REPORT ON VIETNAM PLASTIC INDUSTRY - Consulting and Research Company for Technology Transfer and Investment

Consulting and Research Company for Technology Transfer and Investment REPORT ON VIETNAM PLASTIC INDUSTRY Hanoi, August 2013 TABLE OF CONTENTS LIST OF TABLES INTRODUCTION CURRENT SITUATION OF VIETNAM PLASTIC INDUSTRY 2.1 Arrangement and distribution of Vietnamese plastic enterprises 2.2 Output 2.3 Market and Export capacity .10 2.4 Material sources .12 2.5 Machinery and technology 15 2.5.1 Machinery 15 2.5.2 Technology .17 2.6 Labor 18 2.7 Development orientation and policy for plastic industry to 2020 20 2.7.1 Development orientation 20 2.7.2 Gross output targets of plastic industry 20 2.7.3 Value added targets of plastic industry .21 2.7.4 Production targets of plastic products 21 2.7.5 Plastic industry products proportions targets 21 2.7.6 Plastic industry products export targets 21 2.7.7 Development master plan to 2020 22 2.7.8 PP import tax 22 SURVEY ABOUT PLASTIC PROCESSING TECHNOLOGIES IN VIETNAM .24 3.1 Introduction .24 3.1.1 Survey objectives .24 3.1.2 Survey objects 24 3.1.3 Survey tools 24 3.1.4 Survey process 25 3.2 The survey’s main results 25 3.2.1 Type of ownership 26 3.2.2 Activity area .26 3.2.3 Type of business .27 3.2.4 Activity scope 27 3.2.5 Staff 28 3.2.6 Turnover 29 3.2.7 Export Capacity 30 3.2.8 Current situation of processing technologies 31 3.2.9 Plans for purchasing machine, equipment in next two years 34 CONCLUSION 35 LIST OF TABLES Table Distribution of companies by geographical area .7 Table Distribution of companies by product category .8 Table Plastic output and consumption index .9 Table Output of plastic products by main categories Table Export turnover during the period 2006 – 2012 10 Table Export turnover by region 2008-2012 (thousand USD) 11 Table Export turnover by country 2008-2012 (thousand USD) 12 Table Quantity and turnover of imported material in 2008-2012 13 Table Production capacities of some big domestic companies 13 Table 10 Plastic materials imported into Vietnam 14 Table 11 Plastic machinery market size 15 Table 12 Rubber and plastic machinery (HS 8477) World exports to Vietnam 16 Table 13 Imported machines for plastic manufacturing .18 Table 14 Labor of plastic industry 19 Table 15 Gross output targets of plastic industry .20 Table 16 Added value targets of plastic industry 21 Table 17 Production targets of plastic products 21 Table 18 Plastic industry products proportions targets (unit: %) .21 Table 19 Plastic industry products export targets .21 Table 20 Development master plan in 2011 -2015 period 22 Table 21 Development master plan in 2016 -2020 period 22 Table 22 PP import tax .22 Table 23 Distribution of surveyed enterprises by type of ownership 26 Table 24 Distribution of surveyed enterprises by region 26 Table 25 Surveyed companies by form of ownership 27 Table 26 Survey companies by type of plastic products manufactured 28 Table 27 Surveyed companies by employees categories and form of ownership 29 Table 28 Survey companies by turnover in the last three years (2010, 2011, 2012) 30 Table 29 The ratio of exported product on total year production .30 Table 30 Ratio of plastic technologies being used in surveyed companies 31 Table 31 Surveyed companies by machine exporters 31 Table 32 Surveyed companies by turnover category and new machines purchased 32 Table 33 Surveyed companies by form of ownership and new machines purchased 33 Table 34 Plans for purchasing machine, equipment in the next two years 34 INTRODUCTION The plastic industry commenced almost half a century ago in Vietnam; however, the production remained limited in compared to that of other countries in the region like Malaysia, Singapore, Thailand and China In the 1990’s the output was on average equal to 380,000 tons and consumption hovered around 3.8 kg/person With the economic reforms of the mid-90’s, plastic production boomed growing 20-25% each year while diversifying in quality and range One of main reasons attributed to the plastic industry growth is a still low starting point, an average consumption per capita lower than of the region and the world This is expressed by an average growth of over 20% in value and over 18.75% in production from 2006 until now Plastic industry size is accounting for 4.48% of local whole industry and playing a role of an essential supplementary industry that needs development in state economy plans Vietnam plastic industry is one of ten industries that are favored by the government for development priority due to its excellent and stable growth as above-mentioned, performing quite strong in exports activities and having good competitiveness over other regional countries Vietnam’s production output of plastics per capita kept on growing strongly, from 23.2 kg of plastic per person in 2005 to 42 kg per capita in 2012 At present, most of household plastics sold in supermarkets are local products and account for around 20% of the industry's total output Another product category that has achieved strong growth and made up the largest production ratio (around 40%) is plastic packaging, nearly all of which is also locally made Meanwhile, state owned enterprises typically produce also technical and construction items In basic sectors such as daily-use household plastic products, domestic enterprises, especially small and medium sized ones (SMEs), are the major producers Competition in the Vietnamese market is currently quite vigorous Many companies are in the hands of Chinese-Vietnamese who procure supplies from family contacts living around the world The Vietnamese government is encouraging their merger to cope with the increased competition after WTO entry Vietnamese plastic products have been sold in 151 countries all over the world such as Japan, USA, The Netherlands, Germany, Cambodia, UK, Indonesia, and Malaysia, and so on Last year, Vietnam’s plastic export revenue reached nearly USD billion, making an increase of 25% year on year In addition to those already mentioned, some shortcomings of and challenges for the Vietnamese plastics industry can be identified as follows The industry must import 80% of its materials and currently produces few high-technology products Because raw materials, chemicals and additives represent between 60-70% of the production cost, the reliance on imports leaves the industry with only a marginal added value The major plastic exporters to Vietnam are countries in the region, including Taiwan, Japan, China, South Korea and some Europe countries (Germany, Belguim, Italy and Austria) In 2006, the total imported of plastic materials was 1,747 thousand tons, worth nearly USD billion and rising to USD billion in 2012 Furthermore, the plastic industry is facing difficulty, especially firms using PP as raw material for the production Because plastics enterprises will bear import duty for plastic material Polypropylene (PP) from 2014, when the import tariff shall be increased from the current level of 0% to 1% in 2014, up to 2% in 2015 and 3% from 2016 onwards1 Other challenges include the high ratio of unskilled workers, at 70-80% of the workforce and of SMEs which account for 80% of the total and lack capital to improve production Circular No.107/2013/TT-BTC of August 12, 2013, amending preferential import tax rates applicable to some commodities of headings 2707, 2902 and 3902 in the preferential import tariff CURRENT SITUATION OF VIETNAM PLASTIC INDUSTRY 2.1 Arrangement and distribution of Vietnamese plastic enterprises The number of plastic corporations in Vietnam reduced sharply from 2,700 in 2006 to 1,400 in 2012 There are some main reasons led to this situation: - The development of the plastic industry led to strong investment in large enterprises Small businesses not have enough capacity so have to cooperate/merge together to be strong enough to compete with big business - Due to economic crisis during last time also led to the situation that small businesses face with difficulties in accessing capital for development investment - The cost of production (including factors: price of input materials - technology, production costs) rise is also another cause of the reducing of the number of plastic firms Due to the above reasons, in plastic industry there existed a conflict between a large numbers of companies with real capacity Among plastic firms, only 6% are state-owned, but they represent about 25% of the total capital invested in the industry State-owned companies tend to be larger, employing more workers and having greater total investments than their small or medium sized private competitors The rest are foreign invested enterprises, which account for about 15% total number of plastic firms but having 40% of overall investments As for private enterprise, some business having right investment for technology and the skills of the workforce have a noticeable development, but the number of these firms is very limited In fact, private firms account for over 70% total number of plastic firms but having only 35% of overall investments According to VPA report 2012 and Statistical Yearbook of Vietnam 2012, there are 1,400 firms operating in plastic industry Most enterprises are located in the South of Vietnam HCMC and the southern provinces contribute 83% to the total plastics production Hanoi and the northern provinces account for 13% and the central region covers the remaining 4% Table Distribution of companies by geographical area Region Companies Share The North of Vietnam 182 13% The Middle of Vietnam 56 4% The South of Vietnam 1,162 83% Total 1,400 100% Source: VPA, GSO In the present structure of the plastics industry, packaging firms account for the largest proportion (39%) and they also represent the largest export ratio (accounting for 66%) Consumer group accounted for 22%, this group narrowed most compared to 2007 period Construction group had strong growth in the years 2007 - 2008 due to huge demand for construction at that time; however, this segment is facing many difficulties due to the freezing of the real estate market in the past few years Technical plastics group accounted for 19% Product category Table Distribution of companies by product category Companies Share 2007 2012 2007 2012 Packaging 528 546 38% 39% Consumer 448 308 32% 22% Construction 147 280 10% 20% Technical 277 266 20% 19% 1400 1400 100% 100% Total *Note: Packaging products include soft, stiff products such as shopping bags, cosmetic pots Consumer products include chairs, tables, other furniture Construction products include water pipes, water tanks, decoration, sheet, roof shelter Technical products include high quality produces such as pressure pipes, cover of TV Source: VPA report 2.2 Output During period 2008-2012, Vietnamese plastic industry has grown at an average rate of 20% a year The output raised from 1,880 million tons in 2007 to 4,500 million tons in 2012, consumption has grown steadily over the years, from 23,2 kilograms per person in 2006 to 42 kilograms per person in 2012 Table Plastic output and consumption index Year 2007 2008 2009 2010 2011 2012 (*) Output (thousand tons) 1,880 2,294 3,200 3,800 4,120 4,500 Output growth rate (%) - 22 39 18 24.6 27.8 31.4 35.6 40.2 42 Consumption index (kg/person/year) Note: * Estimated Source: Ministry of Industry and Trade In recent years, the output of Vietnam plastic industry has continued to grow, although at a slower pace, given the difficulties brought about by rising prices of petrol and materials Table Output of plastic products by main categories Year 2007 2008 2009 Volume (tons) 2010 Kind of products Volume (tons) Rate (%) Volume (tons) Rate (%) Rate (%) Volume (tons) Packaging 714,400 38% 917,600 40% Consumer 488,800 26% 619,380 27% 896,000 28% 1,140,000 Construction 413,600 22% 481,740 21% 576,000 18% 646,000 1,328,000 41,5% 1,482,000 2011 Rate (%) Volume (tons) 2012 (*) Rate (%) Volume (tons) Rate (%) 39% 1,627,400 39,5% 1,800,000 40% 30,% 1,277,200 31% 17% 618,000 15% 1,440,000 32% 652,500 14.5% Technical 150,400 8% 160,580 7% 272,000 8,5% 342,000 9% 370,800 9% 382,500 8.5% Others 112,800 6% 114,700 5% 128,000 4% 190,000 5% 226,600 5,5% 225,000 5% Total 1,880,000 100% 2,294,000 100% 3,200,000 100% 3,800,000 100% 4.120,000 100% 4,500,000 100% Note: * Estimated Source: Ministry of Industry and Trade and GSO Of the total plastic output in 2012, plastic packaging accounts for 40% while plastic consumer, construction materials, and technical account for 32%, 15% and 9% respectively 2.3 Market and Export capacity Vietnam plastic exports has enjoyed a noticable growth since 2007 2010 was a milestone of Vietnam plastic exports with the turnover of over USD 1.2 billion for the first time Since then, export revenue kept on strongly growing to nearly USD billion in 2012 This is considerable growth by Vietnam plastic industry, showing a strong recovery of plastic industry after the 2008 financial crisis, a positive sign of development for Vietnam plastic industry Table Export turnover during the period 2006 – 2012 Year 2006 2007 2008 2009 2010 2011 2012 Export turnover (million USD) 478 750 922 968 1,268 1,599 1,995 - 56% 23% 4.90% 31% 26% 25% The growth rate (%) Source: Ministry of Industry and Trade, Vietnam Custom 10 Northern provinces 24 12.0% Central provinces 1.5% 200 100% Total Source: CONCETTI Plastic Companies survey in 2013 3.2.3 Type of business The survey data also revealed that 73 percent in the sample firms are limited liability companies Joint stock companies have occupied the portion of 25 percent, while private companies only achieved a ratio of percent Table 25 Surveyed companies by form of ownership Type of business Number of companies Ratio % Limited liability 146 73% Joint stock 50 25% 2% 200 100% Private Total Source: CONCETTI Plastic Companies survey in 2013 3.2.4 Activity scope More than 47 percent of the survey respondents are engaged in the plastic packaging sub-sector, key product of Vietnamese plastic industry (nearly 40 percent of total plastic firms in Vietnam 27 operate in this packaging) More than 23 percent are involved in consumer/household plastic, while 16.5 percent of 200 firms operate in industrial plastic, and 12.5 percent in pipe Table 26 Survey companies by type of plastic products manufactured Types of plastic products Number of companies Ratio % Packaging 95 47.5% Consumer 47 23.5% Industrial 33 16.5% Pipe 25 12.5% Total 200 100.0% Source: CONCETTI Plastic Companies survey in 2013 3.2.5 Staff The surveyed plastic enterprises are concentrated in the labor force categories of medium (from 200-300 staff) and small (under 200 staff) sizes3 The survey data also revealed that nearly half of responding enterprises can be considered small enterprises with less than 200 employees (43.5%) 24 percent of firms can be considered medium enterprises with 200 to 300 employees 32.5% firms are large firm more than 300 employees Meanwhile, the labor rate of the 37 foreign direct investment (FDI) enterprises belong mostly to the groups of 200-300 staff, 300-500 staff, and 500-1,000 staff equivalent with the ratio of 35.1%, 16.2% and 18.9% The same to FDI, the state owned enterprises (SOEs) enterprises are concentrated in the group “200-300 staff” with 35.1% Firms with 500 to 1000 employees counted 24% Firms with 300 to 500 employees and over 1,000 employees equally distributed with 19 percent of the sample Private companies are slightly more concentrated medium labor force scale category (under 200 employees) which accounts for 53.5% of the total of 142 private companies surveyed enterprises Surprisingly, 3.5% of private companies have over 1,000 staff Decree No 56/2009/ND-CP of June 30, 2009, on assistance to the development of small and medium-sized enterprises 28 Table 27 Surveyed companies by employees categories and form of ownership Number of employees Type of company Under 100 staffs 100 -200 staffs 200-300 staffs 300-500 Staffs 500-1000 staffs over 1000 staffs Total Private company 25.4% 28.2% 19.7% 12.0% 11.3% 3.5% 100.0% FDI 10.8% 16.2% 35.1% 16.2% 18.9% 2.7% 100.0% SOE 0.0% 4.8% 33.3% 19.0% 23.8% 19.0% 100.0% Source: CONCETTI Plastic Companies survey in 2013 3.2.6 Turnover Table 27 shows turnover in the last three years (2010-2012) of a firm in the survey An average firm has around 36 million USD of turnover for the period 2010-2012 As mentioned in the first part of this report, only 6% of plastic firms in Vietnam are stateowned, but they represent about 25% of the total capital invested in the industry Nearly 95% of surveyed SOEs have three years turn over more than million USD, and 30% have three years turn over more than 100 million USD More than half of surveyed FDI firms have three years turn over from 1-30 million USD, 43% of them have three years turn over from 30 to 100 million USD More than 70% private companies have three years turn over from to 30 million USD Surprisingly, 6.3% of surveyed private companies SOEs have three years turn over more than 100 million USD Table 28 Survey companies by turnover in the last three years (2010, 2011, 2012) 29 Turnover in the last three years Type of company Under 100 100-500 500-1000 1-30 30-50 thousand thousand thousand million million USD USD USD USD USD 50-100 million USD over 100 million USD Total Private company 101 12 12 142 FDI 0 19 37 SOE 0 10 21 Total 130 20 24 16 200 Source: CONCETTI Plastic Companies survey in 2013 3.2.7 Export Capacity Not very different to the survey in 2007, 46% sell their products only in the domestic market, 38% enterprises export under 50% of their annual quantity of products, 12% enterprises export more than 50% of their annual quantity of products and only 4% of enterprises have exported all their products Table 29 The ratio of exported product on total year production Export Share on total year production Number of companies Ratio % 100% domestic 50% 100% export Total 92 76 24 200 46.0% 38.0% 12.0% 4.0% 100.0% Source: CONCETTI Plastic Companies survey in 2013 30 3.2.8 Current situation of processing technologies More than half of 200 surveyed plastic firms used multi-technologies (56.5%) They applied injection molding, blow molding, extrusion at the same time 23% of surveyed firms used only extrusion technology This figure is 15% with injection molding and 5.5% with blow molding Table 30 Ratio of plastic technologies being used in surveyed companies Technologies Number of companies Ratio % Blow Molding Extrusion Injection molding Other (use both Injection molding and/or Blow Molding and/or Extrusion…) Total 11 46 30 113 5.5% 23.0% 15.0% 56.5% 200 100.0% Source: CONCETTI Plastic Companies survey in 2013 Currently, most of companies used machines from various countries The main foreign suppliers of the plastic processing machinery to the surveyed firms are from the regional countries such as Taiwan (160/200 companies are using machines from Taiwan), China (106/200), Japan (65/200) There are 20 companies among 200 surveyed companies used machines from Italy and 9/200 companies used machines from Vietnam Table 31 Surveyed companies by machine exporters Countries Number of companies Taiwan 160 China 106 Japan 65 South Korea 43 Italia 20 Germany 20 31 Vietnam Others (America , Austria, Australia, Canada, Denmark, France, Hongkong, India, Malaysia, Swiss, Thailand) 36 Source: CONCETTI Plastic Companies survey in 2013 There is a relationship between the company turnover with the percentage of new machines purchased Nearly 70% of firms have over 100 million USD of three years turnover have 100% new machines This figure decreased gradually with each group: 63% of the group having “50-100 million USD of turn over”, 50% - “30-50 million USD”, 32%- “1-30 million USD” Only group having turnover “under million USD” have 100% second-hand machines with 10% of surveyed companies Table 32 Surveyed companies by turnover category and new machines purchased Turnover in the last three years Under million USD 1-30 million USD 30-50 million USD 50-100 million USD Over 100 million USD Total New machines purchases 100% new machines > 50% new machines 50% new machines Total