2024-08-11
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Reporter of China Business Network: Chen Pengli Editor of China Business Network: Dong Xingsheng
In early August, in the center of Ho Chi Minh City, Vietnam, on the banks of the Saigon River, a huge LED advertising screen was rarely used to simultaneously play advertisements of two Chinese brands. One was TCL, which has been deeply involved in the Vietnamese market for 25 years, and the other was a new car that was about to be launched and was preparing to enter the Vietnamese market.BYD。
Along with them, Samsung and Hyundai from South Korea and Acer from Taiwan, China, etc., appeared on the largest LED advertising screen in Vietnam. The business competition story in the Vietnamese market seemed to be "condensed" and displayed here.
In recent years, Chinese brands have appeared more and more in Ho Chi Minh City, a key economic zone in southern Vietnam.HaidilaoIt is also a household name in the local area. More Chinese manufacturing companies are expanding to major industrial zones outside Ho Chi Minh City.
According to Vietnam News Agency, Singapore will lead the investment in Vietnam in 2023, but China is the largest source of investment in Vietnam in terms of the number of new investment projects. At present, Chinese investors are still accelerating their investment in Vietnam, and Chinese companies are "competing" for Vietnam. What is the charm of this country, how big are the opportunities, and how many problems are there?
Recently, a reporter from the Daily Economic News conducted a field investigation in Ho Chi Minh City, Vietnam.
On the last day of July, TCL held a grand ceremony to celebrate its 25th anniversary of globalization at the landmark LANDMARK 81, the tallest building in Vietnam. TCL founder and chairman Li Dongsheng also chose Vietnam as the last stop of his "global tour", saying that this is the "starting point of the dream" of TCL's globalization.
In 1999, TCL took its first step towards internationalization in Vietnam. After 25 years of going global, TCL has expanded its production and distribution network to cover the world. Now, it has chosen Vietnam to summarize its gains and losses and look to the future, which shows the important position of Vietnam in TCL's globalization.
During his stay in Vietnam, Li Dongsheng reviewed TCL's globalization process in an interview with the media, including reporters from the National Business Daily, and said that the layout of Vietnam is a key node in TCL's globalization. "Over the past 25 years, (TCL in Vietnam) has had some twists and turns in its development, but overall, Vietnam's business has been stable and has played an important supporting role in the global industrial chain."
Currently, TCL has three factories in Vietnam, of which the largest is the TCL Smart Appliance Vietnam Factory in Binh Duong Province in the south, which is responsible for producing TCL brand TVs, with an estimated output value of US$1 billion this year. Now, in southern Vietnam, TCL is the second largest enterprise, second only to Samsung.
Also in July, another Chinese brand became a hot topic in the Vietnamese market. On July 18, BYD held a grand press conference in Vietnam, launching three models for the Vietnamese market, priced from 659 million Vietnamese dong (about 200,000 yuan). In order to build momentum, BYD also held the largest test drive event to date in Ho Chi Minh City and the capital Hanoi. At that time, BYD Vietnam CEO Wu Mingli revealed that BYD regards Vietnam as a key market. He believes that the Vietnamese market with a population of more than 100 million is full of vitality and huge potential, and there is great potential for the development of electric vehicles in the future.
Until early August, reporters could still see BYD’s “WE ARE NO.1” advertisements in many places in Ho Chi Minh City.
Vietnam's economic vitality and young labor force are undoubtedly the primary reasons for attracting foreign investment. According to the Statistics Office of Vietnam, Vietnam's GDP will reach US$430 billion in 2023, ranking 35th in the world, with an actual growth rate of 5.1%, ranking 8th in the world and 2nd in the ASEAN region.
In terms of labor costs, Vietnam raised the minimum wage standard from July 1 this year, with an increase of about 6% in all regions. Despite this, the minimum wage standard after the increase is still lower than that in Thailand. Looking at the entire Southeast Asia, Vietnam's labor costs are still attractive.
Xu Linjun, general manager of the Vietnam base of TCL Industrial Pan-Smart Screen BU Manufacturing Center, told reporters that the average age of TCL Vietnam factory employees is now 25 years old, and the turnover rate is low. These young people are willing to work on the factory assembly line. This is the advantage of the Vietnamese market. According to him, the monthly salary of front-line workers in TCL Vietnam factory is between RMB 2,500 and RMB 3,000.
However, the human factor is not the most important factor, and the tariff preference is the biggest driving force. The reporter of "Daily Economic News" learned that, taking televisions as an example, Vietnam's production and export to other ASEAN countries is zero tariff. In addition, Vietnam's export of televisions to the United States has a tariff of 3.9%. But if it is exported from China to the United States, the tariff can be as high as 11.4%. The large tax gap attracts Chinese and foreign companies to increase their investment in Vietnam.
According to Xu Linjun, the production capacity of TCL's smart appliance factory in Vietnam is 8 million units per year. About 5% of the production capacity is used to produce TV products for the Vietnamese market, and the remaining 95% is used to produce color TV products for export to North America.
In addition to large industrial products such as home appliances and cars, Chinese catering brands such as Mixue Ice City and Haidilao are also very well-known in Vietnam. According to local Chinese in Ho Chi Minh City, Mixue Ice City and Haidilao are very popular among young Vietnamese people, and the phenomenon of consumers queuing up to wait for meals also occurs in Haidilao stores in Vietnam.
According to the prospectus of Mixue Ice City, the company opened its first overseas store in Vietnam in 2018. As of the end of March 2022, Mixue Ice City has 249 stores in Vietnam. According to a report by CIC, in terms of the number of stores, as of the end of September last year, Mixue Ice City was already the number one freshly brewed tea brand in the Southeast Asian market.Tehai InternationalHK09658, share price HK$11.48, market value HK$7.465 billion) A relevant person told reporters that Haidilao currently has 17 stores in Vietnam, including 10 in Ho Chi Minh City. As of the end of March this year, Haidilao has 119 stores in 13 countries overseas.
According to VNA, Vietnam continues to show a positive trend in attracting foreign investment. According to a report by the Vietnam Foreign Investment Agency, in the first five months of this year, Singapore remained the top country and region investing the most in Vietnam, but in terms of the number of new investment projects, China ranked first. China's investment capital flowing into Vietnam increased significantly from US$2.92 billion in 2021 to US$4.47 billion in 2023.
Chinese companies vote with their feet: Go to Vietnam, right now. But when they actually enter Vietnam, they may soon find that the cost here is not as low as they imagined.
During a survey in Ho Chi Minh City, Vietnam, a reporter from the Daily Economic News learned that the rental cost of factories in Vietnam is generally higher than in China. Taking the industrial zone in Binh Duong Province in southern Vietnam as an example, the monthly rent of factories is about US$5 per square meter, which is equivalent to about RMB 35 per square meter. In China, taking Huizhou, Guangdong as an example, the monthly rent of factories is about RMB 13 to 14 per square meter; even in Shenzhen (except Nanshan District, Futian District, Luohu District, and Yantian District), the monthly rent of factories is generally RMB 25 to 28 per square meter.
As a result, when building a factory in Vietnam, the larger the factory area, the more obvious the operating cost pressure brought by rent. In terms of catering stores, taking Ho Chi Minh City as an example, the store rents in shopping malls are generally higher than those in first-tier cities in China.
In addition, the cost of purchasing raw materials may also be high. Due to the incomplete local industrial chain and weak industrial manufacturing capacity in Vietnam, the procurement cost of a large number of upstream parts or production equipment has increased, and local procurement is more expensive than domestic procurement.
"In Vietnam, hardware suppliers have to buy raw materials such as iron plates and sheets from China. This is a shortcoming of Vietnam at present, that is, the entire supply chain is not complete." Xu Linjun told reporters. However, he also said that Vietnam's local supply chain is rapidly improving, and it is expected that the cost of purchasing raw materials will enter a rapid decline channel in the next 3-5 years. "The more companies come, the more complete the chain will be, and the cost will be lower and lower."
The electricity cost in Vietnam is also slightly higher than that in China. A local Chinese tour guide in Ho Chi Minh City told reporters that his family of five has an electricity bill of more than 500 yuan a month. His family does not have an electric car, and the biggest power consumer is the air conditioner. In comparison with first-tier cities in China, taking Guangzhou as an example, the monthly electricity bill for an average family is about 200 to 300 yuan.
The reporter also learned that different shopping malls in Ho Chi Minh City charge different electricity fees for restaurants. Some malls charge electricity according to peak, mid-peak and low-peak electricity consumption, while others charge a uniform price regardless of time period. Due to insufficient electricity supply in Vietnam, it needs to buy electricity from China, which led to a wave of increases in local electricity prices last year.
When a company seeks development in another country, the first thing it must face is the impact of the new environment and new culture.
In early 2019, when Huang Rong first came to Ho Chi Minh City as a member of Haidilao’s Vietnam market preparation team, he truly felt the differences in food and culture.
When Haidilao opened its first store in Ho Chi Minh City, the team found that although locals like spicy food, the store's spicy hot pot soup base did not have a high click-through rate. Customers who ordered this soup base would ask the waiter to remove the peppercorns and skim off the oil floating on the soup. Vietnamese people like to eat fried snacks, but cannot tolerate too much oil in the soup. This eating habit taught Haidilao a lesson when it first arrived.
Later, with the continuous feedback from Vietnamese customers and local employees, Haidilao has successively developed and improved many dishes and soup bases suitable for local consumers. For example, a Thai soup base that Haidilao improved based on customer feedback has been ranked first in the click rate of Vietnamese stores so far; Vietnamese employees reported that the seasoning formula on the seasoning counter was too Chinese, so Haidilao organized a seasoning competition for store employees. According to Huang Rong, the best seasoning made by local employees is now used in major stores in Vietnam.
Similarly, when TCL first entered the Vietnamese market in 1999, it also went through a period of adjustment. In the first 18 months, TCL lost a lot of money in the Vietnamese market. Fortunately, TCL gritted its teeth and persevered. Now, TCL's color TV market share in Vietnam ranks third.
Ding Wei, general manager of TCL Smart Appliances (Vietnam) Co., Ltd., has a deep understanding of product localization. When TCL first entered Vietnam, the color TV market here was firmly occupied by Japanese and Korean brands. How to break through? Ding Wei and his team developed a lightning-proof TV product that can maintain strong reception signals in complex terrains based on the terrain and climate characteristics of Vietnam, breaking through the siege in one fell swoop.
Enterprise management must also be localized. Huang Rong recalled that when Haidilao opened its first Vietnamese store, it paid special attention to "copying" the shift scheduling system of domestic stores, separating employee shifts and allowing employees to rest for 2 to 3 hours in the middle of the shift. Despite this, employees continued to leave the store, which puzzled Huang Rong and others. Later, they revisited the resigned employees and got an unexpected answer: "We want to get off work after 8 hours of work. We don't want to work in separate shifts. This way, we are in the store all day and have no time to go out for coffee or meet friends."
"At that time, we realized the importance of localized management. We made adjustments to the employees' diet and shift system, and the employees gradually stabilized and returned." Huang Rong said that currently, among the 17 stores in Vietnam, 8 stores have achieved "full localization" of management personnel, allowing local people to manage local people.
Xu Linjun also told reporters that Chinese companies developing in Vietnam need to win the respect of local employees and provide them with opportunities for development. TCL focuses on cultivating local talents in Vietnam and has a complete system for selecting local employees. In addition, the factory often organizes employee activities, including team building for all employees and regularly organizing employee visits to nursing homes and orphanages. "This is also something that companies must do in their localized operations."
Although the Vietnamese market is not perfect, many factors such as tariff advantages and economic vitality have made Chinese companies coming here generally optimistic and determined to invest.
TCL said that so far, TCL hasTCL TechnologyThe two platforms of TCL and TCL Industrial have invested more than US$100 million in Vietnam, providing more than 10,000 local jobs, and are expected to have revenue of more than US$1.5 billion in Vietnam in 2024. Next, TCL will further expand its investment in Vietnam, with planned investments in LCD panel display modules, TV and monitor complete machines, logistics and warehousing services, and related upstream supply chain supporting industries. It also plans to gradually introduce R&D engineering teams to give full play to its diversified industrial advantages and empower the local industrial chain.
A person from Tehai International told reporters that Vietnam's economy is still in a period of rapid development, and local young people are willing to spend, which provides a good market foundation for Haidilao's expansion. "We will definitely continue to expand our store network (in Vietnam), because the current market conditions in Vietnam and the operating conditions of existing stores allow us to continue to expand stores. Nha Trang is our first store outside of the super first-tier cities. Next, we also plan to visit more cities to see if there are opportunities for store expansion."
According to data from the Vietnam Statistics Bureau, in 2023, Vietnam's per capita GDP will be US$4,284, equivalent to China's more than 10 years ago. According to local Chinese who revealed to reporters, an ordinary college student in Vietnam has a monthly salary of about 3,000 to 4,000 yuan after graduation. Although the overall income is not high, unlike China, the young group in Vietnam has no obsession with saving money and has a strong desire to consume. At the same time, the Vietnamese have a deep-rooted brand awareness in consumption. On the one hand, Japanese and Korean brands entered Vietnam earlier and established market advantages and brand emotional foundations; on the other hand, the memory of China's low-priced and low-quality motorcycles losing the Vietnamese market in the early 21st century still remains in the minds of the older generation of Vietnamese consumers.
To this day, Japanese and Korean brands still dominate the Vietnamese market. On the streets of Ho Chi Minh City, the reporter of Daily Economic News saw Japanese and Korean cars, 4S stores, and Japanese motorcycles everywhere.
In such a market, almost all Chinese brands understand that long-term development requires more than just cost-effectiveness, but must also take the path of branding and provide high-quality products and services.
The reporter learned that TCL's future development strategy in Vietnam includes "strengthening brand influence and focusing on the mid-to-high-end market." Wang Tao, retail manager of the Vietnam branch of TCL Industrial Asia Pacific Marketing Headquarters, told reporters that this year, TCL TV will focus on large-screen TVs in Vietnam, hoping to use large-screen TVs as a starting point to strive for a transformation to high-end in the future.
A person from Tehai International also mentioned that before Haidilao entered Vietnam, the Vietnamese market had more of an impression of Chinese restaurants as "mom-and-pop restaurants". However, "Haidilao's overseas expansion is a brand expansion, and it is a brand restaurant". "Haidilao's overseas expansion, although the prices are popular, also pursues quality, and wants to build chain and brand, and establish the impression of Chinese food in the minds of consumers in various countries."
Huang Rong revealed that when Haidilao entered the Vietnamese market, it did not place a large number of advertisements in local media, but brought the high-quality service process in China to Vietnam, and made the food and service standards higher than similar local brands. Through customer experience, word-of-mouth communication, and online celebrity check-ins, it gradually formed a brand effect. He told reporters that Haidilao is currently the largest direct-operated hot pot brand in Vietnam. Based on Haidilao's success in Vietnam, many domestic hot pot or other catering companies have also entered the Vietnamese market.
Daily Economic News
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