Apple is planning to increase its procurement of components from Vietnam, following a trend among global tech firms to diversify their supply chains away from China. CEO Tim Cook made this commitment during a meeting with Vietnamese Prime Minister Pham Minh Chinh in Hanoi, stating that Apple has already invested nearly $16 billion in its supply chain in Vietnam since 2019 and has created over 200,000 jobs in the country. Cook also expressed the company’s readiness to enhance cooperation and investment activities in Vietnam, highlighting the country’s growing importance to global companies seeking alternatives to China amidst escalating trade tensions.
Vietnam has emerged as a major beneficiary of multinational companies’ strategies to diversify their manufacturing hubs, known as the “China plus one” approach. Labor costs in Vietnam’s manufacturing sector are approximately half of those in neighboring China, leading to the production of higher-value tech products like iPhones and iPads. The country attracted over $4.29 billion in foreign direct investment in the first two months of the year, with the majority going into the processing and manufacturing sector. This shift towards more high-value products has helped Vietnam ascend the value chain in manufacturing.
Asian economies such as Vietnam and India have become preferred locations for manufacturers seeking to diversify outside of China amid strained relations between Beijing and the West. Vietnam, in particular, is seen as an ideal destination for tech companies looking to increase their presence outside of China. The country’s growing pool of trained engineers and close diplomatic ties with the United States have further solidified its attractiveness as a manufacturing hub. In 2021, Intel committed $1.5 billion to a major facility in Vietnam, underscoring its significance as a strategic location for tech companies.
The deteriorating relations between the United States and China, marked by a trade war and increasing export controls, have further prompted tech companies to seek alternatives to China for their manufacturing needs. Global supply chains were disrupted during the pandemic due to China’s zero-Covid policy, underscoring the risks of overreliance on a single production location. Vietnam’s advantages, such as a growing and educated workforce, youthful population, and expanding smartphone adoption, make it an appealing destination for foreign tech companies. The International Monetary Fund predicts robust economic growth for Vietnam, far outpacing the global average.
Vietnam’s increasing attractiveness to foreign firms is centered more on the supply side rather than domestic demand, unlike India, which is also vying for large foreign investments. While Vietnam offers a smaller market than India, its potential for supplying components and manufacturing products for tech companies is significant. The country’s strategic location, low labor costs, and skilled workforce make it an attractive proposition for global companies looking to diversify their supply chains and reduce dependence on China. The growing relationship between the United States and Vietnam further positions the country as a key player in the tech manufacturing landscape.
Overall, Vietnam’s rise as a manufacturing hub for tech companies reflects a broader trend of diversification away from China and towards alternative locations in Asia. The country’s economic growth, favorable labor costs, and skilled workforce have made it a preferred destination for global tech firms seeking to expand their operations. With increasing investments from companies like Apple and Intel, Vietnam’s role in the global supply chain is expected to continue to grow, highlighting its importance in the tech manufacturing sector.
