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Vietnam Manufacturing at a Crossroads: Emerging Trends in the Fastener Market Amid Rising Labor Costs and Increasing Quality Demands
Introduction
Vietnam has established itself as the “world’s factory” and has become an indispensable production base for many Japanese manufacturers. This momentum has not waned in 2024, with the industrial production index showing steady growth and foreign direct investment (FDI) continuing to flow actively, mainly into the manufacturing sector. However, on the other hand, serious challenges are emerging on the ground. These are “soaring labor costs,” symbolized by the average 6% minimum wage hike from July 2024; a “low local procurement rate,” which remains low compared to other ASEAN countries; and “increasingly sophisticated quality demands” accompanying the shift to higher value-added products.
In this article, based on the latest data, we will thoroughly analyze how Vietnam’s manufacturing industry, especially the “screw and fastener” market that forms its foundation, is changing amidst this complex business environment. This is must-read content for management and procurement personnel who are forced to rebuild their procurement strategies.
The State of Vietnam’s Manufacturing Industry Towards 2025: The Duality of Growth and Challenges
After an adjustment phase in 2023, the Vietnamese economy is back on a strong growth trajectory in 2024.
JETRO (Japan External Trade Organization) forecasts real GDP growth of 7.1% in 2024, and GDP per capita is expected to reach $4,536 (an increase of $219 from the previous year) according to IMF estimates. It is precisely the manufacturing industry that is driving this growth.
Sustained FDI Inflow and Economic Growth
According to Vietnam’s Ministry of Planning and Investment, the amount of approved FDI in the first quarter of 2024 maintained strong performance, increasing by 13.4% year-on-year. What is particularly noteworthy is that this investment is concentrated in the “manufacturing and processing industry.”
- FDI Concentration in Manufacturing and Processing: In the first quarter of 2024, the manufacturing and processing industry accounted for 63.6% of total FDI, reaching an amount of $3.93 billion.
- Main Investing Countries: Singapore was the top investor, accounting for 41.3% of the total, and Japan also invested $520.2 million.
- Recovery of Production Index: According to Vietnam’s General Statistics Office (GSO), the Index of Industrial Production (IIP) from January to May 2024 increased by 6.8% year-on-year, confirming that production activities are vitalizing.
In the European Chamber of Commerce (EuroCham) Whitebook 2024, about 63% of respondent companies chose Vietnam as one of their top 10 FDI destinations, indicating a high level of international confidence.
The Emergence of “Three Major Challenges”: Soaring Labor Costs, Local Procurement Rate, and the Quality Wall
Despite this brilliant growth, manufacturing sites are facing serious structural challenges.
- Soaring Labor Costs: Vietnam’s National Wage Council has decided on a policy to raise the minimum wage by an average of 6% starting from July 1, 2024. This is the first revision in two years and forces a shift away from business models premised on cheap labor.
- Low Local Procurement Rate: According to JETRO’s “2024 Survey on Business Conditions of Japanese Companies Overseas,” 39.3% of manufacturers plan to “expand local procurement” in the next 1-2 years to strengthen their supply chains, an increase from 30.3% in the previous year’s survey. However, the reality is that the local procurement rate for Japanese manufacturers in Vietnam is said to be around 40%, remaining at a low level compared to other ASEAN countries like Thailand (around 60%).
- The Quality Management Wall: The Vietnamese government is rushing to develop supporting industries, setting a goal to raise the local procurement rate for industrial products to 45% by 2025. However, there is still significant variation in the quality management capabilities of local suppliers, and the number of companies that can meet sophisticated quality demands is limited. This has become the biggest barrier to improving the local procurement rate.
The Latest Trends in Vietnam’s “Screw and Fastener” Market
The screw and fastener (industrial fastener) market, which is the foundation of the manufacturing industry, is also strongly linked to these macroeconomic changes.
Market Size and Growth Forecast: A Shift Towards Higher Value-Added Products
While official statistics for Vietnam alone are limited, the overall market trends in the Asia-Pacific region strongly reflect Vietnam’s current situation.
According to research by Fortune Business Insights, the global industrial fastener market size is estimated to reach $89.34 billion in 2024, up from $85.83 billion in 2023. It is further projected to reach $125.87 billion by 2032, showing a steady CAGR (Compound Annual Growth Rate) of 4.3%.
Driving this market is the Asia-Pacific region, which had a market size of $30.99 billion as of 2023. In Vietnam, FDI inflows into the automotive, industrial machinery, and electronics (high-tech) sectors are vitalizing, and these are driving demand in the fastener market. There is a clear shift in demand from simple standard products (bolts, nuts) to special screws and processed parts with higher strength, higher heat resistance, and precision.
Supply Chain Vulnerability: Breaking Away from Import Dependence
The fact that JETRO’s survey shows Vietnam as the top destination for production transfers (24.8%) indicates that Vietnam is a key location for supply chain reorganization. However, its supply chain is still vulnerable.
In particular, there is still a heavy reliance on imports from Japan, Taiwan, and China for high-function screws and fasteners using special steel materials. This import-dependent structure is not only vulnerable to international logistics disruptions and geopolitical risks but also leads to longer lead times and foreign exchange fluctuation risks, becoming a factor in rising costs. The aforementioned trend of Japanese companies “planning to expand local procurement” (39.3%) can be seen as an inevitable strategy to avoid this risk and maintain cost competitiveness.
Procurement DX and Quality Management Transformation Facing Manufacturing Sites
The dual pressures of soaring labor costs and sophisticated quality demands are forcing a transformation in how parts procurement and quality management are handled at manufacturing sites in Vietnam.
Challenge 1: Rising Quality Standards and Compliance with JIS/ISO
Procurement, which was once “cost-first,” is now shifting to a “balance between quality and cost.” It is not easy to stably procure quality compliant with JIS (Japanese Industrial Standards) and ISO (International Organization for Standardization), which are particularly demanded by Japanese companies, within Vietnam. Many local suppliers are found to have undeveloped advanced quality management systems, such as the management of material certificates (mill sheets), assurance of precise dimensional tolerances, and ensuring lot-to-lot traceability.
Challenge 2: The Complication of “High-Mix, Low-Volume” Procurement
With the automation of production lines and the diversification of customer needs, the demand for “high-mix, low-volume” parts procurement is rapidly increasing at manufacturing sites. Requirements vary widely, from a few special screws for prototypes to tens of thousands of standard bolts for mass production lines. However, conventional suppliers often premise on large-volume orders and may not be able to handle small-lot orders or may take several weeks to provide a quotation, creating a bottleneck in procurement operations.
Challenge 3: Quality Traceability Through IoT and Data Utilization
In the manufacturing of high-value-added products, “traceability” is essential to enable rapid cause investigation and identification of the scope of impact in the event of a defect. There is a growing demand to manage data on which lot of screws was used, when, and in which product. This requires advanced data management capabilities on the supplier side as well, such as inventory management utilizing IoT technology and the linkage of digitized inspection data.
Next-Generation Procurement Solutions Offered by Ohta Vietnam
In response to these complex challenges in Vietnam’s manufacturing industry, we at Ohta Vietnam function not just as a parts supplier, but as a “solution partner” that optimizes the entire procurement process for our customers.
Quality Assurance System: From JIS Standard Products to Special Processed Parts
Ohta Vietnam deploys the quality management know-how that its parent company, Ohta Co., Ltd. in Japan, has cultivated for half a century. We have established a rigorous incoming inspection and quality assurance system that covers everything from JIS standard products to special processed parts (machined parts) based on customer drawings. We also support the submission of material certificates (mill sheets) and the attachment of various measurement data (dimensions, hardness, surface treatment, etc.) to reliably guarantee the quality our customers demand.
Optimization of the Procurement Process through VMI (Vendor Managed Inventory)
As an authorized distributor for TRUSCO (Trusco Nakayama), we not only handle a wide range of products from MRO (Maintenance, Repair, and Operations) supplies to production parts, but we also offer a VMI (Vendor Managed Inventory) service to optimize our customers’ inventory management. This is a system where we grasp the customer’s inventory information in real-time and automatically replenish the necessary parts when they are needed. This frees customers from the burden of complex “high-mix, low-volume” ordering tasks and inventory management, allowing them to bring the risk of stockouts close to zero. This is one of the concrete solutions for procurement DX (Digital Transformation) utilizing IoT.
Summary
Vietnam’s manufacturing industry, which continues to grow towards 2025, stands at a major crossroads defined by “soaring labor costs,” a “low local procurement rate,” and “sophisticated quality demands.” To overcome these challenges and evolve into a high-value-added production base, it is necessary to fundamentally review the procurement strategy for screws and fasteners. The era of relying on imports for “cheap standard products” is over, and corporate competitiveness will now depend on how efficiently guaranteed-quality parts can be procured just-in-time from within Vietnam or neighboring areas.
Ohta Vietnam, by balancing high-level JIS-standard quality assurance with digital procurement solutions like VMI, will strongly support the transformation of all Japanese manufacturers striving in Vietnam as their “professional partner in parts procurement”.
Conclusion
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