Presently there are around 40 FDI parts makers and 30 local ones in Vietnam, but the major parts producers are not involved.
The lack of capital investment and requisite experience/technology to manufacture components considerably hamper Vietnam’s automotive industry.Coupled with stagnating automobile sales, Vietnam simply does not currently have the infrastructure necessary to support a modern automotive industry.The results are disadvantages in quality, cost and delivery.This prevents local Vietnamese suppliers from building financial resources and investing in capital improvement or management systems.Linking supply chain systems is only compounded by these challenges.
For local Vietnamese suppliers, quality and cost are the two key challenges impacting the lack of economies of scale and the country’s nascent automotive development. The primary operations being localized are welding, painting and attaching bulky items or low-value parts that are fit for local sourcing, such as tires, batteries and wire harnesses (see Wire Harness Case Study).These challenges create problems for global OEMs and suppliers in Vietnam that want to locate and partner with acceptable local suppliers. Furthermore, the majority of acceptable local suppliers are usually wholly owned subsidiaries or joint ventures; most automotive parts companies that have ISO accreditation are also wholly owned foreign companies or joint ventures.
If auto parts are to be produced locally, solely to satisfy domestic demand, it is unlikely that cost objectives can be reached due to the lack of economies of scale.If sufficient economies of scale cannot be achieved, auto parts costs in Vietnam are likely to be higher than in other Association of Southeast Asian Nations (ASEAN) countries that produce the same models of cars.Additionally, the lack of raw materials, and the absence of a mold and die industry and/or modern machinery present key challenges in further developing the auto parts support industry in Vietnam.
Challenges for Vietnamese auto part industry:
· Relatively small auto market (about 60,000 units/year)
· Great variety of models: 90 car's and SUV's models,70 bus and truck's models.
· Raw material to be imported .
· Incentives insufficient.
· Lack of trained human resources. (only 20% professionally trained)
· Lack of many industrial standards
