Kirin Talks is an initiative of Kirin Capital towards the goal of “Know Vietnam, Long Vietnam”. The series export first-hand information on all aspects of the Vietnamese market through in-depth interviews with various local entrepreneurs, assisting investors at home and abroad in better understanding the potential opportunities of Vietnam. At the same time, promote the docking of domestic and foreign resources, and join hands with “Know Vietnam, Long Vietnam”
Each Southeast Asian country has its own unique industries. Singapore’s shipping and finance, Indonesia’s Internet and minerals, Thailand’s tourism and consumption, and Vietnam’s manufacturing industry, which has garnered attention in recent years.
Some people think that Vietnam is the “next China” and competes with China’s manufacturing industry rather than cooperation, while others believe that Vietnam’s manufacturing industry complements China’s and serves as an extension of its industrial chain. The key to this issue is whether Vietnam’s manufacturing industry belt and industrial upgrading prospects are promising.
We believe that the industrial belt formation, automation development, and value chain climbing of Vietnam’s manufacturing industry is very challenging in the short and medium (5 years). The core bottleneck is the size and insufficient demand of the local market.
This week, we visited a crane company, Thai Long Mechanical Co., Ltd, located in the province of Hung Yen. Founded in 2014, Thai Long is a manufacturer, installer, and distributor of bridge cranes, gantry cranes, hoists, grabs, vacuum lifters, cable reels, electric flat cars, and related accessories.
Especially focused on small cranes, they are mainly used in hydroelectric and metallurgical stations, as well as manufacturing enterprises that need to lift molds with cranes and place them in injection molding machines to produce plastic products, including toys, consumer electronics, and other industries.
During the survey, we discussed the current state of the crane market in Vietnam, compared it with China, and explored the prospects for automation in Vietnam’s manufacturing industry. The following are the highlights of this survey:
01 Mainly import motor from China
Kirin Capital: Are your current customers mainly Vietnamese enterprises or Chinese ones?
Thai Long Mechanical: Overall, there are more Vietnamese companies. Although there are many Chinese companies building factories in Vietnam in recent years, their demand is not high. For example, they may place an order for 100 – 200,000 US dollars at a time, but there are no orders for the next few years.
Relatively speaking, the demand of Vietnamese customers is more stable. For example, local steel plants have a demand for cranes from preparation and commissioning to production and operation after commissioning. Currently, steel production orders account for about 30%, and hydropower stations about 10%.
Kirin Capital: How has your business been recent?
Thai Long Mechanical: Business is better this year, and more than ten or twenty units are produced every month. In the second half of last year, single digits were produced per month in July and August.
On the one hand, the Vietnamese real estate market was not good in the second half of last year. If real estate is not doing well, steel plants will also not be doing well, and steel plants are our major customers, so we are also affected.
Kirin Capital: Are the upstream engines and other materials needed to produce cranes produced locally in Vietnam or imported from China?
Thai Long Mechanical: It is mainly imported from China because Vietnam has fewer choices and the price is more expensive. For example, the commonly used three-phase asynchronous motor is 30-40% more expensive in Vietnam than in China. Even if the logistics cost is deducted, it is still 20-30% more expensive.
But some have to be solved locally in Vietnam. For example, there is a 20% anti-dumping duty on the import of profile steel to Vietnam, which is generally 4,000 yuan/ton in China and 5,000 yuan/ton of tax – similar to and even more expensive than in Vietnam. At the same time, considering customs clearance and logistics, local procurement is still better.
02 Automated production is difficult in Vietnam
Kirin Capital: Who are the leading players in the Vietnamese crane industry now?
Thai Long Mechanical: The top is still a Vietnamese enterprise, such as Vinalift and AVC. Things like KONE CRANE and DEMAG will be sold here, but they will not build factories here. Overall, the choice of Vietnam’s crane market is relatively wide.
Kirin Capital: What is the size of the crane market in Vietnam?
Thai Long Mechanical: We are already a relatively large enterprise in Vietnam. At present, the monthly output of small cranes is about 10-20 units. In contrast, the monthly output of ordinary crane factories in China also has to start from the hundreds. The output is still determined by demand. Orders for the one-time purchase of hundreds of cranes in mainland China are very common, but Vietnam may have a hard time encountering orders for the one-time purchase of dozens of cranes. Therefore, the market size is definitely not comparable to that in China, and because of the small market size, it will actually bring some other effects, such as the difficulty of automated production.
Kirin Capital: Can you elaborate on this?
Thai Long Mechanical: Take the small crane industry as an example. Automated production requires a large price to purchase a set of production equipment. In order for this set of equipment to be calculated, there must be two basic conditions: the first is that the production volume is large enough; the second is that the product produced must be standard, otherwise if the parameters need to be customized every time, the automation is meaningless. However, these two conditions are a bit problematic in Vietnam at present.
Firstly, to have a large production volume, downstream demand must be sufficient. However, infrastructure and industrial production are just starting in Vietnam, and the scale itself is limited, so downstream demand is not comparable to mainland China.
Secondly, the product must be a standard product, but this is also not easy in Vietnam.
Let’s take our industry as an example again. The application scenarios for small cranes are mostly manufacturing companies in industrial parks, but because the owners of Vietnamese industrial parks often have limited funds, the area they rent is not very large.
In addition, the government lacks clear standards for the land division of industrial parks, so the internal blocks of industrial parks are often divided into irregular shapes. Good land is taken by large factories, and general factories can only take some irregularly shaped land, such as long strips of land of 2000-3000 square meters.
In addition, Vietnam does not have a unified standard for crane size, and Japan, Europe, the United States, and China all have their own standards. Therefore, factory owners, in order to maximize the use of industrial land, have customized requirements for their factories and cranes, making it difficult to produce standard products.
The small downstream demand and high level of customization requirements make it difficult to implement standardized automation production in Vietnam at present.
03 Scale is the bottleneck for everything
Kirin Capital: Besides this, do you think there are any differences between the crane industry in Vietnam and in China?
Thai Long Mechanical: In China, a special equipment license is required to operate in this industry, but it is not required in Vietnam, so anyone can participate and the competition is intense. Our gross margin is even lower than doing it in China because of the higher procurement costs.
Apart from the fact that some upstream parts are not available here and must be purchased from China, it is also difficult to negotiate a good price because of the small procurement volume. For example, the Vietnamese crane brand AVC may only purchase a few hundred tons of steel per month, while larger crane factories in China purchase over one hundred thousand tons of steel per month.
Kirin Capital: What do you think of the future of Vietnam’s manufacturing industry, such as the prospect of industrial upgrading?
Thai Long Mechanical: I think the biggest problem is the scale, and the more specific point is the demand of its domestic market. Because of the limited demand, the formation of its industrial belt and the process of industrial upgrading will be very slow.
For example, to produce gear reducers, gear processing is required, and gear processing requires round steel. However, there are not many local enterprises producing round steel in Vietnam because the local demand for round steel is small and there is no incentive to set up a round steel factory. So we still have to import from China.
Similarly, for small cranes that require electric hoists, because demand is low (domestic suppliers produce just over 1,000 per month, which can last for several months in Vietnam), it is more cost-effective to import from Japan, South Korea, or Europe rather than build a local factory.
Because of the small local demand, local production is not as good as direct import, and in this situation, the industrial chain is difficult to develop, and it may remain in the “assembly workshop” of manufacturing for a long time.
Kirin Capital is a research-driven equity investment company headquartered in Hanoi, Vietnam. Its core members have more than 20 years of financial experience in China and more than 10 years of financial and industrial investment experience in Vietnam. The investment covers TMT, large consumption, manufacturing, health care and financial services, and other fields, and spans all stages of equity investment such as seed investment, venture capital, private equity investment, listed company investment, and M&A investment.
Our vision is “Know Vietnam, Long Vietnam”. Through rich financial experience and local resources, we will be a guide for investors at home and abroad to invest in Vietnam and share Vietnam’s rapid growth development dividends.
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