Packaging firms concerned about new import tariff

The import tariff of 3% has been applied to import consignments from early January 2017. With imports accounting for 70%-80% of input materials, the tax increase will push the production cost up, thus weakening enterprises’ competitiveness. 

With the high growth rate of 15%-20%, the Vietnamese packaging market is very attractive to investors. However, analysts said that Vietnamese manufacturers can only have small piece of the market.

Foreign invested enterprises, with their strong advantages in production and business conditions, competitiveness and capital, now hold the upper hand in the market.

Meanwhile, Vietnamese enterprises, which have to compete with foreign manufacturers and rely on input material imports, are facing the risk of being swallowed by foreign investors.

Some prestigious Vietnamese plastics companies have been taken over by Japanese investment institutions in the last few years, while others have been transferred to Thai and Korean conglomerates. 

Nguyen Van Dong, chair of the Vietnam Print Association, at Vietnam Pack & Print 2016 Exhibition, which took place in late 2016, cited many large merger & acquisition (M&A) deals with which Vietnamese companies have fallen into foreign hands.

He mentioned the deal of selling 80% of stakes of Tin Thanh Packaging JSC (Batico) to TC Plastics Company, a subsidiary of Thailand’s SCG Group, valued at US$44 million.

According to Dong, foreign investors find Vietnam’s packaging industry underdeveloped, while the market has great potential for development as the demand has increased rapidly thanks to production and export expansion.

“The annual growth rate of over 10% is desirable for foreign investors,” Dong said.

Thien Viet Securities’ analysts noted that Vietnamese plastics companies have relatively high proportion of short-term loans, about 70%, which means a rather low quick payment ratio.

A banker commented that in order to improve Vietnamese products’ competitiveness, it is necessary to increase the ratio of long-term loans in order to stabilize capital costs 

Vietnamese plastics companies are also facing big challenges in technology as clients are getting more demanding. They want packages that are thin, light, environmentally friendly and well designed.

The good news for packaging enterprises in 2017 is the nearly equal price of the euro and dollar, which means imports from Europe would be cheaper. Some companies said they were considering importing machines from Europe this year to improve production capacity.