Vietnam is used to being an order taker. Companies such as Nokia and Samsung Electronics use the Southeast Asian country’s cheap labor to assemble consumer electronics for export. Those investments from abroad have slowly handed Vietnam the supplies, parts and know-how needed for local companies to make their own smartphones.
In a bellwether case, a unit of the Vingroup property and retail conglomerate began selling phones in December with plans to join a Spanish technology firm in escalating production over the next two years, according to domestic media reports.
Vingroup should expect a stronger than ever onshore supply chain plus abundant labor, analysts in Vietnam say, but must appeal better than its predecessors, mostly written off as failures, to the domestic market where shoppers tend to prefer foreign brands.
“I would say that there’s more and more bits and pieces that are being produced in Vietnam as the Taiwanese and Koreans and everybody else moves their parts supply here,” said Frederick Burke, partner with the law firm Baker McKenzie in Ho Chi Minh City.
Brisk sales of a locally made phone would push Vietnam’s low-wage, contract-reliant economy up the value chain.
Qphones out, Bphones in
Vietnamese developers have launched a handful of mobile phones over the past decade under brands such as Qphone and Mobiistar. A lot have faded or folded because of poor marketing or lack of knowledge about what consumers want, said Thanh Vo, senior analyst with the market research firm IDC Indochina in Ho Chi Minh City.
In 2015, handset builder and software firm BKAV Corp. came out with what consumers and analysts describe as Vietnam’s first qualified success.
BKAV’s first devices, the Bphone and Bphone 2, got poor reviews, domestic news website VietNamNet Bridge said in a report in October. But its $314 Bphone 3 released last year won praise among experts for its processing speed and water resistance “contrary to all predictions,” the report said.
Vinsmart signed an agreement in July with BQ of Spain to launch four smartphones under the Vsmart brand in December, the Vietnam Investment Review reported. Vingroup, which is run by Vietnam’s richest person Pham Nhat Vuong, plans to make up to 5 million handsets a year by 2021, the Financial Times reported.
Vingroup did not answer a request for comment for this report.
Nation of factories
Foreign investment in Vietnamese manufacturing is fueling economic growth of 6% to 7% every year. The GDP rose nearly 7.1% in 2018, the highest in 11 years. Among the engines, Samsung, LG Electronics, Nokia and Intel are all making “multibillion-dollar investments” in Vietnam, business consultancy Dezan Shira & Associates says. Exports of electronics had exceeded $40 billion by 2017.
Five years ago, just 2% of the value added to made-in-Vietnam electronics was local, Burke said. That percentage, he said, is higher now. The Vsmart phones will probably still use parts from offshore, he said, but find a solid local supply chain as well.
The Bphone 3s run on Qualcomm Snapdragon processors and use Gorilla Glass covers by Corning. Both suppliers are American.
Labor for domestic phones will be intensely local, Vo said.
“From my experience, Vingroup will pay the high salaries to recruit the human resources from other competitors,” he said.
Hesitant consumers
Economic growth will help expand the middle class to about one-third of Vietnam’s 96 million people by next year, the Boston Consulting Group estimates. Some of that new wealth in the country where just about everyone, including fishermen and garbage collectors, carries a smartphone has gone toward high-end phones by Apple and Samsung.
“I am not interested in Vietnamese phones, since the Bphone was unveiled a few years ago, and the quality is not good,” said Phuong Hong, a 10-year iPhone user in Ho Chi Minh City.
But consumers who normally buy relatively cheap handsets made by Chinese firms such as Oppo and Huawei might consider a local brand in the same price range, Burke said.
Because consumers normally pick smartphones for their design and price rather than country of origin, Vietnamese vendors must step up their marketing and figure out before production what domestic shoppers want, Vo said. Vietnamese are looking for phones as cheap as $200, he added.
“We’ve seen many people try and many people fail, so one has to take a view on whether Vietnamese really want to buy a Vinsmart phone rather than a Samsung phone or an Apple phone, for example,” said Kevin Snowball, chief executive officer with PXP Vietnam Asset Management in Ho Chi Minh City.