Vietnam’s factories have swelled with orders as US tariffs cause companies to reconsider making their products in China. Now, more big technology firms, including tech giant Apple, are looking to bulk up their manufacturing operations in Vietnam, New York Times reported.
The move would lift the ambitions of a nation already well on its way to becoming a powerhouse maker of smartphones and other high-end gadgets, stated the newspaper.
For some, spooked by what now appears to be a definitive darkening in US relations with China, the appeal of working in the world’s second-largest economy may already be tarnished for good.
With smartphones, video game consoles and other consumer favorites potentially next on Mr. Trump’s tariff list, gadget makers in particular are feeling pressure to find new low-wage places to make or finish their products.
Apple has homed in on Vietnam and India as it intensifies its search for ways to diversify its supply chain. Nintendo has accelerated a shift in the production of its Switch console to Vietnam from China, according to Panjiva, a supply chain research firm. The Taiwanese electronics behemoth Foxconn, a major assembler of iPhones, said in January that it had acquired land-use rights in Vietnam and had pumped US$200 million into an Indian subsidiary. Other Taiwanese and Chinese partners to Apple have indicated that they are considering ramping up operations in Vietnam as well.
Even so, Vietnam, home to nearly 100 million people, is not about to replace China as a manufacturing hub overnight. Land here can be expensive, and ready-to-use factories and warehouses are in short supply. Recruiting enough trained workers and managers is another potential challenge.
“It’s definitely stretching Vietnam’s capabilities,” Frederick R. Burke, a managing director in Ho Chi Minh City for the law firm Baker McKenzie was quoted by NY Times as saying. Even though the country’s labor force is expanding by a million people a year, he added, “people are talking about labor shortages already.”
Vietnam also does not have vast galaxies of companies churning out specialized components, parts and materials like those that manufacturers can call upon in China.
Already a global production hub
According to the US newspaper, Vietnam is already a colossus in producing shoes, clothes and other types of labor-intensive goods, having long ago begun siphoning business away from its giant northern neighbor.
Nike and Adidas now make close to half of their sneakers in Vietnam. As factories have sprung up, the Vietnamese government has pledged to improve roads, ports and power plants. Vietnam has also signed deals with governments around the world to reduce tariffs, including an agreement reached last month with the European Union.
More than a decade ago, Samsung Electronics, the South Korean titan, set up a plant in Bac Ninh to reduce its dependence on China. The move was prescient. Costs in China continued to increase, and Samsung’s sales there withered after Beijing called for boycotts on South Korean products over Seoul’s embrace of an US missile defense system in 2017.
Samsung has since closed all but one of its smartphone plants in China. It now assembles around half of the handsets it sells worldwide in Vietnam. Samsung’s subsidiaries in the country, which employ around 100,000 people, accounted for nearly a third of the company’s US$220 billion in sales last year.
A Samsung spokeswoman said about 90% of those sales involved goods shipped from Vietnam to other countries. That implies Samsung alone accounted for a quarter of Vietnam’s exports in 2018, although even that might not fully capture the company’s effect on the wider economy. Samsung’s success in Vietnam helped convince many of its South Korean suppliers that they needed to be here, too.
“When you are a big company and you move to a place, everything follows you,” said Filippo Bortoletti, the deputy manager in Hanoi at the business advisory firm Dezan Shira.
