Ho Chi Minh City, Vietnam – In industrial parks among the rolling hills and tea fields of northern Vietnam, legions of factory workers are busy making products for big tech giants like Apple, Samsung, LG Electronics and Microsoft.
Already hundreds of thousands strong, their ranks are rapidly increasing.
Frustrated by China’s “zero Covid” lockdown halting production in the short term, manufacturers are looking for alternatives to the world’s largest economy and No. 1 manufacturing hub. Vietnam, with its cheap labour, geographic proximity to China and stable political climate is a great beneficiary.
“Many of these companies have faced the trade war, rising labor costs in China, and then supply chain collapse during COVID… [China’s] The zero-COVID policy is the teardrop that breaks your back now, I think,” Greg Polling, director of the Southeast Asia program at the Center for Strategic and International Studies (CSIS), told Al Jazeera.
“Vietnam isn’t the only place where multinationals are trying to diversify outside of China, but Vietnam is probably the most successful.”
Apple, Google and Samsung are leaders in the Southeast Asian country.
Foxconn and Luxshare Precision Industry, two of Apple’s key suppliers, are in talks to manufacture the Apple Watch and MacBook in Vietnam for the first time. To support its expansion in Vietnam, Taiwan-based Foxconn has announced plans to invest $300 million in a new 50.5-acre factory in Bek Giang, a northern province about 50 km (31 miles) from away from Hanoi.
Production of other Apple products is also expected to increase in Vietnam — 65 percent of the company’s signature wireless earbuds, AirPods, will be made there by 2025, according to an analysis by JPMorgan last month.
Google is expected to start manufacturing its Pixel smartphones in Vietnam by 2023, while Samsung plans to start manufacturing semiconductor components at a huge factory in Thailand’s Nguyen province next summer.
“It’s too expensive to live in China right now,” Albert Tan, an associate professor at the Asian Institute of Management in Manila, Philippines, told Al Jazeera. “The problem is that lockdowns are so unpredictable and so frequent…many factories are moving to Vietnam.”
Tan said that with the right policies, Vietnam could become Asia’s “next powerhouse” for manufacturing.
“But it’s a question of how quickly Vietnam can adopt all these types of manufacturing from China and build up its capabilities,” he said.
Vietnam was one of the poorest countries in the world before evolving into a technological manufacturing hub following the implementation of liberal economic reforms known as Doi Moi in the late 1980s.
After strict COVID lockdowns hit the worst economic contraction in decades last year, Vietnam officially moved away from “zero-COVID” living with the virus following a massive rollout of vaccines. The World Bank forecasts the Southeast Asian economy will grow 7.2 percent this year – up from 2.6 percent last year – compared to 2.8 percent growth for China.
Much of this growth can be attributed to exports, which reached $186 billion in the first six months of 2022 — a rise of more than 17 percent year-on-year.
While China’s COVID policies have eroded investor confidence, analysts are following Vietnam’s escalating situation well before the pandemic.
“Since trade tensions with China and China’s factory labor costs soared about 10 years ago, Vietnam has received large amounts of foreign direct investment,” David Dapis, an economist at Harvard’s Kennedy School’s Vietnam program, told Al Jazeera. Is.”
Measures to encourage investment and trade
Vietnam has made strides in opening up trade and encouraging investment in recent years, joining 15 free trade agreements, including six with regional partners under the Association of Southeast Asian Nations.
“Vietnam has signed many FTAs with many countries, so customs regulations are good,” Eddie Han, a senior analyst at Isaiah Research in Taiwan, told Al Jazeera. “It is very easy to bring components from mainland China to Vietnam. You can just use trucks and hit the ground.”
Poling, a CSIS analyst, said Vietnam has been able to differentiate itself from competitors like Indonesia and the Philippines with pro-business policies and political stability.
“What Vietnam has done, especially its two competitors, is that it has made doing business much easier,” he said. “If you are a foreign investor and you sign a 30-year contract with Vietnam, you can be absolutely sure that that contract will be honored 30 years from now. You honestly can’t say that in Indonesia or the Philippines.”
Beyond technological devices like the iPhone, Vietnam is also becoming increasingly important in the semiconductor supply chain, the production of which is more complex than other goods.
Intel invested $475 million in its largest chip assembly and test facility in Ho Chi Minh City last year. In August, Roh Tae-moon, CEO of Samsung Electronics’ mobile division, announced that the South Korean company would invest $3.3 billion in the production of semiconductor components at its Nguyen factory in Thailand by July 2023. The same month, US chip design software company Synopsis announced it would shift investment and engineering education to Vietnam.
“What interests me is the added value and technical aspect of Vietnamese exports,” Craig Martin, chairman of Dynam Capital, a Ho Chi Minh City-based asset management firm, told Al Jazeera.
“The more complex and stubborn the revenue in your assembly process, the more foreign direct investment,” Martin said of Samsung’s move to manufacture semiconductor components in Vietnam. “This development is good news moving up the export value chain.”
Still, some observers are skeptical about how far Vietnam can go as a high-tech manufacturing hub. Vietnam’s workforce is a fraction of China’s size and less skilled than Asian counterparts like South Korea and Japan. Despite official measures and improved awareness, corruption remains widespread and serious.
“I don’t think Vietnam has a very good skill level in producing labor. They need more training,” Le Cong Dinh, a lawyer and business consultant in Ho Chi Minh City, told Al Jazeera.
“Corruption can be another problem in doing business here. Most international companies like Apple never want to pay under the table to complete or facilitate their production,” he said. “Southeast Asian countries or India have the same problem, but the level probably isn’t [the same as] Vietnam.”
Dapis said one of Vietnam’s main attractions — cheap labor — could only last for a limited time. When the economy grows, wages inevitably rise as well.
“Until there is a labor shortage in Vietnam, I expect these long-term trends to continue,” Dapis said of the manufacturing boom. ,[This] There may be some years when those who live in agriculture no longer want to continue even though their income is low. ,
Vietnam Sees China’s Tech Crown Tire From ‘Zero COVID’ First Appeared On Al Jazeera