Apple will move part of the production to Vietnam: will the new market replace the Chinese one?
On August 17, it was revealed that Apple is moving Apple Watch and Mac production to Vietnam as part of its supply chain diversification plan. This message was published by the Japanese edition of Nikkey Asia, and it does not cause much doubt, since Vietnam already produces Apple products like iPads and AirPods. The contradictions between Beijing and Washington continue to grow, so the desire to move production outside China is quite understandable for American companies.
Does this mean that the Vietnamese market will be able to replace the Chinese one for Western investors?
On August 22, 2022, Taiwanese Apple supplier and largest contract electronics manufacturer, Foxconn, signed an agreement with Vietnamese developer Kinh Bac City to expand its facility in the north of the country in order to diversify and increase production. The amount of investment will be $300 million. The new Foxconn facility will be located in Bac Giang province on a 50.5-hectare site and will create up to 30,000 jobs.
The company, which has been operating in Bac Giang Province for 15 years, reportedly moved part of its iPad and AirPods production to the Quang Chau Industrial Park in Bac Giang. What products will be produced at the new plant, as well as its production capacity, is still unknown.
At the moment, negotiations on the removal of production from China are carried out not just at the business level. In May, Apple CEO Tim Cook met with Vietnamese Prime Minister Phan Minh Tinh at the Apple Park campus in Cupertino, California, saying the company was looking to expand its supply chain in Vietnam.
Cook told the Prime Minister that he hopes the Vietnamese government will develop more favorable policies to attract US investment in high technology.
This remark is very important because, with all the economic reforms, Vietnam remains a socialist country, and the ruling Communist Party is trying to pay attention to protecting the labor rights of the population. Vietnam is considered the country with the lowest inflation during the years of market transformation, and the ratio of the poor to the total population is one of the lowest in the East Asian region.
In China, Apple contractors circumvented local laws, for example, by exceeding the allowable number of workers on temporary contracts. How far Hanoi is willing to go to reverse its social policy to create a more favorable environment for Apple remains a moot point.
Apple’s strategy to move its production out of China is not new. Apple is shifting some iPhone production from China to other markets, including India, where it started production of the iPhone 13 this year, and plans to assemble iPads. India, the world’s second-largest smartphone market, along with countries such as Mexico and Vietnam, is becoming increasingly important for contract manufacturers supplying US brands as they try to diversify production outside of China.
Overall, TopForex.trade analysts believe that even if Apple expands some low-cost manufacturing in Vietnam, it will not reduce the weight of Chinese manufacturing in the US tech giant’s supply chain. The development of electronics products in China and Vietnam will be complementary. China, in turn, has the confidence and ability to resist US economic measures. Given the strength and size of its manufacturing sector, China need not worry about Vietnam and other Southeast Asian countries replacing it as the world’s manufacturing hub, let alone seeing Vietnam as a competitor.
In terms of import and export structure, Vietnam mainly imports raw materials, components, and manufacturing equipment from China, South Korea, and other countries. After assembly and processing are completed, the company exports products to the US, EU, and other countries. This structure cannot be changed in the short or long term.
Vietnam’s manufacturing sector is following the path China took long before, but the global situation is different. The growth of Chinese manufacturing has been carried out as part of the process of globalization, while the development of Vietnam comes against the backdrop of growing geopolitical and trade tensions caused by the United States. In this context, Vietnam may need more time and effort to build up its manufacturing advantages.
