This report is the result of SDI's extensive market and company research covering the Vietnamese defense industry, and provides detailed analysis of both historic and forecast defense industry values including key growth stimulators, analysis of the leading companies in the industry, and key news.
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Introduction and Landscape
Why was the report written?
Future of the Vietnamese Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2018 offers the reader an insight into the market opportunities and entry strategies adopted by foreign original equipment manufacturers (OEMs) to gain market share in the Vietnam defense industry.
What is the current market landscape and what is changing?
With booming economy and maritime trade, Vietnam finds itself in the middle of an Asian arms race. A looming Chinese threat and the need to replace obsolete military equipment are expected to drive the country's defense expenditure over the forecast period. Vietnam's defense budget is valued at US$3.1 billion in 2013, and is expected to grow at a faster pace over the forecast period than during the review period. Vietnam's military expenditure is expected to grow at a CAGR of 7.84% over the forecast period to reach US$4.6 billion by 2018, compared to the registered growth rate of 6.26% during the review period. The Vietnamese government is estimated to increase its allocation for capital expenditure over the forecast period to an average of 32.5% of total defense expenditure. The country is expected to procure military equipment to boost its naval strength and maritime security in order to counter the threat from the growing Chinese naval strength in the South China Sea. In addition, Vietnam is also expected to procure military equipment such as aircraft, missiles and armored vehicles as part of its modernization program. Foreign companies may gain from the Vietnamese government's efforts to open its defense market and look beyond its traditional arms supplier, Russia.
What are the key drivers behind recent market changes?
Strained relationship with China and military modernization are expected to drive military spending Vietnam is expected to spend US$6.4 billion on the acquisition of weapons and defense systems during the forecast period. Factors such as disputed territorial claims in the South China Sea, Chinese naval build-up, and the acquisition of modern military hardware to replace outdated and aging equipment are anticipated to drive the country's military expenditure.
What makes this report unique and essential to read?
The Future of the Vietnamese Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2018 provides detailed analysis of the current industry size and growth expectations from 2014 to 2018, including highlights of key growth stimulators. It also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.
Key Features and Benefits
· The report provides detailed analysis of the current industry size and growth expectations from 2014 to 2018, including highlights of key growth stimulators, and also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.
· The report includes trend analysis of imports and exports, together with their implications and impact on the Vietnamese defense industry.
· The report covers five forces analysis to identify various power centers in the industry and how these are expected to develop in the future.
· The report allows readers to identify possible ways to enter the market, together with detailed descriptions of how existing companies have entered the market, including key contracts, alliances, and strategic initiatives.
· The report helps the reader to understand the competitive landscape of the defense industry in Vietnam. It provides an overview of key defense companies, both domestic and foreign, together with insights such as key alliances, strategic initiatives, and a brief financial analysis.
Key Market Issues
· In March 2011, the Vietnamese government passed legislation that prohibits selling stakes of state-owned defense companies to the private sector. The legislation further stipulates that the state will hold 100% of the charter capital in enterprises which involve national defense, as well as security and military-held commercial enterprises. This legislation prevents private participation and thwarts any foreign direct investment into the country's defense sector.
· Vietnam released its third defense whitepaper in 2009 which revealed the country's defense expenditure for the first time during 2004-2008. This was seen by many as a step towards building confidence with both its neighbors and countries in the west, which is in line with its foreign policy of building cordial relations with other countries. However, the whitepaper does not give any specifics about the budget break-down or the amount spent on procurement. This lack of transparency within the government budget allocation and procurement process may discourage investors from entering the country's defense market.
· Strained relations with China: Supported by the strong economic growth, territorial disputes in the South China Sea have been fuelling the boost of military expenditures of countries in ASEAN region. Vietnam shares a border with China and is a party to disputes over islands in the South China Sea, which China and other countries such as Taiwan, Philippines, and Japan claim ownership of. Sino-Vietnamese relations are historically marred by invasions and conflicts and recently by claims over islands, minerals, and maritime passages in the South China Sea. China increased their patrol of these disputed waters and seized fishing and merchant vessels instigating public demonstrations in Vietnam, which in turn put pressure on the Vietnamese government to lodge its protest with the Chinese government. The surge in strength of the Chinese Navy and the exhibition of its aircraft carrier are also expected to drive the Vietnamese government to increase its military expenditure and allocate more funds to military modernization programs. The country's naval modernization program was kick started with the procurement of six kilo class diesel submarines from Russia. Vietnam is expected on procure frigates, patrol vessels, and other equipment to strengthen its naval forces.
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· Human Trafficking: Vietnam has seen a recent upsurge in human trafficking both into and out of the country. An increase in the sex trade, including child sex and forced labor, has fuelled the trafficking of Vietnamese adults and children to countries such as Cambodia, China, Thailand, Hong Kong, Macau, Malaysia, Taiwan, South Korea, the UK, and the Czech Republic. The country has also seen an illegal inflow of children from neighboring countries for forced labor and sexual exploitation. The Vietnamese government adopted National Action Plan 2011-2015, which aims to protect people from falling prey to trafficking and deals with events in Vietnam and across the Vietnamese border in cooperation with other countries and international organizations. Vietnam has created awareness-raising projects and provides training to women and girls in trafficking-prone areas. The country has also passed laws which criminalize human trafficking and has strengthened the judicial system to prosecute those convicted. Vietnam has one of the highest conviction rates for traffickers in the world, as authorities arrested 719 traffickers, prosecuted 453, and convicted 400 traffickers in 2012.
· Vietnam's arms imports began to rise in 2010, mainly due to the need to counter China's increasing naval capabilities, and the country imported arms equipment worth US$152 million in 2011. Although imports have seen a significant decrease in 2012, the country imported at higher levels than in the period 2008-2010. Over the forecast period, arms imports are projected to remain at 2012 levels as the country focuses on replacing outdated defense systems and strengthening its Navy and Air Force. Moreover, Vietnam's domestic defense industrial base is underdeveloped and is unable to meet the requirements of its armed forces, which is expected to lead to a significant increase in the overall arms supplies to the country by foreign OEMs during the forecast period.
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