Taiheiyo Cement Corp has been expanding its operations in Vietnam, doubling its capacity in the country earlier this year. One key to success is partnering with strong regional sales agencies, Director Ryuichi Hirai recently told The Nikkei. Excerpts from the interview follow.
Q: How much demand is there for cement in Vietnam?
A: Because of an infrastructure development rush, cement demand is growing rapidly. Demand stood at 13.7Mt in 2000, and since then it has increased by more than 10% annually to total 45Mt in 2009, eclipsing Japanese demand. Eventually, the figure may rise to 70-80Mt.
As demand grows, supply is increasing as well. Supply must now total at least around 60Mt. Because facilities are probably not operating at full capacity in reality, the supply-demand balance is in place, I think. But we anticipate oversupply next year and beyond, so competition will start to heat up this year.
Q: Taiheiyo Cement teamed with Mitsubishi Materials Corp) and formed a joint venture with Vietnam Cement Industry Corp., known as VICEM, in 1995. A plant was subsequently completed in northern Vietnam in 2000.
A: Quarries of limestone, the major ingredient of cement, were mostly located in the north, so we picked the region to build the plant. At the same time, we constructed a cement terminal in Ho Chi Minh City, in the south where demand was strong, so that cement produced at the plant could be directly shipped by bulk vessels. Other companies are shipping cement in sacks, so vessel transportation has become the engine driving our cost competitiveness. The facilities at the No. 1 plant have been operating at full capacity since around 2003.
Q: You installed main facilities at the No. 2 plant this past spring.
A: We were dealing with short supply, and because we have such strong competitiveness, we concluded that we could make enough profit even if we set up the second plant. At the same time, we set up a terminal in the central part of the country to begin bulk shipments. With increased supply capability, we are able to sell cement in the central and other regions where we could not do so before, even though there was demand.
We use the No. 1 or No. 2 dealers in each region, so we enjoy marketing prowess and brand power as well.
Our capacity has increased to 4.35Mt, among the highest in Vietnam. Our workers have become accustomed to operation with the No. 1 plant. We have already prepared tankers for shipping cement as well, so we hope to bring it to full capacity at an early date.
Q: You have a complicated relationship with VICEM -- your joint venture partner, but also the dominant player in the local market.
A: Under the guidance of the government at the time, we made a foray into Vietnam via a joint venture with VICEM. With regard to the ownership, that government decided that the ratio should be 65% for our side and 35% for VICEM. But at board meetings, unanimous approval is required for resolutions.
The fact that small details cannot be moved forward without unanimous consensus impairs competitiveness. We are trying to negotiate to change the joint venture agreement and the corporate charter, but the talks are not proceeding as we wish. The situation is a headache.