German Market

What are the advantages and disadvantages of German goods in Vietnam?

Question: What are the advantages and disadvantages of German goods in Vietnam?

Answer: 

Advantage

Vietnam is a big market with increasing the demand for high quality goods:

  • Vietnam is one of the largest consumer markets in Asia: The population of Vietnam is currently ranked 3rd in the Southeast Asia and 15th in the world (World Bank, 2021);

  • Vietnamese people's income is increasing rapidly: According to the World Bank, in 2020 Vietnam's GDP per capita was USD 2,786, increased more than 2 times compared to USD 1,318 in 2010. Increased income also leads to increased consumption demand. Notably, Vietnam's middle class is forming and increasing – including about 13 million people in 2020. This class has modern shopping habits and high demand for high quality imported products from developed countries such as the US, Japan, Europe including Germany;

  • Vietnamese consumer behavior is changing significantly, shifting priority from price to origin, product quality: In the past, Vietnamese consumers often chose goods and services based on  reasonable prices. However, today Vietnamese consumers tend to research and care more about the origin and quality of products. According to a report by Nielsen Vietnam in 2018, a majority (80 - 90%) of consumers surveyed responded that the origin of goods is a key factor affecting their purchase decisions compared to other factors. Especially for food, beverages and health care products, Vietnamese people tend to prefer high-quality and imported goods, especially from developed countries:

o Food: luxury goods contribute 20% of the sales of the food industry, with an average growth rate of about 11%/year;

o Beverages: although premium beverages contribute only 3% to total sales, the average growth rate is about 103%/year;

o Health care products: luxury goods account for about 23%, with an annual growth rate of about 22%. In particular, the demand for high quality pharmaceutical products with reliable origin is increasing as the more income increases, the more consumers pay attention to health care issues.

  • Increased demand for high-quality raw materials and machinery for production/export: With the strong growth rate of production and export, the demand for machinery and equipment and raw materials for production of Vietnam is increasing. The main export industries of Vietnam such as electronics, textiles, footwear, seafood, furniture... have high demand for imported foreign materials, machinery and equipment and technology. Because requirements of Vietnam's export markets become more and more stringent, the demand for  higher technology, greener and leaner inputs also increases. Moreover, for goods exported to the EU to be eligible for EVFTA tariff preferences, they must meet the Agreement’s rules of origin – most of which require a certain regional value content, then the demand for inputs imported from Germany and other EU member countries of Vietnamese enterprises will increase.

Meanwhile:

  • Germany is one of the world's largest exporters and most developed countries: In 2020, Germany was the biggest economy in Europe and the fourth largest in the world. This country is also the largest exporter in Europe and the third in the world. Moreover, Germany has been famous for a lot of good quality and durable goods, many German brands are favored by consumers around the world;

  • Germany has the strength to produce many types of mechanical machinery and equipment for production: Germany is always a pioneer in the world in many fields of high technology, green and clean products. Meanwhile, Vietnam has increasing demand for such products to serve the production of exports and the country’s goal of industrialization and modernization;

  • Germany is famous for many prestigious consumer brands: Not only famous for the modern mechanical industry, but German consumer products such as automobiles, home appliances, cosmetics, pharmaceutical products... are also favored by consumers of Vietnam and all over the world. In particular, Germany's pharmaceutical industry is very developed and leading in Europe and the world. Germany is also a pioneer in invention and application of advanced technology in pharmaceutical production.

Disadvantage:

  • Geographical distance: Germany is geographically located far from Vietnam, so despite being very strong in logistics services, the cost to transport goods from Germany to Vietnam is still higher than competitors near/close to Vietnam such as ASEAN or Asian countries. High transportation costs make the price inflated, while German products are inherently more expensive than that of other regions. However, with the development of transportation and logistics, costs for goods transportation from Germany to Vietnam in the future may be reduced. Moreover, tariff reduction under the EVFTA also helps German goods prices more competitive compared to many other competitors from non-FTA partners of Vietnam;

  • High price: German products are often of good quality but high prices, thus only a few middle and upper-class consumers can afford. For Vietnamese enterprises, with more than 90% being small and medium, there are only a few large enterprises with large production and exports that have the ability to buy modern machinery and high quality raw materials. However, with the increasing number of high-income consumers and businesses exporting to developed markets, opportunities for German exports to Vietnam are still very potential.

Source: The Center for WTO and International Trade

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