Business & Investment

Vietnam prepares for supply chain shift from China

When the Trump administration began tariffing Chinese products two years ago, Vietnam was likely to become one of the countries that would most benefit from companies seeking to diversify from Asia’s top manufacturing bases.

Veteran businessmen in the region want to compare the rise of the economy and the vibrant business environment with China during the foreign investment-led boom that began in the 1980s or 20 years ago when manufacturing got off to a good start. thinking about.

The booster is a solid record of Vietnam manufacturing products to the world standard, Free trade agreement, Recently including the EU and UK.

Vietnam’s closure to Covid-19 and most international travelers has calmed some of the hype by hampering the ability of companies to perform due diligence there. However, analysts say the pandemic has also increased the need for companies to diversify their supply chains and move away from China, where the crisis first occurred.

Michael Kocalari, Chief Economist at Vina Capital in Ho Chi Minh City, said: “This phenomenon of companies moving from China to Vietnam is just beginning and will accelerate next year.”

One prominent example is Apple, which is known for its huge manufacturing base in China.It Start mass production Some of the AirPods wireless earphones in Vietnam in the second quarter of this year when most of the world was blocked. However, new entrants to Vietnam still face considerable challenges that Vietnam poses as a manufacturer.

The local labor market is not as deep as China. Industrial park space is in active demand, especially in the southern part around Ho Chi Minh City, where most of Vietnam’s clothing, furniture and other exporters are based. Tan Son Nhat International Airport in the city has long operated far beyond capacity. Expansion is underway and a new airport is being built, but will only be ready in 2025.

Most importantly, many of the components used to manufacture high-value products in Vietnam, from microchips to smartphones, are still procured from China, South Korea, Taiwan, etc. and airlifted there for assembly. Vietnam’s local supply base is not comparable to China.

“When companies move to Vietnam, many of them still have to rely on the supply chain from China,” said Nguyen Phuong Linh, associate director of consultancy Control Risks. “And Vietnam isn’t ready for a big shift yet. Infrastructure isn’t ready, logistics need to be improved, and the workforce isn’t that cheap compared to nearby peers.”

Meanwhile, trade tensions have intensified with the United States — another drawback to Vietnam’s successful exports. Against the backdrop of the growing US trade deficit with Vietnam, the diplomatic government’s trade representative Robert Lighthizer recently launched a Section 301 investigation into Vietnam. Manipulate that currency.. The Vietnamese government has denied this.

It’s not yet clear how the arrival of the Biden administration will affect the investigation, but Washington used the same process to impose tariffs on China’s exports to the United States and launched a trade war.

Businessmen say that even in a pandemic, the Vietnamese market is adapting to all these difficulties.

Development of a new business park is in progress. For example, GLP, Asia’s largest warehouse operator, is developing projects in Hanoi and Ho Chi Minh City. Plan to invest $ 1.5 billion It has been more than 3 years to expand the business in Vietnam.

Vietnam’s big numbers remain strong. Despite the pandemic, foreign direct investment spending was down only 2% to $ 17.2 billion in the year to November, according to Vietnam’s Bureau of Statistics. Vietnam’s economy is expected to grow 2.4% this year and is targeted by the government in 2021. 6.5% growth..

According to analysts, Vietnamese multinationals are currently building a supply base and are committed to bringing manufacturing closer to what can be considered a Chinese rival over time. “Currently, the supply chain is well built here,” says Kokarari.

john.reed@ft.com

Follow us on Twitter: @JohnReedwrites



Vietnam prepares for supply chain shift from China

https://www.ft.com/content/e855b706-e431-4fc5-9b0a-05d93ba1bcbe Vietnam prepares for supply chain shift from China

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