Scenario: A foreign investor plans an electrical equipment factory in Vietnam with 500,000 units of annual capacity. Before sizing the investment, they must answer: how big are the Vietnamese and regional markets really, and how much can this factory sell? Market sizing is the first step — and the step most FDI projects do sloppily.
TAM, SAM, SOM: three circles that must not be confused
Market sizing has three layers. TAM (total addressable market) is all demand for the product type in Vietnam and target export markets. SAM (serviceable addressable market) is the portion realistically reachable with the company’s distribution and positioning. SOM (serviceable obtainable market) is the share expected within the first 3–5 years, accounting for existing competition. The most common FDI mistake is using TAM as the basis for plant capacity, building overcapacity from day one.
Top-down: using macro and industry data
Top-down starts from aggregate figures and narrows down. Reliable sources in Vietnam include the General Statistics Office (industrial production, import-export by HS code), industry association reports, customs data on related product trade, and annual reports of listed companies in the same industry. For target export markets, consult national statistics agencies, international organizations and independent market research. Every figure in the model must cite its source and year; never use data older than three years for a new investment decision.
Bottom-up: counting customers and orders
Bottom-up builds market size from the smallest unit: listing potential customer groups, estimating customer counts per group, average demand per customer and purchase frequency. For industrial electrical equipment, that could be the number of factories, industrial parks and infrastructure projects over five years multiplied by equipment demand per project. This method takes more work but yields sales-grounded figures and cross-checks the top-down result. When the two methods diverge widely, assumptions must be re-examined.
Four traps that distort FDI market sizing
Trap one: confusing industry growth with accessible growth — a 15% annual industry growth does not mean a new entrant grows 15%. Trap two: ignoring existing competitors and their spare capacity, which can raise output as demand grows without new investment. Trap three: applying another country’s market data to Vietnam without adjusting for income, consumption habits and distribution structure. Trap four: underestimating market penetration time — new FDI entrants typically need 2–3 years to build distribution and customer trust, while financial models assume design capacity by year two.
From market sizing to the capacity decision
Market sizing must translate into three capacity scenarios — conservative, base and optimistic — with corresponding SOM for each. The investment decision should rest on the base scenario, with modular plant design allowing expansion if the optimistic scenario materializes, rather than building full capacity upfront. This also grounds negotiations with licensing authorities on the project scale stated in the investment registration certificate: the registered scale should reflect a well-evidenced base scenario, avoiding over-registration followed by missed commitment timelines.
Frequently asked questions
How do TAM, SAM and SOM differ, and which sizes plant capacity?
TAM is the total market, SAM the serviceable portion, SOM the share expected within 3–5 years. Size plant capacity on SOM, not TAM.
What are reliable market data sources in Vietnam?
The General Statistics Office, customs data by HS code, industry association reports, and annual reports of listed peers. Every figure needs a cited source and year; avoid data older than three years.
What if the two methods diverge widely?
Treat it as a signal to re-examine assumptions: recheck the bottom-up customer list and the top-down narrowing factors until the two results converge within a reasonable range.
Should the registered project scale follow the optimistic scenario?
No. Register the well-evidenced base scenario; design the plant modularly for later expansion, avoiding over-registration followed by missed commitment timelines.
This article has been quality-reviewed by the FLAW AI Legal Council