In Vietnam, a signed contract is not always an enforceable one. Many foreign investors are surprised to learn that a fully negotiated and executed contract can be declared invalid by a court, simply because it failed to meet specific, overlooked, legal formalities. This critical gap between a contract’s formation (the moment of signing) and its […]
Through domestic reforms, natural resources and structural advantages, Vietnam has become one of the fastest-growing economies in Southeast Asia and is on its way to becoming a global manufacturing hub by attracting more and more high-tech multinational corporations (MNCs).
Opportunities for High-Tech Manufacturing Giants
According to a recent report by the Russian news agency Sputnik, Vietnam is attracting more attention because it has the potential to become one of the world's leading manufacturers. Vietnam's exports reached a record high as more "Made in Vietnam" products became more widely accessible and held a larger market share globally.
In recent years, the ASEAN market has seen a surge in FDI, owing largely to the region's enormous economic potential. However, it is important to note that not all ASEAN economies benefited equally from this FDI boom. In addition to Singapore, Malaysia and Vietnam appear to be two important markets based on high frequency data. While Malaysia's approved FDI value increased to 12% of GDP in the fourth quarter of 2021, Vietnam has successfully transformed into an emerging global manufacturing hub.
Initially, the majority of investment capital was directed toward low-value-added sectors such as textiles and footwear. However, in the last two decades, Vietnam has moved up the value chain, becoming a major manufacturing hub for electronic products. Electronics exports reached a record high of $100 billion in 2021, accounting for more than 30% of Vietnam's total export value, up from 5% 20 years ago.
Samsung's extensive FDI in Vietnam since the late 2000s has played a significant role in the success of the technology sector. Over the years, Samsung has invested roughly $18 billion, and as of today, it owns eight factories as well as a research and development facility in Vietnam. At the same time, Samsung's success has prompted other tech giants, such as Google and LG, to move their supply chains to Vietnam.
The presence of the big names has made Vietnam a base for the production of electronics and mobile phone components, with the export turnover of phones and components, electronics, and computers and components exceeding $27.3 billion in the first quarter of this year. Last year, the export of phones and components alone brought in $57.54 billion.
In addition to high-tech giants like Samsung, Nokia, Google, or Intel, other production projects have been announced by large or authorized corporations such as Foxconn, Luxshare, Pegatron, Goertek, and so on, which specialize in manufacturing and assembling components for Apple, Wistron, Amazon, Microsoft, and LEGO.
Apple's OEM model in Vietnam
In Vietnam, Apple recorded 21 suppliers, up from 14 in 2018. This figure is also higher than that of Thailand (15 suppliers) and India (9 suppliers). Apple's recent decision to relocate production lines to Vietnam has created opportunities for the Southeast Asian country to participate more deeply in the global value chain.
For the first time, Apple is shifting some iPad production out of China and into Vietnam, following months of supply chain disruptions caused by strict Covid-19 lockdowns in and around Shanghai. The iPad will become the second major line of Apple products made in the Southeast Asian country, following the AirPods earbud series, which was announced in 2020.
Apple is not the only tech MNC to develop a massive production line in Vietnam. Samsung has recently increased its investment in Vietnam, which produces half of its global smartphone output, by $920 million to manufacture circuit boards, camera modules, and other parts.
However, in reality, Apple's supply chain model is not the same as Samsung's. Apple does not directly manage any manufacturing plants. Instead, Apple works with suppliers around the world to manufacture and assemble Apple products. These suppliers are referred to as original equipment manufacturers (OEMs). Up to now, Apple has moved 11 factories owned by Taiwanese enterprises in its supply chain to Vietnam. The increase in investment activities of Apple's suppliers in Vietnam is mainly due to Apple's request. This also reflects the growing importance of Vietnam in the global value chain of Apple.
Vietnam was mentioned by Apple CEO Tim Cook as one of the three markets with the best business results for the company globally during the meeting to announce the financial results for the second quarter of fiscal year 2022. The CEO also declared that he will seriously take into account the Vietnamese Prime Minister's Pham Minh Chinh suggestion to increase the number of domestic suppliers and the percentage of domestic services and goods used in Apple products in the near future. Apple hopes that the Vietnamese government will continue to have preferential policies to encourage American high-tech enterprises to develop businesses and invest in Vietnam.
This firm also sent notices to a number of supply partners at the end of May 2022, announcing that the company would increase production of its product lines outside of China. As a result, this tech giant has chosen to focus on developing new assembly facilities in Vietnam and India.
Apple’s increasing interest in the supply chain from Vietnam is good news, demonstrating Vietnam’s efforts over the years to be on the world technology map, to become a “base of electronics production” for MNCs. That is an achievement, a spectacular shift by Vietnam in attracting quality FDI inflows, even though Vietnam can in fact do better and make better use of the pervasive value of this capital inflow.
However, it should be noted that Vietnam has been accepting projects at the low value-added stage of the global supply chain, assembly, in order to take advantage of low labor cost. Stages requiring higher added value are still not completed in Vietnam.
Domestic firms are struggling to become suppliers to foreign-invested companies. Because most domestic companies are small and lack competitiveness, foreign investors frequently bring their own satellites to Vietnam.
Conclusion
Vietnam is currently one of the safest destinations and offers the most favorable conditions for the world's high-tech giants to manufacture their products and related parts.
Apple’s story in Vietnam shows that the opportunity for the Southeast Asian country to receive large capital flows from MNCs is getting closer. Vietnam has the potential to become an important link in this global trade movement.
The ongoing trend of high-tech MNCs will also push Vietnam to work more on its domestic competitiveness by improving its level of manpower and infrastructure and creating a more favorable environment to achieve its goal. This also brings positive conditions for FDI enterprises at all levels. For more insights on FDI projects and trends in Vietnam, contact us now.
