The Vietnam Association of Mechanical Engineering (VAMI) has said that Vietnam’s mechanical engineering sector is now a powerhouse, with some 3,100 companies and 53,000 production facilities, or nearly 30 per cent of the country’s total manufacturing and processing enterprises.

Mechanical engineering boasts significant strength in three key areas: motorcycles and parts, household appliances and tools, and automobiles and auto parts. With over VND1,700 trillion ($68 billion) in annual revenue, it not only supports economic growth but also provides jobs for over 1.2 million people.

Domestic production has made impressive strides forward, with metal components now meeting 85-90 per cent of demand in motorcycle production, 15-40 per cent in automobile parts, 20 per cent in synchronized equipment, and 40-60 per cent in agricultural machinery and construction equipment. The sector also supplies about 10 per cent of the metal parts required by high-tech industries.

While Vietnam’s mechanical engineering sector is already well-established, experts and businesses agree there is still plenty of space for further growth and market share expansion. However, to fully realize its potential, they emphasize the need for government and industry policies that support market creation, foster industry collaboration, and drive technological innovation.

Challenges mount, slowing down competitiveness

Experts forecast that, by 2030, Vietnam’s mechanical engineering market will be worth around $310 billion, with the automobile sector alone contributing $120 billion. However, Vietnam currently meets only one-third of demand. The potential to tap into the global market is enormous, and if the country can stabilize prices and create a strong market environment, Vietnam’s mechanical engineering sector has the opportunity to thrive.

Despite the significant potential, companies in the sector are struggling to diversify and expand their markets. Key challenges include fierce competition from foreign players, a lack of sufficient competitive strength, an absence of strong brands, and limited recognition from potential customers.

Dr. Phan Dang Phong, Director of the National Research Institute of Mechanical Engineering (NARIME), candidly noted that while successes exist in certain niches, Vietnam’s ability to meet domestic demand and expand exports remains limited. This is especially true in fields such as complete equipment for thermal power, hydropower, renewable energy, cement production, and raw materials. “We are only meeting less than 30 per cent of the demand for equipment, and we still lack leading firms with the technology, experience, and capacity to manage turnkey projects,” Dr. Phong said.

Mr. Nguyen Duc Cuong, Vice President of the Hanoi Supporting Industries Association, believes the biggest challenge facing mechanical companies today is the heavy investment required for land, facilities, infrastructure, machinery, and equipment. Additionally, building a process system and securing orders to test those systems can take two or three years or even up to five years. Most companies still rely on bank loans or financial institutions for funding, and it can take five to seven years to recover their investments. With an interest rate of 5 per cent annually, the value of investments can increase by 50 per cent over the course of a decade.

Another significant hurdle is the industry’s dependency on imported raw materials. For instance, high-grade steel like C45 is mostly imported from markets like China, Taiwan (China), India, and Thailand. This means that Vietnam has limited control over pricing when global fluctuations occur. Moreover, the sector faces challenges in adopting advanced technologies and improving product quality. “This is a major difficulty for Vietnamese businesses, especially small and medium-sized enterprises,” Mr. Cuong said.

In addition, a large proportion of mechanical products in Vietnam is focused on OEM (Original Equipment Manufacturer) work for foreign-invested companies. This reliance on outsourcing limits the need for in-house research and development (R&D) teams. As a result, innovation, product development, and the pursuit of new opportunities are constrained.

From a policy standpoint, Mr. Cuong pointed out that while many initiatives exist, they often remain theoretical. A few companies have benefited from these policies, but complex legal procedures and regulations create significant obstacles that need to be addressed to allow for smoother operations.

Dr. Phong echoed this sentiment, explaining that while financial, investment, and tax incentives are well-structured and beneficial, they face numerous practical challenges, including delays and implementation issues. Some policies are too restrictive and not always aligned with the needs of businesses, making it difficult for companies to access the support they require.

Breaking through barriers

To overcome the existing obstacles, Dr. Phong advocates a thorough evaluation of Vietnam’s mechanical engineering development policies in recent years, followed by adjustments to align with evolving market needs. This is especially crucial given the recent approval of the revised Law on Electricity by the National Assembly, which introduces a range of mechanisms to foster the growth of domestic electrical mechanical equipment. “What mechanical companies need most today is for the government to create robust markets, particularly in high-demand sectors like urban and metro railways, gas power plants, offshore wind projects, and raw material manufacturing,” he explained. “With the right policies in place, the mechanical sector could seize tremendous growth opportunities moving forward.”

Take, for instance, the National Power Development Plan VIII (PDP8). By 2045, Vietnam is set to invest in 32,000 MW of gas power plants and 23,000 MW of wind power plants, both offshore and onshore. The average cost of equipment for a gas plant is about $950,000 per MW, and for a wind plant is $1.4 million. This translates into a potential market of over $60 billion. Localizing just 40 per cent of the value, ranging from auxiliary equipment to steel structures and handrails, could result in a mechanical market opportunity of $24 billion. This is a significant market that Vietnam can tap into with the right support.

Internally, Dr. Phong stresses the importance of investing in human resources, equipment, and technology. Developing proprietary technologies will allow businesses to remain proactive when changes in product specifications occur. Additionally, modernizing production lines will reduce costs, improve product quality, and ensure that mechanical companies can remain competitive in the global supply chain.

Mr. Cuong also highlighted the need for targeted support mechanisms to diversify market access for mechanical products. Current policies should be refined through collaboration with industry associations to assess the specific needs of different businesses. “Each company has its own set of challenges; some need capital, others need training, and some require both,” he noted. “A one-size-fits-all approach will not work.” Furthermore, trade and investment promotion need to be more aggressive. Regular, high-profile exhibitions, both in Vietnam and internationally, should be scheduled and widely publicized to ensure all businesses are informed and engaged.

On the human resources front, there is a gap between the skills taught in education institutions and the expectations of businesses. Many companies report that graduates aren’t yet job-ready, underscoring the need for stronger collaboration between institutions, government ministries, and the private sector.

Finally, Mr. Cuong pointed out the limitations in financial support for businesses. Despite preferential loans being available, disbursement remains slow and cumbersome. “For these loans to be effective, they must go to leading companies with strong financial management and production capabilities,” he said. These companies could then provide valuable support to smaller businesses, forming a well-connected supply chain that drives greater efficiency across the sector.