Foreign firms now opt for imports over production

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According to Ho Chi Minh City’s Department of Planning and Investment, the number of foreign-invested enterprises (FIEs) licenced for importing and distributing of goods has tripled from 73 in 2008 due to Vietnam’s free trade agreements and World Trade Oraganization (WTO) accession.

For example, UK-backed oil and gas maker Castrol BP Petco Company and French-backed tyre maker Michelin Group supplemented business codes to boost imports.

Swedish-backed Tetra Pak, the world’s leading food processing and packaging company, and Japanese-backed Panasonic AVC Vietnam have all stepped up importation business arms in Vietnam.

Meanwhile, South Korean-backed Samsung Vina supplemented its business codes to boost distribution in Vietnam.

The list also includes Japanese-owned electronics firms like Sony, Toshiba, Sanyo, Sharp, Hitachi and South Korean-backed Kumho Tire which have also been approved to import electronic products and tyres and then sell directly in Vietnam.

Yuzo Otsuki, general director of Sony Vietnam which disbanded its joint venture with locally-owned Tan Binh Electronics Company late last year to focus on importing electronic products into Vietnam, said: “The company’s business grew by 60 per cent in 2010 and is expected to continue growing at the same rate this year, with many new [imported] products marketed in Vietnam.”

Dao Ngoc Hoang Giang, general director of Ho Chi Minh City-based Sao Mai Office Equipment Joint Stock Company under locally-owned Sao Mai Group specialised in importing office equipment, said many FIEs like Japanese-backed Fuji Xerox and Sharp had applied for permission to wholesale and retail their imported products in Vietnam.

Mochizuki Kentaro, chairman of Sanyo HA Asean Corporation, said previously, firms were slapped an average import tax level of 50 per cent when they imported goods into Vietnam. When Vietnam joined the ASEAN Free Trade Agreement in 1995, the tax level was reduced to 20 per cent and then 5 per cent as is the case now. The reduction meant that investors would choose to become importers, not manufacturers.

Vietnam Customs reported that the foreign direct investment sector’s total import turnover in the year’s first six months was $27.5 billion, up 23 per cent against last year’s corresponding period.

Before Vietnam joined the WTO, FIEs enjoyed various priorities on the understanding that they invested into manufacturing in Vietnam to generate employment. They were allowed to import goods to serve their manufacturing in the country, not to directly trade and distribute them in this domestic market.

However, when Vietnam became a full WTO member, many FIEs took advantage of the distribution rights to import goods from their overseas companies and then resell them in Vietnam.

For example, with current import tariffs of 3-20 per cent for electronic components, and 5 per cent for completely-built electronic goods, electronics firms have chosen to become importers.

An expert from Thanh Hoa Provincial Department of Planning and Investment’s International Relations Division said with fewer employees and curtailed costs of manufacturing and land leasing, “it is clear that importing is more profitable than manufacturing.”

Deputy Minister of Industry and Trade Nguyen Thanh Bien said the Vietnamese government targeted to lure foreign direct investment into manufacturing sector, not in non-production sectors.

“It will need more time to revise all related regulations governing FIEs’ operations in Vietnam,” he said.