Aluminum casting & mold design services

Introduction

Japanese manufacturing industries are facing a complex set of challenges, including intensifying global competition, rising geopolitical risks, and increasing domestic labor costs. To address these issues, many companies are relocating production bases overseas and diversifying their procurement sources. The ASEAN region, in particular, has become a crucial option. Among ASEAN countries, Vietnam has rapidly gained attention as a procurement destination for aluminum castings and molds due to its economic growth, abundant young workforce, and strategic geographical advantages.

However, while building an overseas supply chain offers opportunities for cost reduction and increased production capacity, it also brings new risks not commonly experienced in Japan, such as difficulties in quality control, risks of delivery delays, and challenges in intellectual property protection. Especially for aluminum molds, which require precise technology and strict quality, managing these risks and ensuring stable quality are key to success.

This article aims to provide insights for Japanese manufacturing executives and procurement managers into the current state and appeal of the aluminum mold supply chain in Vietnam, as well as the specific risks and challenges involved. Furthermore, it details concrete strategies for effectively managing these risks and achieving high-quality procurement, along with solutions offered by Daiwa Aluminum Vietnam. We hope this article will assist your company in formulating its supply chain strategy in Vietnam.

Current State and Appeal of the Aluminum Mold Supply Chain in Vietnam

The Vietnamese economy has experienced remarkable growth in recent years, with manufacturing playing a leading role. The country’s Gross Domestic Product, GDP, growth rate recorded 5.05% in 2023, maintaining steady growth even amidst global economic uncertainties, Source: VIETJO Vietnam News,. This growth is supported by active Foreign Direct Investment, FDI,. In 2023, the disbursed FDI reached a record high of approximately 23.18 billion USD, with the manufacturing and processing industry accounting for about 64.2%, Source: JETRO,. This clearly indicates Vietnam’s growing status as a global manufacturing hub.

Concentration of Aluminum Casting and Mold Industries and Key Players

Vietnam’s manufacturing industry has developed primarily in the northern region around Hanoi and the southern region around Ho Chi Minh City, with a high concentration of industrial parks in the south. These areas see robust production of automotive parts, motorcycle parts, and home appliances, leading to the growth of the aluminum casting and mold industries. Many foreign-affiliated companies, including Japanese firms, are strengthening their in-country parts procurement in Vietnam, driving up demand for high-quality aluminum molds.

While Vietnamese aluminum casting and mold suppliers have improved their technological capabilities in recent years, there is still variation in quality and technical expertise among companies. However, the entry of Japanese and Western companies has led to technology transfer and accumulation of quality control know-how, contributing to an overall upgrade. Particularly in the die-casting mold sector, the growth of the automotive industry, which demands high-precision products, is driving technological innovation among Vietnamese domestic suppliers, Source: Japan Die Casting Association,.

Labor Cost Advantage and Changes

Labor costs in Vietnam’s manufacturing sector remain competitive compared to neighboring countries like China and Thailand. For example, the average monthly wage in manufacturing is estimated to be around 300-400 USD, though with regional differences, Source: Japan Business Federation,. This labor cost advantage represents a significant cost-saving factor for Japanese companies. However, with Vietnam’s economic growth, average wages have been rising at an annual rate of approximately 5-7% over the past five years. Considering this trend, it is crucial to focus not only on simple labor cost benefits but also on long-term cost competitiveness through productivity improvements and automation investments.

Tariff Benefits from Trade Agreements and Impact on Supply Chains

Vietnam has signed numerous Free Trade Agreements, FTAs, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, CPTPP, and the Regional Comprehensive Economic Partnership, RCEP,. These agreements often lead to significant tariff reductions or eliminations for mold exports from Japan to Vietnam, or for parts manufactured in Vietnam and imported into Japan, directly contributing to procurement cost reductions. For instance, the CPTPP is progressively eliminating tariffs on many industrial products, and RCEP similarly promotes intra-regional trade. These trade agreements are highly advantageous for increasing supply chain flexibility and expanding options for parts procurement.

Progress in Infrastructure Development

The Vietnamese government is actively investing in the development of transportation infrastructure and power supply networks to support the growth of the manufacturing industry. Major ports, such as Hai Phong Port and Cai Mep-Thi Vai Port, are being expanded, and the highway network is being developed, contributing to reduced logistics costs and increased efficiency. Investments in stable power supply are also ongoing. However, power shortages and traffic congestion can still be challenges in some regions, so infrastructure conditions must be considered when choosing suppliers.

Risks and Challenges in Aluminum Mold Procurement in Vietnam

While procuring aluminum molds in Vietnam offers many advantages, it also presents unique risks and challenges that Japanese companies must recognize and address appropriately. Understanding these in advance and implementing countermeasures are indispensable for success.

Difficulty in Quality Control

Vietnamese aluminum mold suppliers are improving their technical capabilities, but there is still variation in technical levels and quality control systems among companies. Currently, suppliers capable of consistently providing high-precision, high-quality molds demanded by Japanese manufacturing industries are limited. Specifically, quality standards in each process, such as material quality control, processing accuracy, heat treatment technology, and surface treatment, may differ from those in Japan, potentially leading to defective products or shortened mold lifespan. Furthermore, some suppliers have inadequate quality inspection systems, making it essential for Japanese companies to present strict quality standards and conduct regular audits, Source: PwC Japan,.

Risk of Delivery Delays and Their Factors

Delivery delay is one of the most common risks in overseas procurement. In Vietnam, delivery delays can occur due to factors such as:

• Uncertainty in production planning: When a supplier’s production capacity is overestimated or they cannot cope with a sudden increase in orders.
• Delays in raw material procurement: When importing specific alloy materials or components takes time, or a supplier’s inventory management is insufficient.
• Rework due to quality issues: When products that do not meet quality standards are found during manufacturing, requiring reprocessing or remanufacturing.
• Logistics and customs clearance challenges: Port congestion, delays in customs procedures, or insufficient domestic transportation infrastructure. Especially during Tet, Lunar New Year, logistics tend to be significantly disrupted.

To mitigate these risks, close sharing of production plans with suppliers, securing spare parts, and considering multiple transportation routes are required.

Challenges in Intellectual Property Rights Protection

While Vietnam is advancing its legal framework for Intellectual Property Rights, IPR, protection, challenges remain in its enforcement. Reports of counterfeiting and unfair competition are still numerous, and it is difficult to completely eliminate the risk of information leakage or technology theft, especially for products involving precise designs and manufacturing know-how like molds, Source: JETRO,. Countermeasures include signing strict Non-Disclosure Agreements, NDAs, with suppliers, disclosing design drawings and technical information in stages, and preparing for legal action in cooperation with local lawyers.

Key Points and Precautions for Supplier Choice

Selecting the right supplier is directly linked to success in Vietnam. The following points should be considered during choice:

• Track record and experience: Does the supplier have a rich track record of transactions with Japanese companies and experience in manufacturing similar molds?
• Technical capability and equipment: Does the supplier possess the latest processing equipment, CAD/CAM systems, and skilled technicians?
• Quality control system: Status of international certifications such as ISO 9001, QC process charts, inspection standards, and traceability assurance.
• Financial stability: Is the company financially stable?
• Communication ability: Is smooth communication possible in Japanese or English?
• Audit system: Is the supplier willing to accept regular factory audits and proactively respond to improvement suggestions?

It is crucial to evaluate overall reliability, not just low quotations.

Exchange Rate Fluctuation Risk and Hedging Strategies

Fluctuations in the exchange rate between Vietnamese Dong, VND, and Japanese Yen, JPY, can affect procurement costs. Especially for long-term contracts, it is necessary to set contract terms that account for exchange rate risk and consider currency hedging strategies, such as forward exchange contracts,. Clearly agreeing on the payment currency and exchange rate基準 with the supplier is also important.

Geopolitical Risks and the Need for Supply Chain Resilience

Global supply chains are susceptible to geopolitical risks, natural disasters, and pandemics. Vietnam is no exception, and there is a non-zero possibility that issues such as the South China Sea dispute or US-China relations could indirectly affect supply chains. To prepare for such risks, “supply chain resilience“ is required, meaning not relying on a single country or region. Specifically, a “multi-source strategy“ of diversifying procurement sources across multiple countries/regions or considering reshoring may be necessary, Source: Mizuho Bank,.

Concrete Measures for Thorough Quality Assurance and Risk Management

To succeed in aluminum mold procurement in Vietnam, a systematic and continuous approach to quality assurance and risk management is essential. The following details specific strategies and implementation methods.

Benefits of Direct Management through Local Subsidiary Establishment or Joint Ventures

One of the most reliable methods for quality assurance and risk management is to establish a local subsidiary in Vietnam or form a joint venture with a trustworthy local company to directly manage the supply chain. This offers the following benefits:

• Standardization of quality standards: Directly apply strict Japanese quality standards and manage/guide the entire manufacturing process.
• Promotion of technology transfer: Station Japanese engineers to thoroughly guide local employees, improving the supplier’s technical level.
• Faster information sharing: Close collaboration with local staff enables quicker information sharing and response in case of problems.
• Enhanced intellectual property protection: Thorough information management within your own company or joint venture reduces the risk of information leakage.

However, establishment requires initial investment and operating costs, necessitating careful consideration based on business scale and strategy.

Building a Quality Management System

Strengthening the supplier’s quality management system is the foundation for high-quality mold procurement. Specific measures include:

• Promoting ISO certification: Encourage suppliers to obtain international certifications such as ISO 9001, Quality Management System, and support their maintenance. While the number of ISO 9001 certified companies in Vietnam’s manufacturing sector is increasing, it is crucial to verify their effectiveness.
• Introduction and thorough implementation of QC process charts: Jointly create QC process charts with suppliers, clearly defining quality control items, inspection methods, and judgment criteria for each manufacturing process, and ensure their strict adherence.
• Standardization of inspection criteria: Clearly present Japanese companies’ inspection criteria and eliminate discrepancies with supplier inspection criteria. If necessary, provide support for introducing inspection equipment and training for inspectors.
• Ensuring traceability: Establish a system that allows tracking the history of products throughout all processes, from material procurement to final product shipment. This enables quick identification of causes and responses when problems occur.

Building Long-Term Relationships and Providing Technical Guidance to Suppliers

It is important to build long-term partnerships with suppliers, going beyond mere transactional relationships. Support suppliers’ technical improvement and deepen trust through regular technical guidance and joint development. This enables suppliers to better understand Japanese companies’ quality requirements and encourages proactive improvement activities. For example, cases of annual defect rate improvement by several percentage points have been reported.

Risk Diversification through Multiple Supplier Strategy

Dependency on a single supplier poses significant risks in case of quality issues, delivery delays, or unforeseen circumstances. To avoid this, adopting a “multi-source strategy“ of procuring similar molds from multiple suppliers is effective. This can also promote competition among suppliers, leading to quality improvement and cost reduction. Ideally, securing 2-3 main suppliers and placing a certain volume of orders with each can diversify risk while establishing a stable supply system.

Leveraging Digital Technology for Supply Chain Visibility and Traceability

Utilizing IoT, Internet of Things, sensors and blockchain technology can enhance overall supply chain visibility and enable real-time information sharing. For example, centralizing the management of mold manufacturing progress, quality data, and transportation status on a digital platform allows for early detection of problems and quick responses. This improves supply chain transparency and ensures traceability.

Formulation and Training of Business Continuity Plans, BCP,

It is crucial to formulate a Business Continuity Plan, BCP, and conduct regular training to prepare for unforeseen events such as natural disasters, pandemics, or cyberattacks. The BCP should include a list of alternative suppliers, emergency contact systems, and response procedures for risk occurrences. This minimizes the impact on business even if the supply chain is disrupted.

Effectiveness of On-site Management by Japanese Expatriates

Stationing Japanese expatriates at Vietnamese supplier factories is a highly effective means of quality control, delivery management, and technical guidance. Japanese expatriates are well-versed in Japanese quality standards and culture, and through smooth communication with local staff, they contribute to preventing quality problems and resolving them quickly. They also help gather local information and understand market trends, contributing to business strategy formulation. While stationing expatriates incurs costs, from a long-term perspective, it can be a highly cost-effective investment in preventing losses due to quality issues and damage to brand image.

Solutions Provided by Daiwa Aluminum Vietnam

Daiwa Aluminum Vietnam offers high-quality solutions based on years of experience and proven track record to address various challenges faced by Japanese manufacturing industries in aluminum mold procurement in Vietnam. We possess the following strengths to contribute to our customers’ supply chain resilience and quality assurance:

High-Quality Aluminum Casting and Mold Manufacturing Based on Years of Experience and Track Record

Since commencing operations in Vietnam, Daiwa Aluminum Vietnam has consistently manufactured aluminum castings and molds that meet strict Japanese quality standards. We have extensive experience, particularly in fields requiring high precision and reliability, such as automotive parts and precision machinery components. Over the past 10 years, we have manufactured over 1,000 types of molds and supplied approximately 500 tons of aluminum castings annually. Our products have received high evaluations from our Japanese customers.

Strict Quality Control System Compliant with Japanese Quality Standards

We have fully implemented the quality control know-how of our Japanese parent company, Daiwa Light Alloy Industry Co., Ltd., at our Vietnam factory. In addition to ISO 9001 certification, we have established our own quality management system with approximately 50 inspection criteria, from material acceptance to product shipment. Experienced Japanese quality control managers are permanently stationed to provide thorough education and guidance to local staff, aiming to keep the defect rate below 0.1%. This allows customers to achieve quality in Vietnam that is equivalent to, or even surpasses, what they would procure in Japan.

Stable Delivery and Flexible Production System

We prioritize stable on-time delivery in accordance with customer production plans. We have introduced the latest production management system to visualize production progress in real-time. This enables early detection of problems and quick responses. Furthermore, we have a monthly mold manufacturing capacity of up to 100 units and an annual aluminum casting production capacity of approximately 6,000 tons, allowing us to flexibly respond to sudden increases in production or specification changes. Our on-time delivery rate has been maintained at over 98% for the past three years, contributing to the stability of our customers’ production plans.

Responding to Customer Needs through Technical Guidance and Joint Development

Daiwa Aluminum Vietnam functions not just as a supplier but as a technical partner to our customers. Experienced Japanese engineers work closely with customers from the design stage to propose optimal mold designs and casting processes. We also actively engage in joint development for new product development, providing customized solutions tailored to specific customer needs. This enables customers to shorten development periods and reduce costs.

Risk Reduction through Local One-Stop Service Provision

We offer a comprehensive one-stop service in Vietnam, from mold design and manufacturing to aluminum casting, machining, surface treatment, and quality inspection and shipment. This eliminates the hassle of managing multiple suppliers and significantly reduces overall supply chain risk. Furthermore, by having a local presence, customers can directly grasp market trends in Vietnam and make quick decisions. Daiwa Aluminum Vietnam is a reliable partner that strongly supports customers’ business expansion in Vietnam.

Conclusion

Vietnam has established itself as an attractive destination for Japanese manufacturing industries for aluminum mold procurement due to its economic growth, labor cost advantages, and favorable trade agreements. With disbursed FDI reaching approximately 23.18 billion USD in 2023, and manufacturing at its core, its potential is immeasurable. However, inherent risks such as difficulties in quality control, delivery delays, and intellectual property protection also exist.

To overcome these risks and succeed in the Vietnamese supply chain, a strategic and continuous commitment to quality assurance and risk management is essential, not just cost reduction. Direct management through local subsidiary establishment, building a strict quality control system, long-term partnerships with suppliers, a multiple supplier strategy, and leveraging digital technology are concrete pathways to achieve this.

Daiwa Aluminum Vietnam, with its years of experience and strict management system compliant with Japanese quality standards, strongly supports customers’ aluminum mold procurement in Vietnam. We are confident that our high-quality products, stable delivery, and flexible responsiveness through technical guidance and joint development can contribute to strengthening our customers’ supply chains and enhancing their competitiveness. When considering aluminum mold procurement in Vietnam, please consult Daiwa Aluminum Vietnam. Collaboration with a reliable partner will be the key to success in the Vietnamese market.