Why Apple is looking to Vietnam in order to minimize its dependence on China

More than ninety percent of Apple gadgets, including iPhones, iPads, and MacBooks, are now manufactured in China. As the US-China trade conflict shows no signs of abating, experts believe that Apple’s substantial reliance on China poses significant concerns.

 

Apple is progressively transferring its gadget manufacturing process to manufacturers in Vietnam and India to minimize its dependence on China. Vietnam is likely to engage more fully in the global value chain if Apple sends stronger signals.

 

Vietnam Briefing examines Apple’s advantages and problems in transferring its manufacturing to Vietnam, providing implications for international firms wishing to establish a foothold in this market.

 

Activating the relocation procedure

 

More than ninety percent of Apple gadgets, including iPhones, iPads, and MacBooks, are now manufactured in China. As the US-China trade conflict shows no signs of abating, experts believe that Apple’s substantial reliance on China poses significant concerns. Consequently, Apple is under pressure to diversify its supply chains to other nations in the area. Apple’s products have been built in Vietnam and India for many years. However, in light of China’s COVID-19 regulations, Apple’s changeover process has become more obvious than ever.

 

A JPMorgan estimate predicts that by 2025, around 75 percent of Apple goods would be manufactured in China, down from the current 95 percent. Instead, the internet giant intends to relocate its supply network to Vietnam and India. Accordingly, JPMorgan’s study predicts that by 2025, Apple would manufacture 20 percent of iPads, 5 percent of MacBooks, 20 percent of Apple Watches, and 65 percent of AirPods in Vietnam.

In addition, Apple has relocated the factories of eleven Taiwanese organizations in its supply chain to Vietnam, and a number of essential companies, including Foxconn, Luxshare, Pegatron, and Wistron, have extended their current manufacturing facilities in Vietnam. Foxconn Corporation signed a deal with Saigon – Bac Giang Industrial Park Joint Stock Company (SBG) in August to lease an additional 50.5 hectares of land to construct a new plant, around the same time as the media announced Apple’s relocation to Vietnam. After the opening of this facility, Quang Chau Industrial Park is anticipated to employ around 30,000 people.

 

It is anticipated that Apple’s relocation would make Vietnam one of its most significant manufacturing hubs, consequently increasing the amount of gadget production in this market.

 

Vietnam represents a possible market

 

China’s policy inconsistency is a major factor in Apple’s decision to relocate manufacturing to other Asian nations. Vietnam, while benefiting from the redirection of investment inflows, has become Apple’s ideal location for the following reasons:

 

A rising economy amid unpredictability.

 

Vietnam’s rapid economic expansion and position as the third largest market in Southeast Asia make it the perfect location for foreign investment. Despite regional turbulence, Vietnam’s economy continues to be a “bright light.” According to Moody’s Analytics, Vietnam’s GDP will increase by 8.5% this year, which is the strongest pace in the region and exceeds Moody’s prior projection.

 

In addition, experts note that what started as a cautious reopening of Vietnam’s economy earlier this year is now a quick increase in industrial output and export commerce, powered by continuous foreign direct investment.

 

Positive economic indications from Vietnam

 

These strong economic signals from Vietnam are crucial, particularly in the context of growing regional instability and soaring inflation, which are anticipated to have a direct and lasting influence on the region’s economic development in the second half of 2022. Moody’s Analytics’ evaluation of China and Hong Kong, for instance, is gloomy, expecting a gain of just 4.3% for China and a decline for Hong Kong.

 

Apple has faced several challenges over the years owing to rising fuel costs, the Russia-Ukraine conflict, the COVID-19 outbreak, China’s zero-covid policy, and the uncertainty of the US-China trade war. Despite these turbulences, Vietnam’s steady growth remains a possible target for investors seeking investment possibilities in the area.

 

Geographical closeness to other Asia-based high-tech supply chains

 

India and Vietnam are also excellent alternatives to Apple. Vietnam has significant locational benefits, however, when it comes to relocating the industrial process from China. Vietnam is the closest nation to Shenzhen, the Chinese industrial powerhouse. It is time-consuming and expensive to replace China’s industrial environment, therefore transferring production to a nearby nation can assure a seamless transition.

 

Even if Apple decides to modify its approach, China may continue to provide Vietnam with raw materials at affordable shipping rates and times. As mentioned before, key firms in Apple’s supply chain are growing their infrastructure in Vietnam, namely in northern towns such as Bac Ninh, Bac Giang, and Vinh Phuc – prospective places for the growth of the consumer electronics sector that are also close to China. In addition, Vietnam is geographically close to Apple’s supply chain hubs in Taiwan, Japan, South Korea, and other Southeast Asian nations.

 

Vietnam as an emerging trading link

 

Vietnam has the potential to grow as a regional commercial hub due to its advantageous geographical location. For example, Vietnam has free trade agreements with East Asian nations such as China and Japan — crucial players in Apple’s supply chain. In addition, Vietnam has Most Favored Nation (MFN) status with the United States, which facilitates trade between the two nations. Vietnam is a member of the Association of Southeast Asian Nations (ASEAN), which provides the nation with several advantages in regional economic integrations.

 

A large and low-paying labor force

 

Vietnam’s population of approximately 100 million people is vital to the country’s economic growth. Numerous international investments are said to be attracted by a number of reasons associated with Vietnam’s labor market.

For instance, Vietnam’s minimum salary remained unchanged from 2020 to 2021 and ranges between around US$132 and US$190 per month, depending on area. In the era of market liberalization and courting international investment, Vietnam’s low-wage workforce is considered a traditional advantage. Additionally, in 2020, Vietnam’s labor force participation rate was 74.4 percent, which was much higher than 60.5% (globally) and 67.2 percent (in the United States) (Southeast Asia and the Pacific). According to the Japan International Cooperation Agency (JICA), Vietnam’s labor supply will stay constant in the short and medium term despite the effect of the pandemic or economic restructuring.

 

Problems confronting Apple

 

The workforce benefits might soon alter

 

The Japanese International Cooperation Agency (JICA) has warned that Vietnam will soon lose its comparative advantage in cheap labor owing to aging and increasing labor expenses. Accordingly, JICA stated that Vietnam would confront the difficulty of limiting labor reserves while attempting to increase aggregate supply over the long term. By 2050, just 60 percent of Vietnam’s population will be of working age, while a chunk of the population will be over 60 years of age.

 

Moreover, earnings will very probably rise. The data indicates that Vietnam is one of the three East Asian nations with the highest minimum wage rise between 2015 and 2019, with an average yearly growth rate of 8.8 percent. Therefore, Vietnam will lose its existing competitive advantage in low-skilled and labor-intensive sectors with a low-cost workforce.

 

This evaluation has a substantial impact on labor-intensive industries like electronic assembly, where automation poses a danger to low-skilled people. In addition, while Vietnam has a huge labor force, its labor force is far less than that of China or India, making competitiveness more difficult.

 

Consequently, increasing worker productivity is the most effective option, while being a very complicated and time-consuming procedure. Currently, the quantity of skilled employees in Vietnam is not a competitive advantage, particularly when compared to China, Singapore, Malaysia, and Thailand; consequently, Apple and comparable corporations will require assistance locating sufficient trained personnel in the nation.

 

In addition, COVID has an impact on Vietnam’s labor market, as managers struggle to return their personnel to workplaces. The total number of employees in export processing zones and industrial zones in Ho Chi Minh City declined by 46 percent to 135,000 by the end of 2021.

Unquestionably, international investors should take into account a predicted big shift in Vietnam’s labor market.

 

Protracted customs procedures

 

Apple’s top executives are concerned about customs processes since they are cumbersome and need more time than the worldwide norm for clearing products through customs. Apple’s efforts to get a special priority business regime under the official program of Vietnam Customs, which is enjoyed by many other enterprises, were denied by the customs agency for several reasons.

 

Implications for overseas companies

 

Vietnam would be able to engage more extensively in the global value chain thanks to Apple’s initiative. Apple’s increased presence on the Vietnamese market is anticipated to raise orders for Vietnamese suppliers or prompt international suppliers to build facilities in Vietnam. Vietnam now has the chance to attract high-quality FDI inflows.

 

Foreign investors will pay close attention to the comparative advantages that the Vietnamese market provides, particularly the aspects listed above. However, Apple’s reservations over the Vietnamese market will be shared by several other international companies. In a variety of conferences and seminars, the Vietnamese government has demanded tangible improvements from foreign businesses and groups and provided replies. However, concerns like enhancing the abilities of employees and revising restrictions for foreign investors remain unresolved and cannot be handled immediately.

 

 

The Biggest Changes You’ll See At Pizza Chains In 2025

Xponential Fitness Brands Celebrate Success on Entrepreneur’s 2025 Franchise 500®

Domino’s Pizza China eyes 1000th restaurant milestone by Q4

Chat on WhatsApp