Chinese Enterprises Going Glocal in Vietnam

(AsianFin)—IWORKU, a Chinese tech company with presence in Vietnam for 17 years, epitomizes an overseas journey of a Chinese firm to go from exploration to localization and innovation. Vietnam, with its export-oriented economy in Southeast Asia, attracts around 4-5% of annual foreign direct investment.

Vietnam, as China's largest trading partner and second-largest export destination in the Association of Southeastern Asia (ASEAN), has played a key role in Chinese enterprises' global expansion. The bilateral trade between China and Vietnam in 2023 approached $171.2 billion, constituting over 25% of Vietnam's total trade, while Vietnamese exports to China experienced a 6.4% year-on-year increase to $61.2 billion.

Midea Group, a Chinese tech giant that transitioned from a traditional manufacturer to a technology company, strategically positioned itself in the Pingyang Industrial Park of Ho Chi Minh City of Vietnam — a national hub for industrial investments from China, Singapore, Japan, and South Korea.

Midea's foray into Vietnam dates back to 1997 when the company held its first product exhibition in Vietnam to promote the Midea brand. By 2005, Midea had acquired land in the southeastern country for factory construction, seeking localized development. The construction of the wholly-owned factory was completed in 2006, and Midea Vietnam officially came online in 2007, marking the first step of Midea's overseas manufacturing ventures.

Wang Jianguo, Vice President of Midea Group, said the primary reason for establishing the factory in Vietnam— low costs of local labor. In 2007, the monthly wage for an ordinary worker in Vietnam was only about $100.

Despite challenges during the 2008 global financial crisis, Midea's Vietnam factory has become a critical component of the company's overseas operations. By the end of 2023, the factory employed around 2,000 people, with only 42 from China and the rest from the local workforce. The factory produced various categories of products, supplying 80% to the North American market and 20% to other major markets.

In 2023 alone, the factory produced 10 million vacuum cleaners, 2.5 million rice cookers, 2 million fans, 1.2 million induction cookers, 700,000 BBQ units, and 300,000 small ovens. The factory achieved an annual revenue of approximately 1.15 billion yuan, representing a remarkable 35.3% increase from 2022.

Despite its full production capacity and impressive performance, Gao Sheng, General Manager of Midea Vietnam, acknowledged the changing global environment over the past two years. Factors such as Japanese and South Korean companies’ earlier entry into Vietnam, escalating China-U.S. trade tensions, and industry compliance issues from the Indian government have impacted Chinese enterprises, including Midea, in terms of investing in overseas markets.

Zhang Yu, the founder of an international logistics company, told TMTPost that the mounting challenges Chinese tech companies face in the current geopolitical landscape. Despite these challenges, he highlighted that globalization is an inevitable path for Chinese companies. Neglecting international expansion might lead to missed opportunities, as the global market offers greater potential than the domestic one. Additionally, continual technological innovation is crucial for successful overseas strategies.

Gao disagreed with the prevailing view that Vietnam's low-cost workers can produce only cheap products. He emphasized that previous assumptions about Vietnam's efficiency being only 50-70% of China's were outdated. With local consumption upgrading, Vietnam has also improved its management and production planning. The country now demands high-quality product services, an advantageous manufacturing value chain, and deeper integration of digital systems into the Vietnam factory.

In 2024, Midea's Vietnam factory plans to expand production to 10 categories, introducing new products like air fryers and microwaves. The factory will invest significantly in implementing Midea Group's Digital 3.0 strategy, enhancing the digital level of overseas factories by digitizing and automating production lines. This includes the application of injection molding robots, automatic spraying, and automated logistics, aiming for comprehensive digital management across planning, procurement, supply, quality, and manufacturing. Gao envisions the Vietnam factory becoming the largest and most core base for Midea Group overseas, surpassing the overall scale of production capacity and revenue profits of Chinese factories.

Beyond its traditional advantage in home appliances, Midea actively expands its “To Business” business segment in the Vietnamese market.

For instance, JASolar's Vietnam base, a high-efficiency 3.5GW solar cell project with a total investment of 14.7 billion yuan, produced its first batch of solar cells. This advancement improves JASolar's global supply chain efficiency, enhances security, and meets the demand for high-quality photovoltaic products in overseas markets like North America. The base employs Midea Building Technology's ultra-efficient machines, realizing a green factory vision with energy savings and environmental protection, reducing initial investment, and meeting the demand for heat recovery.

Fang Hongbo, Chairman and President of Midea Group, announced at the 2024 Midea Group Annual Meeting that the company will firmly implement its Original Brand Manufacturer (OBM) priority strategy in overseas markets. This involves optimal resource allocation, strengthening the localization layout of the entire value chain, improving infrastructure, and enhancing capabilities. Midea aims to make Southeast Asia, including Vietnam, an integral part of its expansion.

In the eyes of many entrepreneurs, the Vietnamese market may become the next "China" or "India." Gao is also one of them, but he is aware that there is a bumpy road ahead.