by orders, and it is impossible to fully determine the specific capacity. Including white-label, the global TV production is about 230 million units a year.
Based on Vietnam's annual production capacity of 40 to 60 million TV sets and the world's annual output of 230 million TV sets, Vietnam's future TV set output could account for 17% to 26% of the world's total.
What did you take out of China?
Unlike China, doing business in Vietnam is a different ecosystem. To operate a TV factory, industry insiders told reporters that production line equipment needs to be self-built or shipped from China, and the amount of raw materials imported from China may account for 60%. Key components must be imported from China, and the most expensive is the panel. However, compared with many other regions in Southeast Asia, Vietnam's electronic supply chain is much more complete. Including steel plates, wires, cartons, and injection molding, materials can be found in Vietnam. Even if you can't find it locally, Vietnam is adjacent to China, and it is not far to transport it from China to Vietnam.
Xu Linjun told reporters that purchasing TV parts in Vietnam may be 3% to 10% more expensive than in China. However, in recent years, some suppliers have also entered Vietnam with TV manufacturers, lowering costs through supply chain localization. Compared with the early days of the factory, scale has reduced the cost of TCL's Pingyang factory by 70%, and procurement costs have also dropped by 20%.
"If it costs 20 yuan for a supplier to make a remote control in China, and 24 yuan for packaging and shipping it from China to Vietnam, we think it is cost-effective as long as it does not exceed 24 yuan in Vietnam." Xu Linjun said that the delivery time from China is one month, while the delivery time in Vietnam is only three days. As more TV manufacturers enter Vietnam, it is expected to bring more upstream suppliers and reduce overall procurement costs. Procurement costs will drop rapidly in the next 3 to 5 years.
Xu Linjun said that in addition to panels, he hopes that all materials can be purchased locally in Vietnam in the future, and even panel modules may be produced in Vietnam.
A person in charge of a manufacturing factory who has worked in Vietnam for four years told reporters that electronic components in Vietnam are also relatively dependent on imports, but as the demand scale increases, some manufacturers will move part of their production capacity to Vietnam. Large companies are also attracting suppliers by establishing a foothold in Vietnam, driving the improvement of the industrial chain, and the local industrial chain is still progressing rapidly.
But to make a complete panel, Vietnam is still a long way from this. Compared with terminal TV factories that can be built with hundreds of millions or billions of yuan, panel factories require tens of billions of yuan in investment, and once invested, they cannot leave easily. Panel factories are extremely dependent on the stability of electricity, and power outages may cause "screen smashing" incidents. The industrial zone where TCL's Pingyang factory is located has a relatively guaranteed power supply, but due to lines and other reasons, the number of power outages is still higher than that of domestic factories.
In terms of manpower, the labor cost of TV factory workers in Vietnam is still relatively low, and the human resources are abundant. The monthly salary of an ordinary worker is converted into RMB 2,500 to 3,000 yuan, which is about 70% of that in China. TCL Pingyang Factory has a total of about 2,000 employees, and the average age of workers is 25 years old. Xu Linjun told reporters that in the Huizhou factory, most of the workers are older, which brings a problem that some factory positions require eyesight, and they are no longer competent as they get older. Vietnamese factory workers are relatively young and energetic.
However, Vietnam still lacks technical personnel. Xu Linjun said that it is easy to recruit talents with liberal arts backgrounds and workers in Vietnam, but there is a severe shortage of professional and technical personnel. Manufacturing companies are in great need of mechanical manufacturing and software talents. Now some sales, technical and quality talents of TCL Pingyang Factory still need to be sent from China.
In the past one or two years, local companies have also begun to compete for technical talents. The salaries of middle and senior management personnel at TCL's Binh Duong factory have increased, and the salaries of key technical personnel at the factory have increased by at least 30%. The factory has signed an agreement with Vietnamese universities to introduce college students. It plans to recruit 10 people this year, and six or seven people have already joined the company. Xu Linjun believes that Vietnamese factories still have the potential to transform from importing talents to exporting professional talents to the world, and the factory is now training local employees for key positions.
Behind the investment in Vietnam market
In recent years, there have been constant reports of Chinese companies setting up factories in Vietnam. In addition to the TV industry cluster in southern Vietnam, the electronics industry cluster in the north is also very active. Some companies set up factories in Vietnam for both local layout and overseas export considerations. In January this year, Goertek announced that its wholly-owned subsidiary plans to use its own funds to establish a wholly-owned subsidiary in Vietnam, with a total investment of no more than US$280 million (nearly RMB 2 billion). Apple supply chain companies Foxconn and Luxshare Precision have also set up factories in Vietnam.
"Chinese companies' investment in Vietnam can be divided into several waves. The current wave is larger in size and number. In the past, many companies invested millions or tens of millions of dollars, and few invested more than 50 million dollars. Now, many invest hundreds of millions or even billions of dollars." Ding Wei, general manager of the Vietnam branch of TCL Industrial Asia Pacific Marketing Headquarters, told reporters. He is also the president of the Ho Chi Minh City branch of the China Chamber of Commerce in Vietnam. Ding Wei has worked in Thailand, the Philippines and Vietnam, and feels that the Vietnamese market is quite dynamic. From the perspective of local market layout, he believes that Vietnam is not necessarily the first or second stop for Chinese companies to go overseas to Southeast Asia, but according to his understanding, many companies have found that Vietnam, with a population of over 100 million, has become a "must-answer question" after exploring the surrounding Thailand, Indonesia and the Philippines.
Li Dongsheng told the First Financial reporter that from the perspective of local market demand, Vietnam's market demand is growing rapidly. Under the circumstance that domestic demand for TV sets is relatively sluggish, Vietnam's TV sales this year are expected to grow by 8%. At the manufacturing level, Vietnam's society is relatively stable. TCL has not encountered any incidents that have affected normal operations in the 25 years since it set up its factory. In addition, Vietnam's import and export trade is active. Last year, Vietnam's GDP was more than 400 billion US dollars, and the total import and export volume was nearly 700 billion US dollars. In the future, the advantages of exporting from Vietnam may expand. Next year, the EU-Southeast Asia Free Trade Agreement will come into effect, and products that meet the standards of origin can enter the EU tax-free.
"Another important factor in setting up factories in Vietnam for exports is that Vietnam has good relations with major global trading entities." A Vietnamese manufacturing practitioner told reporters that this means that in the global layout of enterprises, it is more convenient to send personnel from Vietnam, including obtaining visas more smoothly.
However, for manufacturing companies to enter Vietnam, whether selling products locally or exporting them overseas, it may not be as easy as imagined.
"Many people come to invest with money and do not respect the market, and the competition in the Vietnamese market is actually quite fierce." A market manager who has worked in Vietnam for ten years and is familiar with the local business environment told reporters that, for example, cross-border e-commerce manufacturers start operations without completing the complete formalities, are unfamiliar with local laws, or directly move domestic business practices to Vietnam, which actually has poor results. There are some cultural and cognitive risks that need to be avoided in cross-border operations, and you also need to learn to deal with market management.
In addition, the market manager said that the cost of doing business in Vietnam has not always remained low, and factory workers' wages have also been rising, more than doubling in ten years. The reporter also learned that as more companies come to Vietnam, the rents of some industrial parks are also rising, possibly several times higher than five years ago.
"From many aspects, Vietnam's business environment is like China 20 years ago. Road transportation in Vietnam is not convenient. The same journey that takes one day in China may take three days in Vietnam. Trains are not convenient enough. Inconvenient transportation, insufficient science and engineering talents in Vietnam, and imperfect power supply are three factors that I think will limit Vietnam's further development in the future." The above Vietnamese manufacturing practitioners told reporters that while the infrastructure is still imperfect, domestic companies that intend to develop in Vietnam also have some cognitive limitations. For example, the companies themselves do not have much international capabilities, and even managers do not know where the "government door" opens. A safer way for supply chain companies to enter Vietnam is to follow the chain leader companies with international capabilities.
In terms of manufacturing, Vietnam's limitations are also obvious.
"Vietnam's land area is many times smaller than China's, with a population of about 100 million. Compared with China, the land and population are more limited. In Vietnam, it is very likely that there will not be as many and rich industrial clusters as in China." The above market manager said that the light industry and home appliance industry clusters in southern Vietnam developed earlier, and many companies that subsequently entered Vietnam went to northern Vietnam, to a certain extent because the land in the south was getting less and less. In the past decade, the buildings on both sides of the Saigon River in Ho Chi Minh City in the south have not changed much. The historical buildings are the same as before, but some larger and newer high-rise buildings have been added. Some places in northern Vietnam have developed from wasteland to industrial areas, which has undergone earth-shaking changes. This is a microcosm of the trajectory of industrial development. In the long run, the land to be developed will not be unlimited. In this way, Vietnam is more like an extension of China's manufacturing industry, rather than a pure transfer.
(This article comes from China Business Network)
