Aluminum casting & mold design services

In recent years, orders to Vietnam have been surging within the Japanese manufacturing industry, driven by the goal of supply chain diversification (China Plus One). Demand for aluminum casting parts, in particular, is expanding rapidly alongside the growing need for lightweight components in the automotive and industrial machinery sectors. However, overseas procurement carries unique risks that are not present in domestic transactions.

Cases such as “the quoted price was low, but additional costs were incurred” or “trouble arose after delivery due to differing interpretations of quality standards” are not uncommon. For management and procurement executives considering aluminum part sourcing in Vietnam, this article provides a thorough explanation of the essential contract terms and practical points to prevent trouble before it starts. By reading this article, you can gain the specific knowledge needed to eliminate uncertainty in overseas procurement and build a stable supply system.

The Vietnamese aluminum market is projected to reach approximately USD 4.53 billion in 2025 and expand to a scale of USD 7.3 billion by 2030. This growth is supported by robust construction demand and the expansion of the automotive industry. Aluminum die casting (a casting method where molten aluminum is injected into a mold at high speed and pressure), in particular, is seeing increasing inquiries from Japanese companies every year due to its ability to mass-produce complex shapes with precision.

When dealing with Vietnamese companies, it is first necessary to clarify the “Governing Law” (which country’s laws will apply). While Japanese companies often prefer Japanese law, if the local company is reluctant, you should consider the application of the United Nations Convention on Contracts for the International Sale of Goods (CISG) or an agreement for arbitration in a third country. Furthermore, while it is common for contracts to be written in both Vietnamese and English (or Japanese), the first step in avoiding disputes is to stipulate which language shall be the “original text” in the event of a discrepancy in interpretation.

Vietnam has a unique system known as the “Foreign Contractor Tax (FCT).” This is a tax levied on foreign companies earning income within Vietnam; it can arise in manufacturing entrustment contracts if technical guidance fees or license fees are included. Failure to clearly specify whether the “Ordering Party (Japanese company)” or the “Receiving Party (Vietnamese factory)” will bear this tax and how it will be declared can lead to unexpected cost increases.

The most important asset in aluminum casting is the “mold.” If the Japanese side bears the cost of mold production, the contract must explicitly state that ownership belongs to the Japanese side, strictly defining the obligation to return the mold upon contract termination and the prohibition of its use for other companies’ products. Additionally, maintenance costs based on the number of shots (casting cycles) and the cost allocation for re-production due to mold life must be agreed upon in advance.

Source: Vietnam Aluminum Market Share Analysis, Industry Trends & Statistics, Growth Forecasts

It should be assumed that there is a gap between “Japanese quality (JIS standards)” and “local understanding.” Rather than simply stating “deliver good products,” a “Quality Inspection Specification” should be attached to the contract, quantifying tolerances (allowable dimensional deviations), surface roughness, and the permissible range for porosity (internal cavities). Furthermore, the location of the acceptance inspection (at the time of local shipment or upon arrival in Japan) will determine the freight cost burden and the point of liability in the event of defective products.

The price of aluminum bullion fluctuates significantly in conjunction with the LME (London Metal Exchange) market. Vietnamese factories may risk demanding sudden supply halts or price hikes to avoid losses due to rising raw material costs. To prevent this, incorporating a “Sliding Clause”—which adjusts the unit price automatically or upon consultation if the bullion price fluctuates beyond a certain percentage (e.g., ±5%)—contributes to long-term stable procurement.

In Vietnam, labor shortages around Tet (Lunar New Year) and logistics delays due to lagging infrastructure development occur frequently. While it is important to stipulate penalties (liquidated damages) for delivery delays, excessive indemnity clauses or exorbitant damage claims may be rendered invalid under the “Good Faith Principle” of the Vietnamese Civil Code. Setting a realistic compensation amount that considers the balance between both parties will result in an effective contract.

While sourcing aluminum parts in Vietnam offers significant cost advantages, deficiencies in contract terms lead directly to fatal supply risks. The handling of “Foreign Contractor Tax (FCT),” the management authority over “molds,” and the establishment of a market-linked price determination mechanism are the points where procurement officers should focus most.

First, check whether your current contract (or the draft under consideration) includes these elements as specific numerical values. Eliminating ambiguous expressions and clarifying “where, who, and by what rules” a dispute will be resolved is the key to successful manufacturing entrustment in Vietnam. At Daiwa Light Metal Vietnam, our staff—well-versed in Japanese-quality management systems and local Vietnamese laws and business customs—will strongly support the optimization of your supply chain.