Withdrawing from China, the technology group chooses to go to Vietnam

Pegatron - an iPhone assembler - is diversifying its production site. CEO Liao Syh-jang said the company hopes to produce in Vietnam in 2021 after setting up a factory in Indonesia in 2019. Inventec, the main assembly partner of AirPods, also said on Tuesday that it is preparing to build a new facility in Vietnam.

Apple's supply chain in China in February was paralyzed by the Covid-19 epidemic that swept across the world's second-largest economy. The trend of shifting production out of China is accelerating, especially for small-scale manufacturers.

Device makers for companies other than Apple are also considering moving production to other countries. Foxconn predicted the possibility of change in the global manufacturing model, which has dominated the electronics industry for more than 30 years. The company also has manufacturing facilities in India and Vietnam.

The disruption of global supply chains due to the impact of the epidemic has made businesses realize the urgency of diversifying their production portfolios, avoiding dependence on one country.

"Things are changing day by day due to supply chain disruptions, so it's difficult to make any comments on supply and demand right now," said the head of a supplier for Apple.

A number of multinational companies have been planning to expand their operations in Vietnam since last year in order to reduce the pressure of new tariff barriers on goods exported from China to the US and look for alternative markets in case of accidents prices have skyrocketed.

Covid-19 could be a new catalyst for a faster production shift, after being driven by trade tensions last year. Therefore, Southeast Asia in general and Vietnam in particular will be even more attractive to businesses in the future.

Imports from Vietnam increased sharply

Data from the US Census Bureau shows that the amount of goods imported from Vietnam in 2019 increased by 35.6% over the same period, in contrast to a 16.2% decrease in goods imported from China.

This year's data will be affected by the impact of Covid-19 on global supply chains, but the trend of manufacturing shifting from China to countries in Southeast Asia will continue.

Mr. Stephen Wyatt, General Director of JLL Vietnam, said that Vietnam is still a promising destination since the wave of factory relocation from China began. Although the Covid-19 epidemic is causing certain difficulties for decisions as well as relocation activities, investors  are still confident to increase land prices in the first quarter of 2020 because this is a long-term investment trend.

However, not all manufacturing industries can be easily transferred to Vietnam. The wages of manufacturing workers in China are currently three times higher than in Vietnam, but the skill level of workers here is also higher.

China's scale cannot be replicated: the number of migrant industrial workers in China is even higher than the population of Vietnam. Moreover, a large volume of manufactured goods is to serve the Chinese domestic market.

According to JLL's report, the North attracts the majority of large corporations who want to diversify their production portfolios in addition to their facilities in China, with a well-developed infrastructure and a close proximity to China.

The average land price reached 99 USD/m2/lease cycle, up 6.5% over the same period last year. Ready-built factories - a favorite choice of small and medium-sized enterprises - still keep at a stable rental price ranging from 4.0-5.0 USD/m2/month, and have been occupied.

In the Southern region, JLL recorded a high number of land lease requests and developers have become more confident in increasing land rents. The average land price in Q1 reached 101 USD/m2/lease cycle, up 12.2% over the same period. Ready-built factories in the South have rental prices ranging from 3.5-5.0 USD/m2/month, a slight increase in Binh Duong, Ho Chi Minh City. Ho Chi Minh City, Long An and kept a stable level in the remaining provinces.

JLL's representative said that in the long run, many businesses are likely to change their production plans to ensure supply chain continuity and reduce the risk of similar shocks in the future.

Along with initiatives to improve sustainable performance and limit the environmental impact of manufacturing activities, retailers can choose to produce and purchase products from the domestic market. Vietnam will be even more attractive for businesses in the future.

Nam Viet