Foreign companies are still beefing up investment in Vietnam’s packaging industry as they bet on the long-term prospects of the market.
SCG Packaging Public Co., Ltd (SCGP) over a week ago announced an investment of ฿11.8 billion ($354 million) into Vietnam’s packaging industry. A new complex will be developed in the northern province of Vinh Phuc with commercial operations expected in early 2024.
Vina Kraft Paper Co., Ltd (VKPC), a 70:30 joint venture between SCGP and Japan’s Rengo Co., Ltd is in charge of operating the project. VKPC’s first investment in Vietnam commenced in 2009, followed by a 2016 expansion which doubled the original capacity to the current 500,000 tonnes of products per year. The expansion to the north of Vietnam will bring VKPC’s total annual capacity to 870,000 tonnes by 2024.
SCGP’s CEO Wichan Jitpukdee said, “Vietnam is one of the most dynamic economies globally, buoyant by vibrant domestic and export sectors. Furthermore, as multinational companies actively pursue foreign direct investment in north Vietnam, this is expected to support the 6-7 per cent per annum growth of packaging paper and related packaging products during 2021-2025.”
He added that SCGP has been continuously expanding its Vietnam portfolio with an estimated pro-forma 2021 revenue of $444 million, including recent acquisitions. Its existing business model in Vietnam consists of broad horizontal offerings and deep vertical integration primarily located in the south and the new complex in north Vietnam will compound these efforts.
Tetra Pak meanwhile has poured an additional $5.9 million into its $141 million packaging material factory in the southern province of Binh Duong. The investment is a testament to the Swedish company’s expectations of the potential of the Vietnamese market.
Ta Bao Long, communications manager of Tetra Pak Vietnam told VIR, “Even before the pandemic, Vietnam had been one of the fastest-growing markets in Asia for liquid food. The local market is forecasted to grow at 5 per cent compound annual growth rate during the next three years, doubling the global average. There are some factors driving that growth, including higher per capita income, increased health awareness, and a growing appetite for product variety. In times of crisis, liquid food, like other types of groceries, is always in high demand.”
Long noted that the additional investment is supposed to improve both the company’s service capacity and capability during the pandemic and beyond, thus offering its food and beverage customers with greater flexibility and efficiency.
Pandemic lockdowns continue to slow or even temporarily stop the flow of raw materials, people, and finished goods. “We believe that the impacts of the pandemic will briefly deviate Vietnam’s economic growth from its long-term trend,” Long said. “Therefore, we are optimistic about the market prospects as the right ingredients for growth are still there: a large population, increasing per capita income, fast urbanisation, and growing concerns for food safety and personal wellbeing.”
According to market research firm FiinGroup’s database, in 2020 and the first four months of 2021, foreign financiers continued ramping up investment in the Vietnamese packaging sector. In particular, Vietnam recorded 56 newly-registered foreign-invested projects in the packaging industry at a total of $516 million during the period.
Of which, the paper and corrugated packaging segment remained attractive to foreign investors with key names including Ojitex Long Thanh Branch ($60 million in 2021), Wing Fat Printing ($28 million in 2021), and Lap Thinh Factory 2 ($33 million in 2020).
Key growth drivers of corrugated boxes include a strong performance of manufacturing and processing industries, especially of home appliances and consumer electronics as well as the healthy growth of the fast-moving consumer goods sector. Also, given the rapid booming of e-commerce in Vietnam, the market created substantial demand as well as pressure for supporting sectors, especially corrugated boxes for parcel delivery services.
In recent years, another segment also attracting foreign investment capital is flexible plastic packaging. Notable projects include Meiwa Pax’s new factory ($21.7 million in 2020) registered to invest after the acquisition of 89 per cent of Saigon Trapaco in 2014; and the St. John flexible packaging factory ($10 million in 2019).
Le Xuan Dong, managing director and head of Market Research and Consulting at FiinResearch, a research and consulting division of FiinGroup, said that packaging is one of the fast-emerging sectors in Vietnam, enjoying an annual growth rate of around 13.4 per cent during 2015-2020. In regard to segmentation, in 2020, plastic packaging and paper and corrugated packaging holds around 81.6 per cent market share in terms of sale revenue.
Foreign investors have been actively penetrating the market and/or expanding their existing business in the sector via mergers and greenfield investment. SCGP acquired 70 per cent of Duy Tan in early 2021 and acquired 94 per cent in Bien Hoa Packaging in late 2020 through its subsidiary, Thai Containers Group.
“The investments by foreign packaging manufacturers would not only meet the growing local demands, especially during post-pandemic economic recovery period, but also for export purposes,” Dong said.