Vietnam's Packaging Industry: An Investment Perspective

Vietnam's packaging industry is experiencing rapid growth, with a projected expansion rate of 15-20%.

Vietnam's packaging industry is experiencing rapid expansion, driven by growing demand across diverse sectors including food, healthcare, chemicals, industrial, and agriculture. Both domestic and international companies are heavily investing in this sector, fostering competition and a wide range of products in terms of quality and pricing.

Despite challenges such as rising competition and input costs, the industry is adapting through innovation and sustainability initiatives. With favorable conditions like economic development, increasing consumer demand, and advantageous trade agreements, Vietnam's packaging sector is poised for continued growth and offers numerous investment and advancement opportunities.

Overview of the industry

The packaging industry in Vietnam is projected to experience a growth rate of 15-20 percent in the coming years, making it one of the fastest-growing sectors, according to experts who spoke at a press conference on February 29 to introduce ProPak Vietnam 2024.

According to the Vietnam Packaging Association, Vietnam has around 14,000 packaging enterprises, with 9,200 focused on plastic packaging. There are over 900 packaging factories, mostly located in the southern region, particularly in Ho Chi Minh City, Binh Duong, and Dong Nai.

The packaging industry, like many others, faces challenges due to the global economic downturn. Industrial production has slightly declined, with the Industrial Production Index dropping by 0.4 percent in the first eight months of 2023 compared to the previous year. Additionally, 25.7 percent of packaging businesses experienced decreased revenue, and import-export turnover for packaging products dropped to 63.1 percent of the previous year's level in the first half of 2023.

However, experts exhibit a more optimistic outlook, partly due to the gradual global economic recovery and disbursed funds. Government policies, consumer financial improvements, and strategic initiatives are also seen as driving positivity among packaging industry enterprises regarding future growth.

The paper packaging sector in Vietnam is projected to experience robust growth, with a compound annual growth rate (CAGR) of 9.73 percent between 2024 and 2029. The metal packaging market in Vietnam is expected to register a CAGR of 3.81 percent during the same period, while the plastic packaging market is anticipated to increase from 10.07 million tons in 2023 to 15.09 million tons in 2028, with a CAGR of 8.44 percent. Plastic packaging for the food and beverage industry remains a significant market share in Vietnam.

Factors driving growth

Vietnam's packaging industry is poised for significant expansion, driven by rapid economic and social development, a surge in e-commerce, and advantageous free trade agreements.

Social Development

Vietnam's rapid economic and social progress, particularly the growth of the middle class and rising per capita income is significantly increasing the demand for packaged food, beverage, personal care, and pharmaceutical products, driving the need for packaging solutions.

E-commerce

The Vietnam e-commerce market is projected to reach US$23.77 billion by 2029, growing at a CAGR of 10.09 percent. Leading e-commerce platforms like Shopee, Lazada, and Tiki are experiencing a surge in online shopping, driving the demand for durable and visually appealing packaging that enhances customer experience and ensures product safety during delivery.

FTAs

Vietnam's strategic signing of 18 bilateral and multilateral free trade agreements, including the EVFTA, CPTPP, and RCEP, opens new markets and reduces import tariffs for packaging products. Most import duties in these markets are set at nil percent, with only a few items subject to taxes and none exceeding 5 percent. This favorable trade environment allows packaging enterprises to leverage these opportunities to expand their market share. Additionally, as supply chain issues ease and logistics costs decrease, Vietnam's position in the global packaging market will be further strengthened.

Challenges

Emerging challenges in the Vietnamese packaging market despite favorable growth conditions.

Intense rivalry

The packaging market faces intense competition from domestic and international companies, covering a range of products including paper, plastic, metal film, and PET plastic bottles. Major brands like Tan Tien Plastic and Rang Dong Plastic are dominant in the PET bottle segment, while Tetra Pak from Sweden and Combibloc from Germany lead in paper packaging for the dairy industry, due to the advanced technology required.

Vietnam offers a skilled workforce, a favorable business environment, and a strategic location within Southeast Asia, making it an appealing investment destination for foreign investors eyeing expansion in the supplementary products sector, despite some Vietnamese companies currently favoring sourcing from China due to improved quality, cost-effectiveness from bulk orders, and geographical proximity.

Increasing input material costs

A substantial portion of raw materials for packaging in Vietnam are imported, resulting in high and fluctuating input costs. This reliance on imported materials presents a challenge to maintaining cost-effective production. Companies are actively seeking solutions to mitigate these costs, including investing in local raw material production, implementing cost-saving technologies, and enhancing supply chain efficiency.

Prominent developments

Sustainable circular economy

The transition towards sustainable packaging solutions and the circular economy is evident across businesses, consumers, and the government. A survey in Vietnam found that 57.4% of consumers are willing to pay more for eco-friendly packaging, and 41.1% prioritize sustainability even at a higher cost. Additionally, in accordance with legal regulations, the government has enacted the 2020 Environmental Protection Law, requiring businesses to implement Extended Producer Responsibility (EPR) from 2024.

Businesses are increasingly adopting eco-friendly practices to meet the rising demand for sustainable products, focusing on reducing carbon footprints and improving packaging recyclability. Duy Tan Plastics Recycling factory, with its innovative "Bottle-to-Bottle" technology, leads this trend by recycling over 1.3 billion bottles domestically and exporting 4,200 tons internationally. The success of Duy Tan may prompt the emergence of more PET recycling facilities in Vietnam, driven by the financial potential and growing demand spurred by ESG initiatives, presenting ample opportunities for foreign companies to enter Vietnam's thriving market.

Premium

Premium and convenient products are in high demand, particularly in the food and beverage industry. Companies are focusing on enhancing product quality and packaging design to cater to this trend. Features such as resealable pouches, easy-open lids, and attractive graphics are being incorporated to improve consumer appeal and functionality.

Technological progress

Vietnamese businesses are embracing technological advancements to enhance the quality of their packaging, ensuring compliance with rigorous food hygiene and safety standards. This strategic investment is crucial for maintaining competitiveness and aligning with international benchmarks for quality.

By implementing digital transformation strategies, packaging businesses are effectively optimizing their operations, enhancing efficiency, and bolstering their competitive edge in the market. Leveraging cutting-edge technologies like automation, AI, and the Internet of Things (IoT), these firms are revolutionizing production processes, reducing waste, and improving supply chain management. Moreover, the adoption of digital printing and smart packaging solutions is gaining momentum, offering new ways to engage with consumers and provide real-time information about products.

FTAs

The impact of free trade agreements (FTAs) such as the EVFTA, CPTPP, and RCEP is reducing import tariffs, which enhances the global competitiveness of Vietnam's packaging industry and provides new growth opportunities. These agreements are also encouraging the adoption of international standards and best practices, improving the overall quality and safety of Vietnamese packaging products.

Conclusion

Vietnam's packaging market is primed for sustained rapid expansion, fueled by economic progress, heightened consumer demand, and advantageous trade agreements. While competition and input costs pose ongoing challenges, the industry is adapting through technological advancements, sustainability efforts, and digital transformation. With continued investment and government backing, Vietnam's packaging sector is poised to flourish, providing diverse and high-caliber solutions to cater to the needs of diverse industries.