Vietnam Express reported Audi prefers to participate in more exclusive and luxurious events, Ferry Enders, its CEO for Vietnam, said at the launch of a new showroom in HCMC’s District 7 in March 2024. Lexus expressed it has different business strategies every year, and this year they include not participating in the event. Mercedes has not explained its absence.

Other major brands to not participate are Mini, Kia, Mazda, and Peugeot, all manufactured and distributed in Vietnam by Thaco. VinFast, Nissan and Jeep have also opted out. 

11 companies have confirmed their participation: Ford, GAC, Honda, Isuzu, Mitsubishi, Skoda, Subaru, Suzuki, Toyota, Volkswagen and Volvo. Surprisingly, three motorbike brands, Honda, SYM and Yamaha will also take part.

Last year the Vietnam Motor Show was cancelled due to falling demand for cars in the country. The annual event is usually organised in October to boost sales during the year-end season.

Auto brands have been introducing new models at lower prices than their predecessors to boost demand. South Korea’s Hyundai launched the 2024 MPV Stargazer at prices starting at VND489 million (US$19,210), down 15% from the previous 2022 model.

However, it boasts more advanced technology with wireless charging for smartphones, electronic brakes, forward collision waring, and lane assist. Toyota announced a 4.6% cut in the prices of its 2024 Corolla Cross SUV to VD820 million (US$32,200). It has received many new upgrades in technology and safety systems including a larger entertainment monitor and reverse brake assist.

Germany’s Volkswagen is selling its special edition of the SUV Teramont starting at VND2.5 billion (US$98,200), down 12% from the 2021 version. Mazda, assembled in Vietnam by Thaco, is selling its CX-5 at VND749 million (US$29,400), down 10% from the previous model.

“The key is to claim more market share. Amid a slow market, customers prefer affordable products. Prices determine the number of buyers,”  the manager of a Japanese auto dealership in HCMC said to explain why prices are being lowered.

Other industry insiders said by lowering prices companies are able to reduce their inventories, thus cutting storage costs. Higher sales also mean they are able to pay their bank loans faster. Last year auto sales plummeted by 25% to 369,400 units with most brands suffering double-digit declines. In Q1 2024, the Vietnam Automobile Manufacturers Association posted a decline of 18% to 58,200 units.

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Source: Reuters

Daihatsu found itself in hot water after a rigged collision safety test exposé. The Toyota subsidiary admitted last November it manipulated safety tests since 1989 (for one discontinued model).

The rigging affected 64 models, including some sold under the Toyota brand. Daihatsu also will be removed from a commercial vehicle partnership known as the Commercial Japan Partnership Technologies (CJPT), the automaker said in a statement.

Transport Minister Tetsuo Saito criticised Daihatsu for the act, “It fundamentally undermines the credibility of type certificates and damages trust in Japan’s manufacturing industry.”

The Ministry issued a correction order to Daihatsu under the Road Transport Vehicle Law. The order requires the company to compile and report on measures to prevent a recurrence, such as eliminating its corporate culture that suppresses employees from expressing opinions to superiors.

Okudaira had a long career at Toyota spanning nearly four decades from 1979 before he became President of Daihatsu in 2017, a year after it became a Toyota subsidiary. Daihatsu Chairman Sunao Matsubayashi will also step down and will not be replaced, Toyota said.

Last April, the company had been falsifying crash-test results for four of its models, involving 88,000 vehicles made in Thailand and Malaysia in 2022 and 2023. In May 2023, it announced a production halt in Japan for two hybrid models because of similar “irregularities” including the Toyota Raize SUV.

Reports added investigation released in January 2024 found the acts included false reports on headrest impact tests and test speeds for some models.

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TSMC’s new plant brings a total investment in its Japan venture to more than US$20 billion with the support of the Tokyo government. The Taiwanese chip titan announced plans in 2021 to build a US$7 billion chip plant in Kumamoto in southern Japan’s Kyushu.

The company said the first Japanese factory would open in February 2024 with volume production in the Q4 2024. TSMC was also exploring building a second factory in the country.

In a statement, TSMC said its majority-owned unit Japan Advanced Semiconductor Manufacturing in Kumamoto would build a second fabrication plant, or fab, in response to rising customer demand. TSMC added the second fab will begin construction by the end 2024. With both factories, the site is expected to have total monthly capacity of more than 100,000 12-inch wafers to be used for automotive, industrial, consumer and high performance computing-related applications.

The capacity plan may be further adjusted based upon customer demand, it noted. TSMC is a major supplier to companies including Apple and Nvidia, holds an 86.5% stake in the Japanese venture, with Sony Group 6%, auto parts maker Denso 5.5% and carmaker Toyota with 2%.

TSMC’s expansion in Kyushu is central to the Japanese government’s efforts to rebuild the country’s position as a leading chip manufacturing centre and ensure the stable supply of chips amid trade tensions between the United States and China. The decision to build a second fab is a vote of confidence by TSMC in Japan where construction of the first fab has run smoothly and which, it sees as a source of diligent workers with a government that is easy to deal with.

Japan’s chip-making sector, the world’s biggest in the 1980s, struggled to maintain its competitive edge, going into a steady decline in the past three decades, while rivals such as Taiwanese manufacturers gained ground. While both TSMC and the Taiwan government said the majority of the company’s most advanced manufacturing would continue to take place in Taiwan, TSMC has been expanding its global manufacturing footprint in response to what it says is customer demand.

TSMC’s flagship overseas investment is a US$40 billion project to build two fabs in Arizona, supporting Washington’s plans to boost U.S. chipmaking capacity. TSMC is also planning its first European factory, in Germany, which will mainly serve the auto industry.

TSMC’s Taipei-listed stock has risen 8.9% so far this year on the back of a boom in demand for chips for artificial intelligence applications, outperforming a 0.9% gain for the broader index.

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Earlier this year, Toyota announced its partnership with Yamaha Motors to develop a hydrogen-fueled V-8 engine. The latter added the 5 litre V-8 engine will be based on that in Lexus RC Coupe with modified cylinder heads and fuel injectors.

Some downsides to Hydrogen are that it is highly flammable, difficult to process and store, and the combustion process emits nitrous oxide. The effects of inhaling nitrous oxide include dizziness, unconsciousness, and even death.

Long-term exposure can lead to infertility. Contact with liquid nitrous oxide can cause severe frostbite. Workers may be harmed from exposure to nitrous oxide.

Making Hydrogen Car Engines

Generally, an engine is made up mainly of various metal alloys, so the material used and its components can be recycled. The most important structural materials in 4-stroke engines are cast iron, alloy and structural steels, and aluminium alloys. It also depends on the manufacturer what all material they use.

That is also where the challenge comes in. hydrogen is known to cause embrittlement and cracking in steel, commonly named as hydrogen-induced cracking (HIC). HIC typically occurs in aqueous solutions, as hydrogen can diffuse into the steel matrix, resulting in steel embrittlement and cracking. 

HIC is a major concern in many industries. It is often caused by accidental factors during the forming or finishing process that allow hydrogen to enter the steel matrix. HIC is influenced by three primary factors: material performance, environmental conditions, and stress.

Discovering HIC

Li Xun, a physical metallurgist from Shaoyang, Hunan province discovered the secrete and the principle of hydrogen brittleness in steels when he conducted a research project of seeking out the cause of an accidental crack in aircraft engine shaft. He proved the internal hair-crack in steel was due to the existence of hydrogen in the material.

From the view point of diffusion, solubility and structure of steel, he expounded the relationship of time-temperature-size and hydrogen content in steel products, which produced great impact on the iron and steel technology in the world and made him the acknowledged pioneer in this field.

Under his leadership, scientists in the Institute of Metals Research studied uranium metallurgy, high temperature cast alloys, refractory metals and alloys, measurements of physical properties of materials under high temperature, and rare-earth application in steel and the like.

Characteristics Of Hydrogen

Hydrogen-induced cracking (HIC) refers to the internal cracks brought about by material trapped in budding hydrogen atoms. It involves atomic hydrogen, which is the smallest atom, that diffuses into a metallic structure.

In the case of a crystal lattice becoming saturated or coming into contact with atomic hydrogen, many alloys and metals may lose their mechanical properties. High-strength steels containing chromium and nickel are highly susceptible to hydrogen.

Steels with high carbon content have a greater tendency to hydrogen-induced cracking, while low carbon steels are less prone to this phenomenon.

Back to the subject of automotive manufacturing, the most expensive aspect of production is creating and constructing the fuel cell stack – instead of procuring raw materials. Costs associated with hydrogen station infrastructure must also diminish for an hydrogen uptake to happen.

Hydrogen has a lower energy content per volume compared to other gaseous fuels and this necessitates higher-pressure tanks and low temperatures for compact storage. To meet consumer needs, these vehicles require enough fuel capacity for at least 300 miles (483km) before needing another fill-up – but this requires an increased tank size compared to standard gas-powered vehicles.

Where Does It Leave Automotive?

Just on fuel cells alone, the industry can expect a spike on production costs. For engines where steel is one of the most commonly used material, forgings with a dense structure are more susceptible to hydrogen-induced cracking than castings with a loose structure.

When hydrogen atoms penetrate into the steel, the atomic bonding force between grains decreases, and the steel’s toughness is compromised. The fracture caused by hydrogen-induced cracking is similar to other brittle fractures, and high-strength materials are more susceptible to intergranular fracture. 

Additionally, in low carbon steel, small and incomplete dimples are likely to appear on the small facets along the grain, forming what is known as the “chicken claw pattern.” HIC in welded components can be sudden and poses a serious threat to both people and property.

Eliminating hydrogen in metals is critical. Certain steels or components used under specific conditions must undergo dehydrogenation treatment — for instance, galvanised parts used in aircrafts. Hydrogen removal is also necessary for zinc plating on elastic parts and high-strength steel.

The process of removing hydrogen from parts involves heating. The effectiveness is subject to temperature and holding time.

The higher the temperature and longer the time, the more effective the removal will be. Typically, the component to be treated can be placed in a vacuum oven and treated at a temperature of 200-250°C for 2-3 hours.

Hot oil can also be used to achieve the same hydrogen removal effect as the oven. This method offers the benefit of uniform heating and simpler equipment requirements.

Hence, the question is: how far can Toyota go with this V-8 engine, especially when there is a plethora of factors to be considered. From the cost of equipment which have to be sophisticated enough to handle hydrogen, the need for skilled operators plus the infrastructure required to execute the operations. For V-8 to be converted into a cash cow, it will certainly be a long wait.

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Source: Reuters

Total sales of Japanese auto brands in China were down 32% year-on-year in the first quarter, more than double the pace of the overall market contraction, industry data analysed by Reuters showed.

While other automakers like Volkswagen AG have also been caught out by the sharp shift in China, Japanese automakers stand out because of their limited showing in the fast-growing category of electric and plug-in hybrid sales.

Production and margins will come under pressure in China as automakers cut output and prices of gasoline-powered cars to keep inventories in check, analysts say, in a worrying sign of the competition Japanese automakers could increasingly face outside their home market.

“Especially Japanese automakers face a little bit more inventory of new cars,” in China, Yasushi Matsui, Chief Financial Officer at parts supplier Denso Corp, said last week. “They are making adjustments.”

Mitsubishi Motors Corp, said it had suspended production of its Outlander SUV in China for three months and would take a charge of $77 million for slowing sales at its joint venture with state-owned GAC Group.

Mitsubishi, like some other Japanese automakers, does not break out China sales figures. Industry data analysed by Reuters showed its first-quarter sales in China fell by 58% from a year earlier.

In another shift, Nissan’s Sylphy, a sedan that had been China’s top-selling vehicle for three years, was edged out last year by the BYD Song, a plug-in hybrid made by BYD, China’s top automaker.

In emailed comments, Nissan said it had sold over 5 million Sylphys in China over the years, adding that an electric-drive hybrid version was eligible for incentives in Guangzhou. The company said it was working with other cities on similar support. The e-Power electric-drive hybrid version of the sedan would be central to Nissan’s brand transformation in China, it said.

‘JAPAN IS THE BIGGEST LOSER’

Toyota Motor Corp has said its go-slow approach to all-electric cars protects consumer choice, but the strategy is costing sales in China, analysts say.

“Japan is the biggest loser of the price war so far. As EVs get more affordable, they become more attractive to the core buyers who have been resisting so far, the buyers of foreign brands. So, you can see the writing is on the wall.” said Bill Russo, Founder and CEO of Automobility, a Shanghai-based consultancy.

Japan’s share of car sales in China slumped to 18.5% in the first quarter, down from 24% in 2020, industry data from the China Association of Automobile Manufacturers analysed by Reuters showed.

Toyota and its luxury brand Lexus posted a 14.5% drop in first-quarter sales, company data showed.

“We need to increase our speed and efforts to firmly meet the customer expectations in the Chinese market,” Toyota CEO Koji Sato said in an interview last month.

Nissan Motor Co Ltd posted a 45.8% drop in China sales and Mazda Motor Corp sales were down 66.5% in the first quarter. Honda Motor Co Ltd had a 38.2% drop, industry data showed. Honda Chief Executive Toshihiro Mibe acknowledged the automaker lagged Chinese rivals in some software technologies.

China’s automakers are “further ahead of us than we expected,” Mibe said at a presentation in Tokyo focused on Honda’s efforts in autonomous driving and services like gaming. Japanese automakers built their reputation on factors like durability, but the shift in China shows the draw of lower-priced electric cars and new offerings based on software, said Masatoshi Nishimoto, principal research analyst at S&P Global Mobility in Tokyo.

“Japanese automakers could face a similar struggle in the United States as in China,” he said.

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Source: Reuters
Reporting by Daniel Leussink and Maki Shiraki; Editing by Edwina Gibbs and Clarence Fernandez

Toyota — the world’s largest automaker by sales will also set up a new, specialised unit to focus on next-generation battery EVs, senior executives said at a briefing as they outlined plans under its new leadership team. Inclusive of its Lexus luxury brand, the company has just three battery models on the market and last year sold fewer than 25,000 of those worldwide.

Investors and environmental groups have criticised Toyota for being slow to embrace battery-powered cars, saying it has lost ground to Tesla Inc and others that have more nimbly captured fast-growing demand. The Japanese automaker has countered that EVs are just one option for customers and that gasoline-electric hybrids such as its pioneering Prius are a more realistic choice for some markets and drivers.

“In the next few years we will expand our line-up in the important battery electric category,” Toyota Chief Executive Koji Sato told the briefing, his first in the top job, but added that hybrids would remain an important pillar.

EVs are now expected to make up more than half of total worldwide vehicle production by 2030. Meeting that demand will be critical for Toyota, which also said it would increase production in the United States, where the growth in EVs is outpacing that of the overall market.

Toyota’s target of selling 1.5 million BEVs a year in 2026 was 25% higher than a 1.2 million battery-powered units it was expected to sell by then according to an S&P Global Mobility forecast compiled before Friday’s announcement.

“There’s a gap of 300,000 units so that can be thought of as a difference of about a year,” said Yoshiaki Kawano, an associate director at S&P Global Mobility. “It doesn’t seem like it’s impossible to achieve at all,” he said, adding the outcome would still depend on what models Toyota rolled out.

Toyota reported U.S. sales fell by nearly 9% during the first quarter. By contrast, General Motors Co saw an 18% boost, helped by greater demand for EVs from fleet and commercial customers.

U.S. consumers making the switch to electric vehicles are largely doing so from Toyota and Honda Motor Co, data from S&P Global Mobility showed in November.

“Now that it is time to make the next big innovative leap, Toyota is falling behind and more and more folks in the U.S. are starting to understand that,” East Peterson-Trujillo, a clean vehicles campaigner with nonprofit Public Citizen, said in an interview.

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Source: FMT Media

Chinese electric-vehicle giant BYD confirmed the presence of a toxic chemical in electric buses for the Japanese market, saying the substance does not carry health risks while also indicating plans to end its use. The announcement came after Toyota’s earthshaking cancelling of BYD’s electric bus order. 

“Normal post-manufacturing operation of the vehicles will not affect passengers, drivers or maintenance staff,” local unit BYD Japan said in a statement. “The vehicles will be detoxified before being scrapped, leaving no impact on the environment,” it said.

The substance, hexavalent chromium, was once widely used in automotive parts but is considered highly toxic and a harmful carcinogen. BYD Japan said hexavalent chromium was included in an anti-rust treatment for such parts as nuts and bolts in five electric buses.

The company is looking into whether it was also used in parts for electric passenger cars that went on sale in Japan at the end of January. Electric buses due out in the Japanese market toward year-end will be manufactured without the substance, the company added.

Hexavalent chromium has not been used in new cars sold here since the Japan Automobile Manufacturers Association voluntarily banned it in 2008. The European Union (EU) prohibits its use in passenger vehicles. 

Given this substance is banned in Japan since 2008, with the EU following suit – Toyota’s recent decision might jeopardise BYD’s reputation unless adequate service recovery is done to appease the other automakers.

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Source: Nikkei Asia Through Reuters

The Poncho Z EV, which the Toyota Motor Corp bus- and truck-making unit had planned to launch by March-end, contains the carcinogen hexavalent chromium, the newspaper said.

Hino declined to comment when contacted by Reuters. A BYD Japan spokesperson was not immediately available for comment.

Last week Hino said it had decided to freeze the sale of the Hino Poncho Z EV compact EV bus it announced last year.

The automaker partnered BYD – backed by U.S. investor Warren Buffett – in 2020 to develop electric commercial vehicles including buses and trucks, in addition to BYD and Toyota’s joint development of electric passenger cars.

(Reporting by Mrinmay Dey in Bengaluru; Editing by Christopher Cushing)

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Toyota getting into EV drew mixed feelings. The automaker says it does believe in an all-electric future. It just maintains that future will not reach all of Toyota’s markets at the same time. From the report, critics seem to be directing this not at the automaker, but harping on whether the countries are ready to take on climate goals.

Toyota was once considered a green vehicle pioneer. It introduced the Prius, the world’s mainstream hybrid vehicle in 1997. The Prius combined a gasoline-burning engine with an electric motor and small battery. This allowed drivers to dramatically increase their fuel economy compared to traditional internal combustion engine-powered cars.

The new technology proved to be a sales sensation: Toyota has offered hybrid versions of much of the rest of its lineup. The automaker has sold a total of 20 million hybrid cars, trucks, and SUVs around the world, and 5.4 million in the United States alone. The fact it sold hybrids evidenced EV is not a new concept for the carmaker. Toyota is certainly not late getting into EV.

In the meantime, other automakers, spurred by ever stricter government regulation and the success of newcomers like Tesla, began investing in fully electric vehicles. For a long time, Toyota’s leaders argued there are fundamental engineering challenges to battery-powered electric vehicles — they take a long time to charge, require heavy and expensive batteries and have still limited range.

Those criticisms are less valid now given recent improvements in battery technology, auto industry analysts say. More important, companies have found a strong business case for EVs. Tesla is now the leading luxury brand in the United States. It certainly emits an impression that Tesla’s success assured the others it was safe to jump into the bandwagon.

Toyota’s new US$35 billion investment, announced in December 2021, includes a plan to introduce 30 electric models by 2030. That is just under a quarter of the more than 130 models it currently makes. 

At the same time however, Toyota said it would invest an equal amount in hybrids and hydrogen fuel cell vehicles. Gartner, an industry research firm, expects gasoline-burning engines will still make up about 50 percent of sales in the early 2030s.

“We still think that in 10 years, 50 percent of new vehicle sales will be gasoline,” said Mike Ramsey, a Vice President in Gartner’s CIO Research Group. “And if you look at the global footprint, that is almost certainly going to be true, because you are not going to see in Nigeria, in Iran, in Indonesia, a 50 percent market share for electric vehicles, period.”

Hence, is the real crux directed at countries that are not ready to go electric for their vehicles because it is more costly? In other words, climate goals may remain in the backburner for some economies that do not have the bandwidth to embark on (yet). Nonetheless, it would not matter if Toyota’s target markets for EV are not in these countries. Therefore, one is compelled to feel Toyota is not late getting into EV.

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Source: Lien Hoang, Nikkei Asia

Flip over an Apple Watch or MacBook box in the future, and it might say, “Assembled in Vietnam.” The imprimatur of Apple would be a win for Hanoi, which for more than a decade has made a priority of attracting top technology brands like Intel, Samsung and Xiaomi to set up supply chains in the country.

Apple sources AirPods earphones from Vietnam and is testing watch and laptop production. Making those more complex devices would be a badge of success for the country’s manufacturing industry and its determination to join the global electronics supply chain.

Vietnam is already the only economy of its size and development level to have cracked the top six on Apple’s coveted supplier list — the iPhone maker in 2020 sourced from 21 suppliers in Vietnam, up from 14 in 2018.

None of those suppliers, however, are Vietnamese. Vietnam’s success in attracting supply chain business — and its failure to create its own domestic high-technology sector — has created a dilemma for policymakers and some curious contradictions in the economy. Vietnam has recorded technology export growth that no substantial Asian rival has matched: High-tech goods as a share of exports hit 42 percent in 2020, up from 13 percent in 2010.

But the country added little value of its own to these exports and has no homegrown tech champions. According to a white paper published by the Ministry of Industry and Trade in 2019, Vietnam lagged most of its Asian neighbors in yardsticks such as trade in value added and manufacturing value added, which measure the contribution of the domestic economy to trade.

Industry leaders express frustration that much of their sector remains a glorified assembly line for other countries’ big brands. Samsung Electronics is another example: the technology giant named only foreign companies among the 25 in Vietnam on its 2020 top suppliers list, despite operating in the country for 14 years and relying on it for half of its smartphone shipments.

“You have something called the glass ceiling. It’s very difficult to break through that ceiling,” the ministry’s multilateral trade director Luong Hoang Thai said, referring to Vietnam’s efforts to advance up the global value chain.

In previous decades, Asia’s “tiger” economies demonstrated that such a journey could be made. South Korea, Taiwan and China all started from low-tech manufacturing and advanced steadily to cars, semiconductors and robots. Indeed, Vietnam has many of the advantages those countries did: a disciplined workforce, low costs and a state industrial policy. But Vietnam lacks some critical elements such as skills and good infrastructure.

“Even though many of the East Asian countries try to follow this kind of model,” Thai said, “very few have been successful, going all the way toward the stage of innovation.”

Meanwhile, it is not clear whether the progress made by the previous generation of Asian economies is even possible today, with the global economy transformed by decades of falling tariffs, and China’s manufacturing dominance. Globalisation may be entering a new and profoundly unpredictable phase as industrial policy makes a comeback and the world redraws trade lines due to supply-chain instability, skepticism of globalism and geopolitical competition.

Vietnam’s trade role has vaulted into a national debate, to the extent that is possible in a state that stifles speech. Some say it’s been slow to enact a clear strategy, such as pushing priority industries to locally source a certain percentage of components, while others say its day is yet to come.

“Before, we hated capitalism,” said Tran Dinh Lam, director of the Center for Vietnamese and Southeast Asian Studies, arguing Vietnam needs time to catch up, having only ditched its planned economy model in the 1980s. “And then we opened the door and we welcomed everyone.”

Economist Phung Tung, Director of the Mekong Development Research Institute, said success would mean that trade benefits most of society, and companies in Vietnam become competitive manufacturers like China’s Oppo or Malaysian chipmaker Silterra, two recent arrivals to the technology sector. But in a parallel dimension failure would, a local institute says, doom Vietnam to be “forever stuck as an assembly platform,” plagued by congestion, stagnation, inequality, or Argentina-style debt crises.

To avoid this middle-income trap, Tung said Vietnam must find its spot in the world’s new strategic trade game.

Promising First Steps

Due south of Hanoi, skyscrapers swiftly give way to fields where water buffalo graze and shirts act as scarecrows. Drive an hour out, and the skyline changes again, in Ha Nam, a once-rural province known for communist revolutionaries and sixth-century folk dances.

Now, though, industrial parks have supplanted marshland, a haven for foreign tech companies that have come to redesign their supply chains. Tenants include Apple supplier Wistron, Seoul Semiconductor, and Anam Electronics, which exports JBL Bluetooth speakers and Yamaha sound systems. Interest in Vietnam as a factory center has risen in line with trends north of the border three hours away.

In the past decade, wage inflation in China’s southern coastal manufacturing centers priced out many suppliers, who then sought to shift production to lower-wage Vietnam.

More recently Vietnam has been the beneficiary of much bad news. First, the U.S.-China trade war, which pushed American companies (along with many Chinese companies) to move suppliers to Vietnam in an effort to escape sanctions. Then came the COVID-19 pandemic, when lockdowns in China hastened more companies — including Apple — to shift production out of China and toward Vietnam.

When shutdowns raised costs to ship goods out of China, for example, Anam turned to a subwoofer speaker producer in Vietnam. In Ha Nam, the South Korean company’s factory contains a rainbow of smart speakers, circuit boards fill an entire room and bots ferry parts between workstations.

“[Vietnam] has been doing well so far by attracting investment,” Anam Vietnam Director Park Hyeon-su said. However, if the country does not upgrade to complex products, it risks a “vicious cycle of technological decline, environmental pollution, low labor productivity, high energy consumption and low efficiency.”

The Vietnamese economy more than doubled in size from 2010 to 2020, according to the World Bank. But the country has a limited window to take advantage of the explosive growth. “The low-hanging fruit of industrialization is to capitalize on your endowments, which is cheap labor,” Natixis economist Trinh Nguyen said.

For Vietnam, she added, “that is set to disappear.”

In other words, if wages increase, companies that currently find Vietnam hospitable might eventually leave for cheaper countries like neighboring Cambodia. The supply chain industry is fraught with politics that makes investments particularly unstable: Companies might also be drawn away by their own government’s homecoming policies (Japan), or by the desire to “nearshore” next to big markets (Latin America or Africa). Other risks include inbound investment that is low-quality or creates pollution as well as tech advancements that make it costlier and harder for poor countries to move up the value chain.

Localisation is starting to happen with Toyota Motor, one of the most profitable foreign investors in Vietnam. Six of the 46 in-country suppliers were Vietnamese, the automaker’s 2021 sustainability report says. Giai Phong Rubber spent the past two years working to become No. 7 — a goal it achieved in July.

Just over the Red River from Hanoi, GPR workers pump out rubber components for appliances, from LG Electronics vacuums to Panasonic washers, against the hiss of compressors and the acidic smell of latex. Chu Trong Thanh, GPR’s Chief Customer Officer, told Nikkei that the company had “dared to step out of” its comfort zone in the appliance and motorbike industries to make car parts “for the honor of the country.”

“When working with Toyota, they are on another level,” Thanh said, adding that he had adopted a just-in-time inventory system and other tactics to join the Japanese giant’s supply chain.

Too Few And Far Between

Less important than a single company’s capacity, though, is the structure and scale of a manufacturing sector that can accommodate large clients. Amazon, for example, brought in staff to scout suppliers like CNCTech, which said it gave the scouts a tour of its machine parts, molding and assembly plant.

The e-commerce player could buy millions of smart doorbells or Wi-Fi devices a year, but no orders came of the trip, said An Do, director of business development for CNCTech, whose products go into self-lacing Nikes and Sharp headphones.

“The story with Amazon is they want to find or build a community of suppliers big enough to have redundancy,” he told Nikkei, walking around a factory in northern Vinh Phuc province where employees tested internet routers in soundproof rooms while sofa-sized machines punched diodes onto circuit boards. “If later they just have one supplier, the risk for them is very big.”

The Seattle-based Amazon does source some doorbells and cameras from Vietnam, but, An Do said, major purchasing managers want a whole ecosystem to secure their production. In China, for instance, entire villages are devoted to supplying just fabric, silicon wafers, or auto parts. Vietnam lacks such clusters — its supporting industries are more scattered and less integrated into global supply chains.

The country’s programs to develop a web of suppliers are “primitive, cumbersome and highly limited,” such as with matching workshops where business cards are exchanged but contracts not inked, according to a 2020 report by Vietnam’s Institute for Economics and Policy Research and Japan’s National Graduate Institute for Policy Studies.

The joint report recommended models like Malaysia, which published clear tax and other incentives for suppliers, or Thailand, which had 10 technical centers, such as for machinery training. Analysts point to two other ways manufacturers gained capacity in China: developing products for a big domestic market before going abroad and supplying to foreign clients before growing into a major competitor in their own right.

“Even though we have attracted a lot of investment there is a weak linkage between the [foreign] sector and the domestic sector,” the trade ministry’s Thai said. “That’s why you have not seen a lot of spillover impact in terms of technology, management and other skills.”

A Rocky Road Ahead

In its pitch to investors, Vietnam waves single-party stability as well as trade pacts, shipping lanes and low costs in a market of 99 million. But it lacks something like a Taiwanese managerial class, high-value national champions in the vein of Hyundai Motor or Acer, and high-skilled labor to power such corporations. As with much of the economy, the solution is a delicate balancing act: More training will bring these skills but also push up wage costs, which will encourage companies to decamp to cheaper shores.

Vietnam GDP more than doubled in past decade

Support for and training the workforce, on the face of it, should not be much of a problem: One of the rare countries run by a workers’ party, Vietnam has labour protections from paternity leave to pensions for freelancers. But can an authoritarian state that brooks no criticism also foster the problem-solving and critical thinking that high-skilled work demands?

That is hard to do in a society that discourages people from questioning authorities, from teachers to officials, said Ha Dang, founder of fair-labour consultancy Respect Vietnam. She added there is a dearth of substantive training to benefit workers long-term.

“Many companies like employees who do what they’re told, they like discipline,” she said in an interview.

But the perennial complaint among bosses is their struggle to hire creative and self-directed staff. Managers, professionals and technicians comprise 10.7 percent of Vietnam’s workforce, the lowest in Southeast Asia’s six big economies, according to the International Labour Organisation.

The next gripe from investors is logistics costs eating up margins, equivalent to 20 percent of gross domestic product, compared with an average 12.9 percent in Asia and 10.8 percent globally, according to a 2021 report from business research firm Vietnam Industry Research and Consultancy.

Land transport claims most of the cost, though highways are less than 5 percent of roads, the report said. Congestion and disrepair are rife, as Vietnam struggles with major projects: a north-south expressway; a second airport for Ho Chi Minh City; and the country’s biggest port, planned for the city.

Construction is slow, requiring 166 days for a permit, versus Asia’s average of 132.3 days, says the World Bank’s Doing Business 2020. More recently, Russia’s war in Ukraine and China’s COVID lockdowns have hit supplies from wood to steel.

These compound Vietnam’s older problems, delaying infrastructure: red tape, bad project forecasts, and land disputes, which can turn violent, most infamously in the deadly Dong Tam standoff between police and villagers in 2020. The Sydney-based Global Infrastructure Hub forecasts Vietnam will spend $503 billion on infrastructure by 2040, but needs $605 billion.

If civil servants were afraid of getting in trouble for approving risky projects before, they have more reason to fear now under an intensifying graft crackdown, which has seen officials jailed for “economic mismanagement causing losses to the state budget.” One developer described it in the lexicon of investors: “There is no upside for the bureaucrat, there is only downside risk.”

So construction timelines are stretched by Kafkaesque minutiae, from forms signed in the wrong ink color, to disagreement about which agency must give approval.

Can You Repeat The Past?

Vietnam is not alone in its 21st-century trade struggles: Thailand, Indonesia and Malaysia are not the new South Koreas, either. One question some economists are asking is whether the success stories of a previous century are repeatable in the new one.

From the 1960s Seoul and Taipei took a strategic approach to the global economy. They designed specific industrial policies, erected trade barriers, educated their workforces and picked winners that grew into export giants. They did so, however, in another era. Vietnam today has been able to replicate some of South Korea’s and Taiwan’s export success, but key differences make for an uncertain road ahead.

The country also has massive competition its forebears did not: China. In addition, globalisation has been on the march for decades now, eliminating the ability to erect the kind of tariff barriers that helped early movers like Sony gain an advantage. The global playing field that now exists makes it difficult for Vietnam to use similar protectionist policies to foster its own export giants, economist Phung Tung says.

“The big difference in my mind is in the late 1990s and early 2000s, when China really entered a phase of rapid growth, the size of the tradable sector had grown tremendously, facilitated by low-cost container shipping,” Harvard Business School professor Willy Shih told Nikkei. That made bids by “countries trying to move up the value chain much harder, because they had to compete with a flood of cheap Chinese goods.”

Taiwan and South Korea became democratic advanced economies when offshoring was entering the nomenclature and before the World Trade Organisation slashed tariffs. Xuan Nguyen, an economist at Australia’s Deakin University, estimates import taxes went from 20 percent in the 1980s to 5 percent before the trade war. Vietnam currently has 15 trade deals.

“It’s really tough now,” said Tung. “In the past, each country could use policies like tax or non-tariff barriers to protect companies. But you cannot do that now.” And with more multinationals from Tesla to Toshiba than ever, “It’s really hard for the new one to enter the market.”

Xuan Nguyen said that multinational corporations are further cementing the advantage they gained when their home countries industrialized decades ago, such as by filling their factories with ever-improving tech like robots and seamlessly moving production across borders by hiring contract manufacturers. “The landscape [of] globalization,” he said, “has changed dramatically between the 1980s and nowadays.”

Yet Vietnam is making progress, Tung said. Samsung is planning a research center and to start producing some semiconductor parts in the country. Investors consider these and Apple’s decision to make Apple Watches in Vietnam harbingers that more sophisticated manufacturing is in the cards.

While Malaysia has a stronger supply chain for electronics and Thailand for cars, the countries have “been hobbled by lack of vision due to volatile domestic politics,” Natixis’ Nguyen said, adding that the situation gives Vietnam a chance to surpass its neighbors if it is strategic.

Back at the internet-devices factory, An Do of CNCTech hopes the country embarks on such a course before pollution and old age take over. The workforce is young, but seniors’ ranks are growing: Vietnam is in the top 10 of countries with the fastest-growing dependency ratios.

“We are developing the economy,” he said, slipping on an orange jumpsuit needed to enter the sanitized factory. The investment influx is “good in the short term, but if we don’t make use of it, it becomes a burden. We in Vietnam need something more radical.”

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