This is a best prospect industry sector for this country. Includes a market overview and trade data.
According to the Stockholm International Peace Research Institute (SIPRI), Vietnam has seen some of the largest increases in military expenditures in Southeast Asia. Between 2003 and 2018, its military spending increased nearly 700 percent, from USD 841 million in 2003 to USD 5.5 billion in 2018. In 2018, Vietnam’s military expenditures was recorded at USD 5.5 billion, or 8.1 percent of total government spending and 2.3 percent of GDP. Vietnam was number twelve on the list of top arms importers in the world between the years 2010 and 2016. Together with India, Australia, PRC, South Korea, Vietnam was in the top five arms importers in the region in 2014-2018. During 2018-2020 period, Vietnam military spending is estimated to have an annual increase on average of 8.78 percent according to a report published by The International Institute for Strategic Studies (IISS). Despite the negative impact of the COVID-19 pandemic on Vietnam’s economic growth in 2020, the country’s military expenditure still maintains a growth rate of more than eight percent.
Vietnam has been steering its military focus to maritime security-related activities. These efforts encompass air force, air defense, surface, and subsurface capabilities. Defense equipment suppliers and subcontractors can expect increased demand for naval combatants, aerial defense, intelligence systems, and surveillance and reconnaissance (ISR) equipment. Though locked out of the market for decades, U.S. firms are seeing interest in their technology as the regulatory framework has improved for exporting U.S. defense equipment and services to Vietnam, opening significant commercial opportunities for the U.S. firms. These policy changes were finalized during President Obama’s official visit to Vietnam in May 2016, when he formally announced the lifting of the decades-old arms embargo against the country.
Vietnam Defense Policy and international partnership
According to the Vietnam Defense White Paper in 2019, Vietnam is pursuing a non-aligned policy known as “four no and one-depend” which is no military alliances; no siding with one country against another; no foreign military bases or no using Vietnamese territory to oppose other countries; no using force or threatening to use force in international relations. The “one depend” is presented as “depending on certain circumstances, the country will consider developing necessary defense and military relations with other countries at appropriate level”, which leaves room for military manoeuvre. The strategy demonstrates Vietnam’s steadfast stance in territorial protection, maintaining regional security stability and diversification in international defense cooperation.
As Vietnam has a 2,000-mile coastline facing the East Sea (South China Sea) and substantial contribution of the marine economic sector to GDP, the government sees maritime as its prioritized defense target under the context of constant sovereign tension in the South China Sea. In 2011, it issued a detailed maritime strategy for 2011-2020, making the protection of maritime sovereignty and the maritime economy a key national security pillar. Resolution 36 in 2018 again emphasized that sustainable development of the marine economy associated with national defense is a core mission to Vietnam’s economic development in 2030-2045.
In an effort to modernize maritime capabilities. Vietnam spent approximately USD 1.6 billion for maritime defense capabilities, but this is expected to increase to USD 2 billion by 2020. The Vietnamese Navy and Air Force had very little capacity to protect Vietnam’s maritime interests, but over the past decade both services have undergone some modernization.
Vietnam continues to upgrade its defensive missile systems. In 2011, Vietnam bought two batteries of K-300P Bastion coastal missile systems, followed by two batteries of S-300 PMU-2 long-range surface-to-air missile systems in 2012. In 2014, they upgraded their short-range surface-to-air missile systems and their missile systems, while also boosting the radar surveillance systems, and successfully built its first UAV in 2013, all demonstrating nascent capability. Vietnam is also considering establishing a strategic missile cache including a number of surface-to-surface and land-to-sea missile brigades.
Despite investing effort on defense technology development, the country still has to depend on foreign partners for high-tech defense equipment and devices due to domestic manufacturer’s insufficient capability to supply for national defense demand. Vietnam is gradually expanding its national defense industrial base through overseas partnerships and technology transfers with foreign states including Russia, Spain, Thailand, France, Israel, Malaysia, Singapore, India, Japan and Korea. Bilateral cooperation with major defense partners are as follows:
With military orders estimated to account for 80 percent of total orders, Russia has maintained the biggest market share among Vietnam’s military suppliers. Thanks to technology transfer from Russia, Vietnam has begun the production of the KCT 15 anti-surface warfare missile. With regards to recent procurements, Russia started delivering its contract of up to 64 T-90S/SK Battle Tank in 2018 with the first batch of up to 30 tanks delivered by the end of 2018. In early 2020, Vietnam signed a USD 350 million deal to purchase at least 12 Yak-130 combat training jets from Russia. It is expected that the contract will encourage orders of more fighter aircraft from Russia, including the Su-30SM and the Su-35.
As Vietnam is pursuing diversification of defense suppliers and extending international cooperation in this sector, purchases of military products is expected to decline from Russia and gradually shift towards other partners in the future.
Since the Vietnam – Israel Defense memorandum of understanding (MOU) in 2015, Israel has been the second largest military supplier to Vietnam. Israel is also one of the few countries that is active in transferring military technology to produce modern weapons for Vietnam, including the Galil ACE 31/32 assault rifles production line. The Marine Corps of the Vietnam People’s Navy is reported to use the most Israeli weapons. During 2014 to 2018, Vietnam is recorded to purchase a large number of Israel’s guided rockets, aircraft radars and air-to-air missiles. The most recent notable order by the VN government is of the Heron 1 – unmanned aerial vehicle (UAV). The contract worth USD 160 million was signed in 2018.
Vietnam – U.S.
The lifting of the U.S. arms embargo in May 2016 has opened the possibility of U.S-Vietnam defense cooperation. In March 2018, U.S aircraft carrier USS Carl Vinson first arrived in Da Nang and the U.S. transferred six fast-response Metal Shark patrol boats to Vietnam’s Coast Guard during that visit and another six were transferred in March 2019. More defense items from the U.S. have been acquired or transferred to Vietnam, including a USD 9.7-million Boeing Insitu ScanEagle UAVs ordered in 2019, Beechcraft T-6 Texan II trainer aircraft ordered in June 2021 and a second decommissioned U..S Coast Guard Hamilton class cutter handed over in June 2021, following the first patrol vessels delivered to Vietnam Coast Guard in 2017. Cooperation programs such as The Aviation Leadership Program funded by the U.S. Airforce, which provides training to Vietnam Airforce personnel, also helps strengthen the security ties between the U.S. and Vietnam.
Other defense cooperation in recent years:
Netherlands: Damen Shipyard, in the Netherlands, is assisting in the design and production of both commercial and military vessels. In 2016, Vietnam successfully constructed and launched two 600-ton troop carriers for delivery to Venezuela.
India: India is also emerging as a defense industry partner with Vietnam whereby India extended a USD 500 million credit line to Vietnam in September 2016. India is currently upgrading Vietnam’s Petya-class light frigates for anti-submarine warfare and expanding existing services to upgrade the current stock of Soviet-era military equipment, including; thermal sights fire control systems for armored vehicles, T-54 and T-55 tanks, and M-17/MI-8 helicopters.
Japan: In April 2020, the Vietnamese government signed a USD 184 million contract with Sumitomo Corporation to manufacture and launch the “LOTUSat-1” Earth observation satellite system for the Vietnam National Space Center (VNSC). The project capital is funded by JICA, covering development of a ground system and local human capacity building programs related to the satellite development process. The satellite system is developed by NEC Corporation – Japan and is expected to launch in 2023.
Korea: Korea actively supports Vietnam in the field of maritime security through the transfer of decommissioned vessels to the Vietnam Coast Guard with the most recent being the Po Hang Corvette in 2018.
Major local players and market access issues
The Ministry of National Defense and the Ministry of Public Security are responsible for making lists of imported defense and security equipment and devices before submitting to the Prime Minister for approval. The approved list is later assigned to defense units to process with procurement.
As regulated by the law, the enterprise eligible to doing business in defense and security sectors are limited to two categories:
- State-owned enterprises under the Ministry of Defense or Ministry of Public Security which are assigned to perform defense production and procurement plans.
- Private companies which receive permits or written approval issued by the Ministry of National Defense or the Ministry of Public Security to import and trade predefined products.
Enterprises under the Ministry of National Defense (MND)
Vietnam’s MND issued decision No. 84, in 2007 to regulate the import and export of defense equipment. Accordingly, General Import-Export Vanxuan Corporation (VAXUCO), a military goods importer owned by the MND, is the ministry’s designated importer of military goods, and is authorized to sign purchases on behalf of the MND. Other importers of dual-use military goods are GAET, Viettel, Tecapro, Hitaco and Thai Son Corporation.
GDDI, the General Department of Defense Industry is responsible for directing and controlling all military production establishments and economic activities, and for ensuring mobilization readiness of the entire defense industrial infrastructure, including for research and development and weapons procurement.
VAXUCO, the General Import-Export Vanxuan Corporation, was established in 1991 and owned by the MND with the main mission of importing weapons, ammunition, military equipment, raw materials and supplies exclusively used for national defense.
GAET, the Defense Economic Technical Industry Corporation, which is formerly Department of Materials (General Department of Logistics), has operated under the Ministry of Defense since 1962. Its main function is to import , purchase machinery, equipment, and install production lines of Defense industry products; repair and upgrade weapons and military equipment; supply industrial explosive materials for national construction, transportation, mining projects.
VIETTEL, Viettel Military Industry and Telecoms Group, is Vietnam’s largest telecommunication service provider. It is a state-owned enterprise wholly owned and operated by the Ministry of Defense with more than 70,000 employees inside and outside the country. Its operation mainly focuses on telecommunications and information technology (IT); research and manufacture of electronic and telecommunications equipment; defense industry; cyber security and digital services. Viettel High Technology Industries Corporation, a subsidiary of Viettel, was established in May 2019 to develop defense technology in areas such as communications, electronic warfare, radars and command-and-control systems.
HITACO, the High Technology Application One Member Company Limited, was established in 1997 under the MND and mainly operates in the field of Defense and Security, and Technology transfer and application consulting.
TECAPRO, Technological Application & Production One Member Limited Liability Company was established in 1988 and operates under the MND with the main functions of researching, applying technology transfer, production and business, serving defense and economic tasks, and focuses on developing four key technology areas: Information Technology, Electronics and Telecommunication and Environmental Technology, Simulation technology. TECAPRO has been under an equitization process under the restructuring project of the MOD.
Thai Son Corporation is a business under the Ministry of Defense, operating in many sectors among which is the application, technology transfer and technical services involving the security and national defense tasks.
According to Project 80 on the military enterprise structure in 2017, MND continues to maintain 100 percent state-owned enterprises with 17 enterprises, of which 12 units are performing military and defense duties. The Ministry is also drafting a project on forming five main corporations with the task of manufacturing and repairing weapons andspecial technical equipment on the basis of restructuring existing defense enterprises.
Enterprises under Ministry of Public Security (MPS)
Among 100 percent MPS-owned enterprises, the following entities play a major role in supplying and importing security products, devices and equipment:
BCA Thang Long One Member Company Limited was established in 1993 by the Ministry of Public Security (MPS) and under the direct management of The Department of Security Industry (SID)- MPS. The company operates in multiple sectors including trading, manufacturing, and construction. It is also the main importer of special purpose vehicles, specialized security equipment, and fire protection for MPS.
BCA Thanh Binh One Member Company Limited was established in 2015 after consolidating two of MPS’s factories. The company specializes in manufacturing, assembling and supplying defense mechanical products, importing defense and security equipment, and consulting work and involved in technology transfer.
GTEL, Global Telecommunications Corporation, was established in 2007 by MPS with a focus on providing telecommunications and information technology, radio, television, multimedia communication, network security, e-commerce solutions, importing and conducting technology research on telecommunications equipment, information technology and network security products.
Foreign exporters often find market entry to be difficult because Vietnam does not periodically publish data on defense expenditures and maintains secrecy on procurement plans. Though SOEs dominate defense and security imports, there are a number of non-public private companies participating in defense procurement through joining tenders opened by MPS and MND. Lack of transparency on the tender process and successful bidder information prevents foreign suppliers from approaching potential partners in this sector. The COVID-19 pandemic has posed another challenge for entering the defense market as virtual meetings are not widely preferred by major SOEs due to security concerns and there is no practical solution to view and test the products in the context of international travel restrictions.
It is important to note that Vietnam prefers government to government procurement when dealing with defense systems. Developing and participating in government to government relationships is an important avenue to increase business opportunities for U.S. firms.
Although Vietnam’s navy, air and armed forces all require modernization of ageing equipment and hardware, Vietnam People’s Navy will continue to receive the lion’s share of investment.
The continuing tension with PRC in the South China Sea and the national strategy to focus on marine economic development in the period between 2030-2045 under Resolution No. 36 (2018) are the main driving factors for the Vietnam government to increase expenditure on improving and modernizing its naval forces.
The country has shown interest in developing and equipping its Naval force with maritime anti-access/area denial (A2/AD) and surveillance capabilities through the purchase of coastal high-speed patrol vessels, stealth frigates, anti-submarine warfare, as well as anti-ship ballistic missiles and other dual coastal defenses.
The Vietnam Coast Guard (VCG) is one of the forces that receives great attention and investment from the Vietnamese government for modernization as it would help reduce the political cost when directly confronted with foreign counterparts. Instead of building large battleship, Vietnam will give priority to equip the VCG with high-speed, mobile, large patrol ships capable of operating offshore with long hours and under harsh weather. In addition, maritime patrol aircrafts which can provide surveillance to a large marine area are also an investment focus.
Vietnam has been enhance its air force capabilities since 2011. Fighter aircraft, multi role fighter jets, UAVs, anti-submarine and maritime surveillance aircraft, electronic warfare aircraft are considered essential to modernize and strengthen Vietnam’s air force. Currently the majority of Vietnam’s military aircrafts are from Russia, Poland, France or the Czech Republic. Therefore, to pave a way for purchases from other suppliers, aircraft training, technical assistance and equipment maintenance are necessary to educate and familiarize military personnel with operation of new devices.
Military Communication and Electronic Warfare
Military information communication and electronic warfare are one of the top prioritized areas in Vietnam’s military modernization plan. Given the vital role of information communication systems in maintaining in-time, effective and secure communication during military missions, Vietnam will allocate sufficient resources to build and purchase high-tech equipment for this subsector. With the growing importance of electronic warfare in the battlefield and conflict, the country is showing efforts to equip its military force with state-of-art products, especially upgrading its C5ISR (command, control, communications, computers, combat systems, intelligence, surveillance and reconnaissance) capabilities.
U.S. defense products have a long-standing reputation for cutting-edge technology, high precision and long-term stability during operation. U.S defense and security suppliers will have more advantage in areas which require unique and high technology, including naval combatants, aerial defense, anti-access/area denial and surveillance equipment, Communication and electronic warfare supporting equipment and system. As the military market has been dominated by other partners for a long period, training, technical assistance and equipment maintenance for end users should be paid attention to after contract delivery to maintain long-term use of products and pave the way for future purchases.
In 2015 and 2016, the U.S. Commercial Service office in Vietnam, working with the Office of Defense Cooperation, hosted the U.S Defense Industry Promotion Symposium, with the support of MND. This event was created to allow U.S. defense firms to promote their goods and services directly to MND, while educating MND officials about U.S. licensing requirements. There is no date currently set for the third installment of this conference due to travel restriction under the COVID-19 pandemic.
Vietnam Defence 2021 is an international exhibition and conference on defense field in Vietnam, hosted by the Ministry of National Defence. The event is expected to be held betweenNovember 18-20, 2021. The event is an opportunity for defense suppliers to showcase products, equipment and high-end defense technology to top governments leaders of Vietnam and ADMM-Plus member as well as major market players.
- Vietnam Ministry of National Defense
- Vietnam Ministry of Public Security
- People’s Army Newspaper
- Stockholm International Peace Research Institute
- The International Institute for Strategic Studies
For more information about the Vietnamese Defense and Security industry, please contact:
- Anh Nguyen, Commercial Specialist
U.S. Commercial Service – U.S. Embassy in Hanoi
- Nga Hoang, Commercial Specialist
U.S. Commercial Service – U.S. Consulate in Ho Chi Minh City