Amidst international trade wars and supply chain issues, the global landscape is changing. This is particularly true when it comes to the manufacturing sector. For decades, China has been the “go-to” for low-cost, high-quality manufacturing. But with tight COVID restrictions and unpredictable trade policies, many firms are looking to diversify to reduce risk. Increasingly, many companies and their suppliers are looking for alternatives. And as it turns out, Vietnam looks to be a hot spot.
Apple announced that it was making a move make its Apple Watch and MacBooks in Vietnam. Notably, this is a significant move since Apple has relied on Chinese manufacturing for a long time. But as it turns out, Apple isn’t the only international company considering manufacturing in Vietnam. Many other in the tech sector along with their suppliers are making similar choices, and for good reason. Vietnam has much to offer global enterprises and is continuing to emerge as a Southeast Asian player. Apple products in Vietnam is simply the start of a trend that’s likely to expand.
“China’s role as the world’s most important factory has been challenged since the trade war and then later its energy and zero-COVID policies. That really makes Vietnam, which is close to China, an ideal destination for many electronics makers as the nation gradually grows its supply chain ecosystem.” – Eddie Han, Senior Analyst with Isaiah Research
Apple’s History with Vietnam
When it comes to manufacturing in Vietnam, Apple’s announcement isn’t actually that new. For a few years now, other Apple products have benefitted from a relationship with the country. Specifically, iPad tablets and Airpod earphones are among Apple products in Vietnam manufacturing chains. In essence, Apple began exploring options outside of China as global trade environments shifted. Both the pandemic and trade barriers threatened production, and thus, many companies began looking for other options. In terms of Apple, they chose to move some of their easier-to-assemble products to manufacturing in Vietnam.
While this may seem like an easy decision, there were some challenges along the way. For one, some of Apple’s major suppliers like BYD and Luxshare Precision Industry are Chinese companies. Thus, Apple did not want to upset their own operations by trading Chinese assemblies for manufacturing in Vietnam. But by keeping these suppliers in the loop, a gradual shift was possible. This may have been one reason why there were only a few Apple products in Vietnam manufacturing pipelines initially. But having tested the waters, it appears Apple is satisfied and will continue to move in this direction.
“[Vietnam] is emerging as a key manufacturing hub in the East and Southeast Asia region, supported by government-led economic liberalization efforts and integration into global supply chains, through trade agreements and membership to regional and international blocs.” – Vietnam Trade & Investment Risk Report
The Appeal of Manufacturing in Vietnam
The decision to make Apple products in Vietnam was one that was well-considered, as you might imagine. In fact, Vietnam has many advantages when it comes to outsourcing operations to the country. For one, Vietnam has a relatively stable political environment and unlikely to get involve in trade wars. It also exists in a strategic geographic location and has an abundant labor workforce. By comparison, Vietnam’s workforce in cheaper than China’s as well. And according to recent reports, Vietnam ranks 5th out of all 35 Asian markets in terms of economic openness. All of these factors make manufacturing in Vietnam highly attractive.
The rankings for economic openness were determined based on a variety of factors. The basic determinants were openness to trade and openness to foreign investments. As far as trade goes, Vietnam received a score of 89.2 out of 100, which is quite impressive. Its advances in electronics manufacturing in Vietnam was a key component in these determinations. In addition, it would have scored higher in foreign investment potential if the electronics industry was considered. However, Vietnam does restrict investments in agriculture, mining, and utilities which lowered its total score to 74.6/100. Regardless, these rankings are still highly favorable, which is why Apple products in Vietnam will continue to advance.
“Vietnam has the ability to establish the necessary infrastructure and policies needed to support cutting-edge manufacturing operations in the chip sector.” – Steve Long, General Manager, Intel’s Asia-Pacific and Japan region
Apple Is Not Alone
The manufacturing of Apple products in Vietnam will have good company. Over the last few years, Vietnam has seen a significant increase in its growth of international firms. For example, Intel has relocated some of its semiconductor operations as of late including manufacturing in Vietnam. Samsung also just completed a $220 million research and development facility in Hanoi. And other major technology companies like Google, Dell and Amazon have similarly expanded in this direction. For the same reasons that Apple views Vietnam as a favorable option to its existing dependence on China.
In all likelihood, Apple would have considered a shift toward Vietnam sooner. But previously, some of its devices required highly technical manufacturing that had yet to be developed in the country. This has now changed and prompted Apple to consider manufacturing in Vietnam more broadly. Vietnam has increasingly shown the ability to take on such complex products like the Apple Watch. Plus, devices like MacBook have become more modular, making assembly easier. Thus, not only has this encouraged the production of more Apple products in Vietnam but other companies’ products as well.
A Dynamic Electronics Sector
Apple’s decision to move more of its product lines to manufacturing in Vietnam is not too surprising. The technology landscape is rapidly changing, and new regions are offering attractive alternatives to preexisting ones. The recently passed CHIPS and Science Act in the U.S. highlights this as the U.S. tries to boost its own manufacturing. Plus, given instabilities in global relations in technology trade, diversifying manufacturing and other operations seems logical. All of this is allowing Vietnam to have its day in the spotlight. Only time will tell if these developments are lasting or simply part of a broader evolution in the industry.