Market Report 23/01/2023, 21:27

Heat treatment industry (Part 2)

During working on this topic, the author has received many interesting sharing from enterprises specializing in cutting machining - one of the frequent customers of the heat treatment industry. Accordingly, the author has deeper understanding about the difference of cutting machining between Vietnam and Japan, this will be useful actual information which Japanese enterprises should be aware of when making decision to order from Vietnamese suppliers.

Heat treatment industry (Part 2)

There are alternatives to heat treatment when placing orders in Vietnam

In this issue, we will focus on "quenching," one of the four basic forms of heat treatment (annealing, normalizing, quenching, and tempering).

A machining process can be simply summarized as follows:

In Japan, raw material suppliers, processors, and heat treaters are located in close proximity to each other, forming a supply chain that allows for consistent processing within a single area. The Japanese heat treatment industry has reached a very high level due to consistent equipment systems and excellent technical and management processes. Thus, many parts can be made of mild steel and then heat-treated to meet the hardness requirements of the drawing.

In Vietnam, however, production conditions are completely different. Because the domestic supply chain is not complete (e.g., most raw materials are imported, many production areas are immature, etc.), it is difficult for Vietnamese companies to respond to material and surface treatment specifications as per the drawing board, even if they have sufficient machining technology. Examples are listed below.

  • In the past, the majority of state-owned companies in the machining industry had to maintain their own heat treatment furnaces, as there were very few specialized heat treatment companies (as described in the previous issue). However, the equipment invested in decades ago has already become obsolete and the technology outdated. In the last 5 to 10 years, a number of new companies specializing in heat treatment have emerged to meet the needs of the industry and its products. This will be touched on later in the article.
  • The factories are not located in close proximity to each other. Machining and heat treatment plants are typically situated in separate areas. This is partially due to government and local policies, which prioritize the development of industrial parks to attract foreign investors and large Vietnamese corporations. As a result, it can be challenging for small and medium-sized local manufacturing enterprises to secure long-term land leases. In the past, there were limited policies in place to support industrial land lease, financial aid, and tax relief for production enterprises. Hence, most enterprises had to rent or buy private land or locate their factories in small industrial clusters during the early years of operation. This has resulted in an uneven distribution of industrial factories in Vietnam, leading to increased transportation costs and order processing time.

The solution that a large-scale cutting machining enterprise in Vietnam (with more than 14 years of experience working with Japanese customers, owning more than 160 processing machines) has been implementing is "processing on steels with hardness meeting the final finishing requirements of drawings".

Specifically, this enterprise analyzes drawings in terms of component shape, required hardness, purpose of usage etc. in order to find an appropriate machining solution which does not require heat treatment. While this method drives up material and tooling replacement costs, it also allows the company to proactively control machining time and quality.

A company official said, "In the beginning, it was very difficult to convince our Japanese customers of this proposal. Considering the effectiveness of processing, this approach seemed like a waste of effort and money. But considering the current situation in Vietnam, this is a very rational choice. When we actually did it, the cost was lower than the way it was originally specified in the drawings (machining mild steel and hardening it through heat treatment), so the client approved of this proposal. However, Japanese companies are very cautious and do not easily accept such a risky change. Therefore, we only do 5% of our work this way; the remaining 95% still requires heat treatment by an outside supplier."

In the past 5 years, the number of heat treatment enterprises has increased significantly

As mentioned in the previous issue, there were very few domestic companies specializing in heat treatment in Vietnam before, and most large machining enterprises (mainly state-run enterprises) had to set up their own heat treatment facilities to meet internal demand. At that time, the equipment and technology of domestic companies specializing in heat treatment were quite old and lagging behind, and they were mainly groping their way through using equipment made in China, so they were only responding to orders that did not have high quality requirements.

Orders of supporting industrial mechanical components, especially from Japanese customers, has extremely high quality requirements, and in many cases, they specified that materials must be procured from a specific company or that heat treatment must be performed by a Japanese company. Therefore, the few Japanese, Taiwanese, and Korean companies that has invested in Vietnam had a near "monopoly" on the heat treatment market, taking advantage of their superior facilities and quality inspection processes.

However, the number of domestic heat treatment companies has increased rapidly over the past five years. Many of these companies were started by Vietnamese personnel who had worked for foreign heat treatment companies, and they either purchase equipment made in China or Vietnam or produce their own equipment (e.g., buying the core components made in China and manufacturing the covers in Vietnam), and take orders for everything from small lots to short delivery times.

While setting up a modern, fully integrated heat-treatment facility would require a huge investment (sometimes up to several million dollars, according to one Japanese company specializing in high-frequency quenching), an old-fashioned Chinese or Vietnamese furnace or two would not be difficult. For them, the biggest problem in setting up is the legal aspect. Heat-treatment furnaces are subject to strict environmental audits because of the amount of heat they dissipate into the surrounding environment. However, awareness of heat treatment is still low in Vietnam today, and it is often regarded in the same way as a conventional forging furnace (old-fashioned outdoor forging furnaces are numerous in Vietnam, a nostalgic scene from childhood for those born in the 70s and 80s). As a result, permits and controls are still loose, and new heat treatment companies in Vietnam are not interested in investing in this part of the industry, and as long as they have a furnace, they can operate.

On the ordering side, quality requirements do not seem to be as strict as they used to be (no material specification, choice of heat treatment companies, etc.). As the choice of machining companies has expanded, domestic heat treatment companies with competitive pricing and delivery time advantages are gradually increasing their market share.

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


Sign up for more information