1.

0 INTRODUCTION
Market potential analysis is a strategic for identifying market opportunities and allocating
resources to those that would yield the best long-term results. Market potential analysis
is not utilized for short-term forecasting, but it can assist in identifying future growth
potential. A market potential analysis is done to evaluate Vietnam market potential of
machinery and equipment industry.

The machinery and equipment industry in Vietnam has been rapidly expanding, resulting
in higher GDP and sub-sector industries. In the previous decade, Vietnam’s machinery
and equipment sector has grown significantly. This is demonstrated by the fact that net
revenue generated by enterprises in this category increased at a compound annual
growth rate (CAGR) pf 14.3% between 2010 and 2019. Until 2020, Vietnam has around
2,200 enterprises specializing in the manufacture of machinery and equipment, earning
a total of US$4.6 billion in sales.

Domestic machinery producers have been unable to meet market demand despite a
promising market. According to the Vietnam Association of Mechanical Industry, just
32% of demand is met by local businesses (VAMI). Due to high demand and obsolete
production technologies among domestic producers, imported products supply the
remaining 68% of market demand.

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2.0 ENVIRONMENTAL ANALYSIS (PESTEL ANALYSIS AND INDUSTRY ANALYSIS
(PORTER’S FIVE FORCES)

PESTEL ANALYSIS

Political
Vietnam’s principal policy concerns are governed and directed by the Communist Party,
which is made up of four essential pillars: The General Secretary, State President, Prime
Minister, and Chair of the National Assembly. The Party’s leaders have a five-year term,
and the election will take place at the National Party Congress when that time has
passed.

Economy
According to preliminary estimates, Vietnam’s Gross Domestic Product (GDP) increased
by 5.03% on year-on-year in the first quarter of 2022, following a 5.22% increase in the
previous quarter. It was the economy’s second straight quarter of growth, with output
rising in all sectors: manufacturing and construction (6.38% against 5.61% in Q4 2021),
services (4.58% vs 5.42%), and agriculture, forestry, and fisheries (2.45% vs 3.16%).
The government anticipates the economy to increase between 6.0% and 6.5% this year,
compared to 2.58% in 2021 (sources by General Statistics Office of Vietnam).

Manufacturing and construction are the most important economic sectors in Vietnam
with the total of 41% of total GDP. Nonetheless, over the last six years, the expansion
of services has surpassed all other sectors, and services now account for 37% of GDP.
Lastly, agriculture, forestry, and fisheries account for 22% of total output. Therefore,
entering the machinery and equipment industry in Vietnam offers bright opportunity for
international manufacturers as it is an expanding and developing country that has
limited resources on machineries and equipment.

Social
The construction equipment market in Vietnam has expanded in recent years, owing to
the country’s rising construction and infrastructure development initiatives. As of 2020,

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Vietnam had over 91,000 contractors, with around half of them specialized in residential
construction. However, due to lack of advanced construction equipment manufacturing
capabilities Vietnam had to rely almost entirely on foreign machinery.

Due to a lack of development in the local machinery and equipment manufacturing,

Vietnamese organizations are obliged to rely on imports. Asian countries such as China,
South Korea, Japan, and Taiwan have been major suppliers of machinery to Vietnam.
Due to their competitive prices and widespread consumer preference, these accounted
for over 70% of the foreign suppliers for machinery in the Vietnamese market. Other
prominent exporters include ASEAN countries like Thailand, Malaysia, and Indonesia, as
well as western countries like Germany, the United States, and Italy.

Moreover, agriculture has always been a significant economic sector in Vietnam,

accounting or 12.4% of the country’s GDP in 2021. However, roughly 30% of Vietnam’s
farms are still non-mechanized. In recent years, the sector has seen a shift from
dispersed small-scale farms to concentrated large-scale operations, with a greater
emphasis on mechanization and automation. The need for agricultural machinery is
predicted to expand rapidly in the next years, driven by population expansion,
urbanization, and higher productivity demands in the face of limited agricultural land.

Technology
Recognizing that high-tech manufacturing and services would be critical to Vietnam’s
future growth, the government has been working to ensure that the necessary digital
infrastructure is in place. Domestic machinery manufacturers have been unable to meet
market demand despite a promising market. According to the Vietnam Association of
Mechanical Industry, just 32% of demand is met by local businesses (VAMI). Due to
high demand and obsolete production technologies among domestic producers,
imported products supply the remaining 68% of market demand.

In the midst of the pandemic and the US-China trade war, Vietnam has recently
emerged as a prominent alternative manufacturing destination for companies looking to
diversify their supply chains. In 2020, Vietnam’s manufacturing industry will have around

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110,000 enterprises which is around 2.5 times the number in 2010. Manufacturing
industries’ net revenue increased from US$100 million in 2010 to almost US$450 million
in 2019. However, according to GSO’s survey on manufacturing and business
circumstances of Vietnamese firms in 2021, around 20% of industrial enterprises have
obsolete and underdeveloped production lines that have a substantial negative impact
on their company operations. Furthermore, under Decree No 18/2019/QD/TTg on
imports of used machinery, equipment, and technological lines, firms are prohibited
from importing used machinery that is more than 10 years old. New industrial machinery
is in high demand, notably in the food, pharmaceutical, plastics, and chemical industries,
as a result of a growing number of new enterprises entering the market. Major
machinery, particularly high-tech and complex machinery, continues to be imported.

Environmental
The fast growth and industrialization of Vietnam has had serious consequences for the
environment and natural resources. According to the World Bank, Vietnam has been the
world’s fastest rising per-capita greenhouse gas emitter since the beginning of its
market reform, growing at a rate of roughly 5% per year for the past 20 years. Water
demand continues to rise, while water productivity remains low, at around 12% of
worldwide benchmarks, according to a World Bank report on water. Unsustainable use
of natural resources including sand, fisheries, and timber could have severe impact on
long-term growth prospects. The fact that much of Vietnam’s population and economy
are very vulnerable to climate change aggravates the situation.

Regulation enforcement is a critical issue. Environmental issues, land-use planning,

integrated water management, and the implementation of the Environmental Protection
Law are all handled by the Ministry of Natural Resources and Environment. In November
2020, Vietnam passed new legislation to replace this law, which is set to take effect in
January 2022. For specific sorts of projects, both statutes require environmental impact
assessment reports. As a result of a succession of decrees imposing regulations on a
wide range of sectors, new businesses starting in Vietnam will need to be very attentive
about environmental requirements for their industry.

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5
Legal

With Decision no. 18/2019/QD-TTg on the Import of Used Machinery, Equipment, and
Technological Lines, Vietnam imposed new restrictions on the import of used machinery
(“Decision No. 18”). Businesses importing used machinery and equipment (“Used
Machines”) for use in Vietnam must show that the machines will be used (1) directly in
their Vietnam manufacturing, (2) are under 10 years old, and (3) meet specified
environmental, technical, and safety standards.

The scope of secondhand machinery imports into Vietnam has been narrowed by
Decision No. 18. The 10-year age restriction was previously waived for Used Machines
imported as part of an approved investment project. Decision No. 18 additionally limits
the acceptable uses of Used Machines in Vietnam to “manufacturing only” rather than
“manufacturing and trading”.

Business that have already been granted permission to import Used Machines under the
mentioned investment project exemption will continue to be exempt. Used items
imported into Vietnam are now classified as either used technological lines or used
machinery and equipment, according to Decision No. 18. Previously, used import
restrictions divided imports into two categories; used machinery and equipment, and
used parts.

The decision covers commodities imported under the HS codes Chapter 84-85, which
include machinery and mechanical appliances, electrical equipment, sound equipment,
and television equipment. All used imports must be utilized in Vietnam’s manufacturing
activities, according to Decision No. 18. Used imports must also have been
manufactured in accordance with Vietnam’s National Technical Regulations (QCVN) on
safety, energy conservation, and environmental protection.

For used machinery and equipment, age must not exceed ten years, importers that seek
to bring in used machinery or equipment that is older than ten years may request an
exception from the Ministry of Science and Technology (‘MOST”), and prior to import,
they must obtain a 6-month inspection certificate.

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Exemption from the application of Decision No. 18 for certain used machinery, including
the following items:
 Transited or transshipped
 Temporarily imported for re-export
 Imported to execute maintenance or repair contracts with foreign parties
 Traded among enterprises, or comprising liquidated assets, in an export-
processing zone or free trade zone
 Transferred in relation to processing contracts involving foreign parties
 Meant to serve research and development and cannot be domestically
manufactured

PORTER’S FIVE FORCES

Threat of New Entrants

Companies enter a market because they believe it offers a profitable opportunity. As a

result, when there are new competitors enter the market, the competitions heats up.
The intensity of the threat is determined by the barriers to entry into a particular
industry. The lower these entry barriers are, the less threat existing players face.

The barrier to enter the machinery and equipment industry is high. According to an
article by Vietnam Plus, experts say Vietnam’s machinery and equipment business has
seen strong growth in recent years and that trend is projected to continue, making the
country more appealing to foreign investors. The rapid industrial expansion according to
Vu Trong Tai, general manager of Reed Tradex Vietnam, the organizer of Metalex
Vietnam, is the reason for the high demand for machinery, equipment, and technology.
Tai also explained that the need for automotive machinery is changing, and
manufacturing standards are improving. This presents a challenge for local
manufacturers, who must stay up with the latest technologies and solutions to avoid
missing out on commercial opportunities. Moreover, with Vietnam’s fast increasing wood
sector, Steven Chen of Yorkers Trade and Marketing Service Co., Ltd, the organizer of
the annual Vietnam International Woodworking Industry Fair (VietnamWood), said that

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Vietnam will undoubtedly be a fantastic market for woodworking machinery and
equipment. The wood sector is also integrating technology and the internet of things
(IoT), which is assisting businesses in increasing efficiency, conserving resources, and
optimizing the value chain.

Next, the Tokyo SME Support Centre’s H. Hankirigawa, who is in charge of promoting
foreign trade, stated that an increase in manufacturing facilities in Vietnam was one
reason why Japanese SMEs wanted to increase supply of their machinery in the market.

Due to lack of development in local machinery and equipment manufacture, Vietnamese

businesses are obliged to rely on imports. As Vietnam’s demand for machinery keeps
growing, these broaden the opportunity for foreign investors to enter the market as the
demands keep increasing on imports.

Bargaining Power of Suppliers

The bargaining power of suppliers in Vietnam is low, this is because the machinery and
equipment industry in Vietnam is highly reliant on the suppliers. The largest suppliers of
machinery to Vietnam are Asian countries such as China, South Korea, Japan, and
Taiwan. Due to their cheap prices and widespread consumer demand, these accounted
for almost 70% of all foreign suppliers of machinery in the Vietnamese market.

Bargaining Power of Buyers

The bargaining power of buyers in Vietnam is high due to insufficient machinery and
equipment needed. Due to so, the number of customers are also high, as there a
shortage of labor, especially in the agricultural machinery and equipment industry.

Threat of Substitute Products

The threat of substitution in Vietnam machinery is low because there are low
substitutions from local manufacturers as well as from the neighboring competing
countries, as domestic manufacturers are not able to fulfill market demand. Vietnam

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machinery and equipment has huge demand for the machinery and equipment
especially in agricultural, industrial, and construction machinery where they still rely on
imports from other countries. In agricultural machinery, as of 20211, around 30% of
farms in Vietnam is still not mechanized. Furthermore, the major industry machineries
are still imported, and the industry market is mostly dominated by foreign brands.

Rivalry Among Existing Firms

In agricultural industry, only 30% to 40% of agricultural machinery is manufactured in

Vietnam, with the rest imported primarily from China and Japan. Therefore, the rivalry
among existing firms is relatively low, with on 1-5 players within the agricultural
machinery and equipment industry. The three biggest suppliers of combine harvesters
on the Vietnamese agricultural machinery market are Kubota, CNH, and VEAM. In order
to increase its local market share in agricultural machinery, Thaco has constructed a
new plant in Vietnam. VEAM is the country’s largest domestic tractor supplier. In
Vietnam Kubota is by far the biggest producer and supplier of rice transplanters.
Farmers in Vietnam are highly fond of local businesses like HAMCO and Viện cơ điện
nông nghiệp và Công nghệ sau thu hoạch (VIAEP), as these businesses rely more on
direct sales than on agents and other third parties for product distribution. Therefore,
collaborating with local businesses can be a good option to enter the market
successfully.

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2.1 Opportunities

Vietnam’s machinery and equipment industry has seen strong growth in recent years
and is projected to continue which makes the country to appear more appealing to
foreign investors. Machines such as air conditioners, computer parts, lifting and loading
machinery, and solar panels must all be imported from abroad as Vietnam accelerates
its infrastructure plans and wants to develop a new international airport and train
network. International manufacturers should consider Vietnam as their next target
market to enter and support the country’s business sector, hotel and tourism industry,
and public transportation services.

For international investors, Vietnam’s machinery and equipment market is relatively

accessible. For manufacturing investment, market access conditions are primarily in
terms of environmental protection. Furthermore, companies with 100% foreign
ownership are permitted to manufacture and trade machinery and equipment. Foreign
enterprises’ best market entry approach will differ depending on a number of criteria,
including their investment budget and the development of supporting industries in
Vietnam. However, for global machinery manufacturers, establishing a subsidiary in
Vietnam or partnering with a partner, whether through a distributor or an original
equipment manufacturer (OEM), are two of the most prevalent possibilities.

Foreign machinery considering to establish a trading and manufacturing in facility in

Vietnam to produce and distribute their products locally as well as export to other
markets should consider the significant investment required as well as the feasibility of
establishing a stable supply chain for the Vietnamese factory. Despite Vietnam’s rapidly
growing mechanical engineering sector, only a small percentage of manufacturers can
produce products that meet international quality standards. As for investors with
restricted budget or who are unable to find enough local suppliers for parts and
components, forming a trading company to import and distribute the parent firm’s
machinery is an attractive choice.

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2.2 Threats

According to an article by Haiquan Online, the industries have outdated production

technology. About 76% of the machinery, technological lines, and equipment brought
from outside are from the 1960-1970 generation; 75% of the equipment has been
depreciated; and 50% of the equipment is being refurbished.

As the demand for machinery and equipment in Vietnam is growing, the country has
become more appealing to foreign investors. Moreover, not only does the new entrants
in the industry have to compete with the existing foreign investors, but also the local
manufacturers. The local farmers also prefer local businesses, as these businesses rely
more on direct sales than on agents and other third parties for product distribution.

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3.0 POTENTIAL INDUSTRY AND PRODUCTS
Market potential is the assessment of a market’s sales revenue from all of its supply
channels. The population that is interested in the good or service that an organization
produces or made available is the market’s potential. In other words, it is a company’s
potential for producing money if it takes full advantage of every opportunity and
everything works out of it.

The machinery and equipment sector in Vietnam has experienced rapid growth, which
has boosted the GDP and related businesses. As Vietnam advances with its expanding
economy, it is a good opportunity for foreign investors to invest in, especially in the
agricultural machinery and equipment. During the forecast period, it is anticipated that
the Vietnamese Agricultural Machinery Market will expand at a CAGR of 11.5% in
between 2020-2025. Population expansion, urbanization, and increasing productivity
needs as a result of decreasing agricultural land are the main market-driving drivers.
This has resulted in an increase in the demand for agricultural machinery. The most
widely grown crops are rice, maize, and sugarcane, with rice being the most
mechanized. More than 70% of Vietnam’s agricultural land is mechanized. Because there
is a low production of agricultural machinery, it is common to see custom rental of
equipment in Vietnam.

People prefer industrial work over agriculture since agricultural production in Vietnam is
declining even though agricultural earnings are low and industrial laborer’s lifestyles are
poor. Due to this circumstance, Vietnam will experience a labor shortage in the
agricultural sector during the growing season. Since machines can do humans’ tasks, a
lack of seasonal farm labor is a primary impetus for the use of automation in agriculture.

The market for agricultural machinery in Vietnam is open to investment, and numerous
businesses are using a varieties of strategies to strengthen their position. The
agricultural machinery market competition is relatively low, with the market dominated
by 1 to 5 players in the industry, which makes it quite a good catch to enter the industry
as the demand for agricultural machinery still continue to rise.

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4.0 CONCLUSION
In conclusion, the agricultural machinery and equipment industry in Vietnam is a great
investment for foreign investors. The rivalry competition in this specific industry is pretty
low, with the market dominated only by 1-5 major players, whereas the industry
continues to demand for more machinery and equipment due to shortage of seasonal
agricultural labor, which becomes the driver for the implementation of machinery in the
agriculture industry as machines replace the work of laborers. Moreover, only 30% to
40% of the agricultural machinery used in Vietnam is produced domestically; the
remainder is imported, making the industry a hot target for foreign investors to open
their business. Some brands may find success in working together with OEMs. However,
the type of machinery is a key factor in this method. Local manufacturers have
demonstrated their great capabilities in terms of agricultural machinery lines, but they
are less competitive in terms of sophisticated industrial equipment and heavy
construction equipment. Therefore, connecting with local partners may be a good option
for foreign investors who wish to enter the agricultural machinery and equipment
industry, as Vietnamese companies frequently comprehend and better meet the needs
of local farms.

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 APPENDIX

Appendix A: Import value of major agricultural machinery (US$)

Appendix B: Major Players & Market Concentration
Appendix C: Employment in Agriculture, in percentage, Vietnam, 2014-2018
Appendix D: Market Summary
Appendix E: Revenue in USD million, Tractors, Vietnam, 2016-2025
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