Low import tariffs drive electronics manufacturers to a standstill

The import tariff decreases have prompted foreign electronics manufacturers in Vietnam to narrow their production and shift to become distributors. Meanwhile, domestic electronics manufacturers have been pushed against the wall.

Foreign products invading domestic market

According to Director of the Thien Hoa home appliance distribution chain Bui Tan Cuong, domestically made electronics once made up 70-80 percent of the total sales of the chain. However, the proportion has been halved. Meanwhile, the sales of import TVs have increased from 30 percent to 60 percent.

Similarly, foreign made air conditioners and washing machines account for more than 50 percent of the market share. Especially, household articles account for 80 percent; and digital equipments 100 percent.

Distributors all say that the lower import tariffs are the main reason which has led to the sharp increases of electronics imports. Vietnam has been cutting the import tariffs in accordance with the tax cut roadmap within the framework of the ASEAN Free Trade Agreement FTA.

The import tariffs have dropped to five percent on average, and they are expected to decrease further in the coming years. Vietnam plans to cut the import tariffs by 1-6 percent on 1000 electronic products.

Therefore, instead of investing money to set up production factories in Vietnam, foreign invested enterprises have shifted to import products and provide to domestic retailers.

Following Sony, which shut down its production in 2008, other foreign invested enterprises have also shifted to import and distribute instead of manufacturing and assembling. A representative from Toshiba Vietnam said the company stopped assembling LCD screens in 2010 and it has begun importing the products. Meanwhile, JVC Vietnam has also halted its production.

Meanwhile, the recent dollar price decreases have prompted enterprises to import electronics in big quantities.

The electronics imports with high quality and reasonable prices have pushed Vietnamese electronics manufacturers against the wall.

A manager of an enterprise revealed that the sales of the company in the first six months of the year is just equal to 56 percent of that of the same period of the last year. “We would fail to fulfill the business plan in 2011,” he said.

Stopping production, selling assets

Since the production scale of foreign electronics groups is much bigger than that of Vietnamese enterprises, it is understandable why the production costs of foreign products are always lower by 5-7 percent than domestic products. Unable to compete with foreign products, domestic manufacturers have to narrow production and focus on making the products which are not the direct rivals of imports.

A senior executive of Vietronics, Tan Binh VTB said that the company now focuses on developing two main products, including karaoke player and refrigerator assembling. VTB develops karaoke player with the software developed by the company itself. This is the product which can bring big profits to the company.

As for refrigerators, Vietnam assembled products remain competitive, because the products are cumbersome which always take high transportation expenses, thus making the sale prices 5-7 percent more expensive than domestic products.

The executive said that a lot of domestic electronics manufacturers have to halt production; sell parts of assets to get money to deposit at banks. Some companies have been earning their living by leasing workshop premises to foreigners. Especially, some manufacturers now have to make low cost products to sell in remote and rural areas.

Nguyen Huu Thinh, former director of Viettronimex, also said that domestic enterprises are getting exhausted. In HCM City, the enterprises, which have premises in the inner city, have turned the premises into real estate projects which can bring money to them.

According to the General Department of Customs (GDC), by mid May 2011, the total import turnover of electronics, informatics and home appliances had reached two billion dollars. In the first four months of the year, the import turnover of the products was 1.76 billion dollars.-Tien phong

Tags: Vietnam electronics market