The Sino-American trade war together with supply chain disruptions due to the novel coronavirus pandemic has prompted many an investor to plan to relocate their production facilities in order to reduce their reliance on China.
Will Vietnam be able to grasp investment opportunity from such a location shift?
The Japan-based newspaper Nikkei Asian Review recently cited sources as saying that the American tech giant Apple would for the first time produce from three million to four million AirPods wireless earphones in Vietnam. This amount of AirPods is about 30% of the total AirPods production in the second quarter of this year.
In fact, Apple once requested its key suppliers to appraise plans to move around 15% to 30% of its hardware production out of China when Washington-Beijing tensions heightened last year. At present, the Covid-19 pandemic only speeds up the process. GoerTek, a key AirPods assembler which is based in China, began preparing to shift production to Vietnam as early as October 2018; It started a test production last summer.
Luxshare Precision Industry, known as Luxshare-ICT, another supplier, initiated new investment in Vietnam last year, producing the wireless headphones here. Inventec, another AirPods assembler, is building a plant in Vietnam, at the request of Apple.
Apple is gradually forming a complete audio system supply chain in northern Vietnam, where the California-based technology giant Cupertino has long sourced its traditional EarPods, the wired headphones that come with iPhones, from factories run by their suppliers there.
Meanwhile, Merry Electronics, Apple’s audio system component supplier, is collaborating with Luxshare in building here in Vietnam facilities slated to be put into operation soon.
Two major iPhone builders, Foxconn and Pegatron, and iPad maker Compal Electronics are all expanding their production in Vietnam.
Speaking at a conference bringing together Prime Minister Nguyen Xuan Phuc and the business community last month, representatives of foreign companies reaffirmed their interest in investment in Vietnam.
Vietnam’s measures to cope with the acute respiratory disease Covid-19 have helped maintain the confidence of European enterprises, according to Chairman Nicolas Audier of the European Chamber of Commerce in Vietnam (EuroCham).
Meanwhile, Hong Sun, vicechairman of the Korea Chamber of Business in Vietnam (KorCham), said his agency would continue acting as a bridge linking qualified investors with Vietnam.
Talking about the US$2.2 billion stimulus package provided to help Japanese manufacturers shift their production out of China, move it back to Japan, or open their plants in Southeast Asia, Hirai Shinji, chief representative of the Japan External Trade Organization (JETRO) in HCMC, said Japanese enterprises have paid more attention to Vietnam. “Risk management capacity of keeping the pandemic under control demonstrated by the Vietnamese Government will also be positively evaluated by Japanese companies,” he said.
Although the opportunities to absorb investment from companies moving their production out of China, Vietnam still has to come face to face with her formidable rivals. Bloomberg News reports that India looks to lure more than a thousand U.S. companies. As an attractive major market whose population ranks second worldwide, India is offering a slew of incentives for foreign investors and is prioritizing medical equipment suppliers, food processing equipment, textiles, leather and auto part makers.
Indian government officials have told company bosses that even though overall investment costs are still higher than China, investment in India may be more economical when it comes to land and labor than a relocation to the U.S. or Japan.
Indian authorities have also insisted that India will consider specific requests on changes to labor laws and may postpone a tax on digital transactions among e-commerce companies.
Thailand, another competitor, has introduced a new package of policies, including plenty of tax incentives, according to the Nikkei Asian Review.
The Thai Government plans to amend the Foreign Business Law whose revision is likely to give foreign investors the green light to further expand their investment in the country. Also, the package has included measures for boosting human resources in advanced technology.
According to Jones Lang LaSalle (JLL), a real estate consultant and management firm, Vietnam is emerging as an attractive investment destination. Limitations still exist, though. Stephen Wyatt, country head at JLL Vietnam, said wages for industrial workers in China are three times higher than in Vietnam, but their skill is higher.
As far as other inherent weaknesses are concerned, Vietnam’s infrastructure and supporting industries have failed to meet certain requirements of manufacturers. Meanwhile, high-quality human resources remain modest in quantity. Poor connection between foreign and domestic enterprises has resulted in a lower rate of technology transfer. The complexity and overlap of administrative procedures have also slowed down their pace of investment.
Therefore, observers believe that Vietnam should aggressively address these limitations. The authorities concerned should actively work with multinationals to conduct negotiations rather than waiting for them to make contact.
Phan Huu Thang, former head of the Foreign Investment Agency under the Ministry of Planning and Investment, said a set of criteria is needed to pick truly competent investors who are environmentally friendly and abide by international laws on investment. “Vietnam’s proactive approach will decide on the trend of foreign investments in the coming time,” said Thang.
Veteran economist Pham Chi Lan said other countries are increasingly cautious with foreign investment. She said the United States has imposed regulations in which the U.S. government has the right to appraise foreign investment instead of letting it loose in the past. She suggests Vietnamese authorities should carefully scrutinize this issue so that they could lay down a set of criteria for the selection of competent foreign enterprises.SGT
Nearly US$6 billion in foreign direct investment was poured into Viet Nam’s industrial parks (IPs), processing zones and economic zones (Ezs) in the first half of the year, according to the Ministry of Planning and Investment (MPI).
Vietnam has undergone profound changes since first opening its doors to FDI more than 30 years ago.