Market Report 15/02/2023, 03:25

Heat treatment industry (Part 3)

QCD balance is not only a matter of heat treatment industry, however, in this industry, there are special impact factors that buyers need to keep in mind when intending to place an order in Vietnam.

Heat treatment industry (Part 3)

Which should be prioritized: quality or price?

The heat treatment industry in Vietnam can be divided into two groups: "price-oriented" (accepting any kind of order) and "quality-oriented". If sorted by descending quality - descending price, the order will be Japanese companies, followed by companies from other countries (Korea, Taiwan, China, etc.), and then Vietnamese companies. Currently, a number of enterprises from Japan, China etc. supplying steel materials also provide heat treatment service for customers who have purchased their raw materials and they accept other orders from outside as well. 

Japanese companies guarantee quality through excellent equipment and strict control processes, but at the cost of high prices and slow delivery times. Conversely, many Chinese and Vietnamese companies (90% of their equipment is made in China or Vietnam) accept small-lot orders (combining different parts and putting them into the furnace at once) and eliminate processes to speed up delivery. Compared to Japanese companies (which usually do not combine different parts together and are not allowed to omit any work), prices are much lower and delivery can be made the same day or the next day. However, despite the low price, customers often face risks such as incorrect hardness, deformed details, altered mechanical propertiesunstable quality, and a high rate of defective products.

One company commented, "Despite the high rate of defective products, the total cost of heat treatment and revisions is lower than outsourcing heat treatment to a Japanese company, so if the degree of difficulty is not high and no heat treatment supplier is specified, we will ask a Vietnamese company to do it. Alternatively, we may present different quotations from different heat treatment companies from the beginning and ask the customer to consider and decide," he says.

In addition to equipment and technology, the most significant difference between Japanese and Vietnamese heat treatment companies is their quality control processes. Japanese enterprises adhere strictly to a well-defined quality control process, which includes periodic inspections, maintenance, and other measures, such as those implemented by Pro-Vision Company every three months. In contrast, many Vietnamese enterprises only repair equipment when problems arise, and some do not have adequate maintenance procedures in place, leading to furnace explosions from overheating. Some Vietnamese enterprises are even willing to cut down the process in order to deliver quickly to customers for urgent requests (in some cases, customers actively ask suppliers to cut down the process because of the urgency and their requirement is only for hardness), which is unacceptable to Japanese enterprises – who are strict about quality control.

Oristar is one of the few heat treatment companies in Vietnam that has taken a different direction. Originally a supplier of imported steel for manufacturing, it has recently expanded into the heat treatment field in order to build a complete value chain for its customers. Oristar maintains a high-pressure nitrogen gas-cooled vacuum furnace system and vacuum nitriding furnaces that are 100% imported from Germany. A representative of the company says. A representative of the company says, "Each type of material or component requires appropriate heat treatment processes. Currently, our furnaces have a processing capacity of 300-400 kg at a time, but we do not combine different parts, even if the ordered quantity is only a few 10 kg, because we are prepared to lose money on heat treatment alone. Smaller order quantities are an inevitable trend, and each company is required to take appropriate measures. We are also in the process of trying to gain trust through quality service."

Vietnam's manufacturing industry is in great need of such an organization for sustainable development.

The cooperation should be considered if there are special requirements for surface hardening

Quenching can be broadly divided into two categories: total quenching and surface quenching. Of these, only a few heat treatment companies in Vietnam can properly handle surface quenching. In particular, there are only a limited number of companies that can handle orders with specific requirements regarding the depth of the penetration layer. Advanced surface hardening with small tolerances (1 mm or less) can only be handled by Japanese companies, which is why there are not many orders. Furthermore, very few companies own analyzers to inspect the depth of the hardened layer.

In terms of processing technology, Vietnamese companies can respond relatively well to drawing requirements, but it is difficult for them to take the initiative regarding input factors such as materials, equipment, and tools (lack of inventory, longer waiting time for delivery than production time, etc.), and the same applies to the surface treatment process after processing (dependence on outsourcing companies). Therefore, when initially asked about a product, they reply, "We can probably do it," but at the end of the day, they always have to refuse. Therefore, if there is a special requirement for surface hardening, the ordering party should consider dividing the order by taking advantage of the strengths of each party: rough machining is done by a Vietnamese company, while heat treatment and finishing are done in Japan or by a Japanese company.

The economic downturn has a strong impact on the development prospects of the industry

Vietnam remains a technologically backward country in the world, and it is only in the last 15 years that the cutting and machining industry has really developed. Most raw materials, machinery and equipment, and tools are imported from abroad. In the early stages of development, most companies were self-employed and lacked funds and policies, so investments were made mainly in various forms of machining to accommodate a large volume of general-purpose products. As time passed, many companies grew larger and gradually became more specialized, owning modern factory systems and equipment, but in general, there are still barriers to the Vietnamese manufacturing industry's ability to handle difficult, thin products.

Since heat treatment is a post-processing step, one might say that the development potential of heat treatment depends entirely on the prospects for expansion of processing enterprises. On the other hand, not every product requires advanced heat treatment. The size of the domestic market for the heat treatment industry has remained largely unchanged over the past few years, given the saturation of the motorcycle market in Vietnam, the small size of the automotive industry, and the "standstill" in the machinery and equipment manufacturing industry (construction machinery, agricultural machinery, etc.). However, the unpredictable changes in the macroeconomy have greatly affected the development prospects of the Vietnamese manufacturing industry, including the heat treatment industry.

During the COVID-19, heat treatment companies were not affected to a great extent. Even during the lockdown, the transfer of production from other countries to Vietnam allowed firms to maintain steady production and a steady increase in orders. In the second half of 2022, however, domestic and international economic and political influences spilled over into Vietnamese industry in an unprecedentedly clear way. Around the world, the Russian-Ukrainian conflict triggered a fuel crisis, causing consumers to curb spending. The U.S.-China trade conflict and the shortage of semiconductors still have a long way to go. In Vietnam, the "exit" of a series of real estate giants has had a major impact on the financial industry and the domestic economy. Capital is heavily dependent on the growth of the real estate and financial markets, and companies cannot borrow money from banks to run their businesses and maintain production. Many companies, even foreign-owned ones, are limiting their activities, and some are deciding to "go dormant" in order to ride out this calamity. One CEO expressed concern, saying, "There is still no silver lining in our activities until June 2023.

In the long run, as market demand for items requiring high-quality heat treatment increases and customer experience changes (from price priority to quality), Vietnam's heat treatment industry may finally be revitalized. And organizing the roles of Japanese and Vietnamese companies in the global supply chain, for example, with the Vietnamese side providing factory infrastructure and taking charge of rough machining and mass production, and the Japanese side taking charge of finishing and high-quality surface treatment, will contribute to the sustainable development of the domestic supporting industries. This would be one of the solutions to contribute to the sustainable development of the supporting industries in Japan.

*We would like to thank CNCTech, Pro-Vision, Oristar, and KDH for their cooperation in writing this article.

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