JEAN-FRANÇOIS TREMBLAY/C&EN
BUSINESS
ON THE MOVE
The busy traffic in
Ho Chi Minh City
reflects Vietnam’s
fast-growing
economy.
A CHEMICAL INDUSTRY
EMERGES IN VIETNAM
Economy’s potential and Japanese funding
STIMULATE EXPANSION in the country
JEAN-FRANÇOIS TREMBLAY, C&EN HONG KONG
THE STREETS OF VIETNAM’S Hanoi and
Ho Chi Minh City are crowded with mo-
torcycles. Numerous private cars—many
of them luxury models—also prowl the cit-
ies, where it’s become easier to get around
thanks to newly enlarged roads and recently
built bridges and highways. Grade A office
buildings and luxury apartment towers rise
toward the sky. Major hotels are adding
floor space to handle the influx of tourists,
businesspeople, and conference attendees.
Vietnam is prospering, and along with
that prosperity a chemical industry is fit-
fully emerging. Considering its population
of 90 million and the steady growth of its
manufacturing sector, Vietnam has a curi-
ously tiny chemical sector. But things are
changing. Slowly but surely, international
players, led by Japanese firms, are setting
up in the country. New chemical plants that
are already operating or being built will
help the country keep growing by providing
materials its manufacturing sector needs.
“Companies that invest in this country will have
preferential access to a large and growing market.”
“Now is the best time to be in Vietnam,”
says Jack Ye, managing director of Hang-
zhou Viwa, a Chinese company that trades
active pharmaceutical ingredients (APIs)
and finished-drug formulations. Viwa has
an office in Ho Chi Minh City where it em-
ploys seven people. “The business environ-
ment in Vietnam is similar to that in China
10 years ago,” Ye says.
Few would debate that it’s the best time
for the country’s economy, at least since the
Vietnam War, which ended in 1975. Manu-
facturers in labor-intensive industries are
lining up to build plants in Vietnam, where
factory workers earn roughly $350 per
month, about one-third as much as their
Chinese counterparts. Japan has become
particularly active in the Southeast Asian
nation, not only because of lower costs but
also as a reaction to an anti-Japanese senti-
ment rising in China. Japanese develop-
ment aid helps explain the new roads and
improved infrastructure in Vietnam.
CEN.ACS.ORG 18 MAY 1 8, 2015
“Vietnam is going through the same pro-
cess that we’ve seen before in China,” says
Paul Harnick, chief operating officer for
chemicals and performance technologies
at KPMG, an auditing and tax consulting
firm. “As manufacturing and investment
grow, a middle class emerges that breeds an
attractive consumer market.” The chemi-
cal industry, he says, is along for the ride.
In the past 18 months, Vietnam has
begun to win the attention of senior man-
agers at major chemical companies, ac-
cording to Harnick. Their Asian strategy, he
says, used to be China first, India second,
and no time to think about anywhere else.
But the economy has been slowing in
China, and India remains a tough place
to do business, making Vietnam and the
rest of Southeast Asia look attractive by
comparison. And it helps that in Septem-
ber 2013 Vietnam’s government adopted
a master plan for development of the
country’s chemical industry. It’s a plan that
encourages foreign firms to invest.
THE PRIORITIES OF the Vietnamese
government are food production, health,
and industrial development, in that order,
says Nguyen Thi Ha, director of conven-
tion and international cooperation at the
Vietnam Chemicals Agency, also known
as Vinachemia. So the chemical industry
sectors likely to enjoy the most stead-
fast government support are fertilizers,
pharmaceuticals, and basic chemicals and
petrochemicals, she tells C&EN.
At the moment, fertilizers don’t require
a lot of support because Vietnam has al-
most achieved self-sufficiency on its own,
Nguyen says. But it’s a different story for
other chemicals. Vietnam imports more
than 90% of the APIs and excipients local
companies need to produce formulated
drugs, she says. And the country is almost
entirely dependent on imports for basic in-
organic chemicals such as chlorine, sulfuric
acid, and hydrochloric acid.
Vietnamese authorities put a high prior-
ity on developing an API industry because
it’s unsafe to be at the mercy of foreign
drug suppliers, Nguyen says. On a case-by-
case basis, Vietnam will provide incentives
to companies that invest in plants that
produce basic antibiotics, drugs for heart
disease, and HIV treatments, she notes.
 “And through our national health insur-
ance scheme, we will give priority to drugs
that are made in Vietnam,” Nguyen says.
“So companies that invest in this country
will have preferential access to a large and
growing market.”
The Vietnamese pharmaceutical mar-
ket is indeed an attractive one, reports
Trang Van Tot, chief executive officer of
Glomed Pharmaceutical, a manufacturer of
finished-drug formulations that operates
two plants in an industrial park outside
Ho Chi Minh City. Trang, who got his start
as an importer and distributor of drugs,
set up Glomed in 2007. The firm recorded
$19 million in sales last year and employs
850 people. It launches 10 to 20 new prod-
ucts annually, according to Trang.
“Many foreign drug companies are
attracted to the Vietnam market now,”
he says. “They typically want us to make
their products under license or distribute
their products, or they want to invest in
Glomed.” Trang says he’s turned down sev-
eral offers by foreign buyers that wanted a
majority stake in his company.
Patients in Vietnam prefer to buy
generic drugs that are domestically pro-
duced, Trang observes. They don’t have as
much faith in pills from China or India, and
JEAN-FRANÇOIS TREMBLAY/C&EN
BOSS Glomed CEO Trang at a company warehouse.
branded drugs from major international
companies are too expensive for most of
them, he says.
Although the government encourages
local manufacture of APIs, the prospect
doesn’t appeal to Trang. “It might please
Hanoi if I did, but I don’t feel capable of pro- China and 142nd for India. But riots and
ducing APIs,” he says. Viwa’s Ye, who sup-
plies APIs to Glomed, says he once explored
building a plant in Vietnam but concluded
it couldn’t compete against imports. “Only
a few countries in the world can competi-
tively produce APIs,” Ye says. “The market
is too small in Vietnam.”
Foreign companies are more active
in other parts of the chemical industry.
BASF and Dow Chemical operate specialty
chemical plants in the country producing
construction chemicals and acrylic-based
polymers, respectively. Japan’s Asahi Glass
owns a 78% stake in a polyvinyl chloride
plant that is currently expanding capacity
by 50% to 150,000 metric tons per year. Tai-
wan’s Formosa Plastics owns several plants
that mostly make fibers and fabricated
plastics. And Japan’s Shin-Etsu Chemical
recently started up separation and refining
operations at a rare-earth magnets plant.
THE LARGEST INVESTMENT in the Viet-
namese chemical industry is by a consor-
tium of Japanese companies building, with
the help of Japanese trade finance, an inte-
grated refinery and petrochemical complex
in the northern part of the country. With
a 5% stake in the $9 billion project, Mitsui
Chemicals will buy basic aromatics for ex-
port. Once operational in 2017, the complex
will be able to supply Vietnam with large
quantities of polypropylene and the polyes-
ter intermediate p-xylene.
Despite the upsurge in
investment, Vietnam’s chemical
industry is still small for a country
with a fast-growing manufactur-
ing sector and rising middle class.
About 18% of Vietnam’s gross
domestic product is provided by
manufacturing, and chemicals are
only a small slice of that.
Private and state-owned
Vietnamese companies have not
invested in the chemical industry
because of lack of capital, ac-
cording to Vinachemia’s Nguyen.
As for foreign firms, they have
had little motivation to invest
because the country has the rep-
utation for being a tough place to
operate, KPMG’s Harnick says.
Industry growth has been hampered by lack
of infrastructure, lack of feedstock, and
hard-to-follow regulations, he says.
A 2014 World Bank study ranked Viet-
nam 78th out of 189 countries in ease of
doing business, compared with 90th for
strikes last year at Chinese- and Taiwanese-
owned companies in Vietnam—triggered
by China’s establishment of an oil-drilling
CEN.ACS.ORG 19 MAY 1 8, 2015
Vietnam At A Glance
Population: 90 million (2013)
Gross domestic product: $171 billion
(2013)
Average annual growth, 2012–14:
5.4%
Size of Vietnam chemical industry:
Marginal by international standards
GROWTH DRIVERS
◾ Large and young population
◾ Rapid growth of manufacturing sector
◾ Availability of crude oil and gas
FOREIGN CHEMICAL MAKERS
WITH PLANTS IN VIETNAM
Asahi Glass: Polyvinyl chloride (PVC)
BASF: Construction chemicals
Dow Chemical: Acrylic-based
polymers
Formosa Plastics: Polyester, PVC
film, polyurethane rubber, and other
products
Mitsui Chemicals: 5% share in a
refinery and petrochemical complex
under construction
Shin-Etsu Chemical: Rare-earth
magnets
SOURCES: World Bank (country data), C&EN
(foreign companies active in Vietnam)
platform in disputed waters—provided a
hint of the difficulties foreign firms might
encounter.
International chemical companies op-
erating in Vietnam are reluctant to discuss
the country’s business climate. C&EN
contacted Asahi Glass, BASF, Dow, Mitsui,
and Shin-Etsu for this article, but only
Shin-Etsu provided comment. By e-mail,
spokesman Tetsuya Koishikawa wrote
that “the cost of electricity [in Vietnam]
is lower compared to that of neighboring
countries, and engineering staff are easy to
recruit and their skills are good. Further-
more, the related governmental authorities
are cooperative, and it is easy to operate in
such an environment.”
Shin-Etsu’s positive comments notwith-
standing, chemical companies will likely
find a challenging business climate in Viet-
nam. Yet a growing number of them are
willing to give the country a serious look
because it’s an increasingly attractive mar-
ket. For companies that missed the boat
with China, Vietnam offers a chance to get
on board at the right time. ◾