Emerging country newcomer supply chain formation: the case of Vinfast

Résumé:

Viet Nam is only on the brink of motorisation in that consumers are transitioning from mobility based on 2-wheelers to 4-wheelers. Her current market is dominated by foreign carmakers from Japan and South Korea. Domestic vehicle assembly used to be protected by tariff barriers, but this benefit has ended with the implementation of the ASEAN Economic Community in 2018. While the Vietnamese government has introduced some non-tariff barriers (NTBs) to obstruct imports, these political measures seem to be largely unsuccessful. The local supplier industry is constituted by foreign firms that mainly utilise Viet Nam as an export platform for labour-intensive components and domestic firms that are typically small in size, lack financial muscle, operate dated production machinery, and mainly are specialised in 2-wheeler component production.

In this market environment, local conglomerate Vin Group attempts to launch a domestic carmaker, christened Vinfast. Ambitions are by no means modest: Vinfast aims to produce half a million vehicles per annum by 2025, equally shared between 2- and 4-wheelers. While Vinfast aims to produce electric vehicles (EVs) in the future, it will enter the market in 2019 with three conventional models based on discontinued platforms acquired from BMW and General Motors. Plans have only been announced in late 2017, so the timeframe to create a brand, vehicle design, and especially forming a supply chain is extremely short. Given that Vin Group has no background in any manufacturing industry, Vinfast extensively relies on leading global suppliers and development service providers to launch its product to the Vietnamese market.

This paper will analyse the case of Vinfast, concentrating on following elements: First, its case has frequently been compared to Proton, the ill-faded, Malaysian government carmaker. It will be argued that while both Proton and Vinfast rely extensively on foreign, basically purchased technology, this is the case for almost any start-up in the automotive industry. More importantly, Vinfast apparently will not enjoy any preferential, demand and competition distorting policy support from the Vietnamese government, so that this analogy is not particularly useful. Second, the process of supply chain creation will be described, highlighting that Vinfast relies heavily on foreign suppliers and development service providers to create its products. Third, the currently existing product strategy will be explored. Several aspects of Vinfast’s product strategy will be questioned, especially the choice of segments and brand positioning. Also, as the shift towards EVs is intended, the potential electrification of the used platforms will be addressed. Fourth, it will asked if the intended transition towards EVs is feasible given the current state of EV-related infrastructure in Viet Nam. Finally, the potential impact on the Vietnamese automotive industry as a whole will be gauged. Vinfast’s industrial complex will initially rival recently established plants of Hyundai and Mazda for the title of the largest automobile assembly plant in Viet Nam. Its intended size is large enough to form a sort of proto-cluster that may stimulate the development of domestic second-tier suppliers which will be needed to support those first-tier suppliers that Vinfast relies on for its entry into the automotive industry.