Will foreign manufacturers stop production in Vietnam?

Will foreign manufacturers stop production in Vietnam?

Foreign manufacturers have said they are considering either leaving Vietnam for other regional countries which have a more competitive investment environment, or stopping their production activities in Vietnam. However, many Vietnamese don’t believe they will do it.

Toyota Vietnam, at an event held recently in Hanoi, said the automobile manufacturer was wavering between continuing assembling cars in Vietnam and stopping work.

If the government does not offer preferential treatment to develop the automobile industry, it, like many other automobile manufacturers, would have to stop production in Vietnam, because their domestically made products would be less competitive than imports which enjoy a preferential tariff of zero percent.

If so, it would be more profitable for automobile manufacturers to import finished products to sell domestically than import car parts to assemble in Vietnam.

The statements by foreign manufacturers has raised concerns. If they leave Vietnam, the national economy would suffer, because foreign direct investment plays a very important role in economic development.

However, analysts do not think foreign manufacturers will leave.

Dr. Nguyen Mai, chair of the Vietnam Foreign Invested Enterprises’ Association (VAFIE), said it would be difficult for anyone to decide to relocate his production bases, and the relocation cannot be done overnight.

Meanwhile, Deputy Minister of Finance Vu Thi Mai, while confirming that the import tariff on ASEAN car imports will be cut to zero percent from 2018, noted that the car part import tariff will also be cut to zero percent by that time.

With a lower tariff and lower labor costs in Vietnam than in other regional countries, Vietnam will remain an attractive investment environment, according to Mai.

“The critical problem is if the investors can take full advantage of favorable conditions offered to them,” Mai said.

An analyst said Toyota had just “made an idle threat”, and that it would not leave Vietnam.

“Toyota Vietnam is one of the most successful automobile manufacturers in Vietnam in the last 20 years. This explains why Toyota has injected $154 million into its factory in Vietnam,” he said.

Vo Tri Thanh, deputy head of CIEM, said investors’ coming and leaving was quite normal in a market economy.

Meanwhile, Mai of VAFIE said: “I don’t think they (foreign investors) would leave Vietnam, because it is not easy to move their factories from one country to another.”

However, he said the foreign investors’ complaints need to be heard by policymakers, and that unreasonable policies need to be amended to ensure a good investment environment in Vietnam.

vietnamnet