Vietnam again in the spotlight after Apple's iPad move

For the first time, Apple is moving part of its iPad manufacturing out of China, taking them to factories in Vietnam, Nikkei Asia reported this week. 

The development comes as lockdowns in the Chinese city of Shanghai disrupted supply chains for various tech products, prompting the iPhone maker to find alternatives. 

An iPad assembler has already built assembly lines in Vietnam, the Nikkei Asia report said. 

Apple is already sourcing its Airpod earpieces from the Southeast Asian economy, which has registered sustained economic growth in the past two decades. 

Since the economic reforms of the 1980s opened up Vietnam for trade and foreign investment from non-socialist countries, Hanoi has placed itself as a preferred destination for outsourced manufacturing. 

The country emerged on the scene especially after 2007 when a number of garment and shoemakers moved production lines away from China. 

But where Vietnam has really made its presence felt in the past decade has been in its ability to attract foreign direct investment (FDI) in factories that are assembling and manufacturing tech products from smartphones to TV components. 

South Korea and Japan – both home to some of the biggest technology names – account for the largest chunk of $376 billion of FDI, which came into the Vietnamese manufacturing sector between 2015 and 2020, according to one study. 

A Covid outcome 

It was a reckoning for global tech giants such as Apple when the Covid-related lockdowns forced factories to suspend operations, disrupting complex supply chains. 

The most notable impact was felt due to China’s ‘zero-Covid’ policy, which has led to strict lockdowns in some of its major cities. Since makers of everything from bathroom fixtures to cars have come to depend on Chinese factories, the lockdowns had negative fallout on their production. 

This has led some experts to push the concept of ‘China plus one strategy’ where Vietnam, with its fully functioning seaports and railways, is seen as an alternative to Chinese manufacturing hubs. 

Last year, South Korean electronic giant LG invested more than a billion dollars in ramping up its OLED display output at the Vietnamese port city of Haiphong. 

Even before the Covid-related supply chain disruptions, rising tension between US and China has prompted tech companies to shift production to other countries, mostly notably to Vietnam. 

Vietnam’s economy was boosted by almost 8 percent due to the shift in production during the trade war, according to an analysis of Nomura – a Japanese investment bank. 

Samsung already accounts for a quarter of Vietnam’s exports. Intel has set up its biggest chip assembly plant there. 

Vietnam’s manufacturing sector has grown in double digits before the pandemic caused disruptions globally. 

All of this has helped Vietnam, a country of 100 million people, to become one of the fastest growing economies in the world. 

Share of manufacturing in Vietnam’s economy at 20 percent is still lower than the 30 percent witnessed in the Asian tiger economies during the boom of 1980s and 90s. 

Even though Vietnam's GDP growth remained in the 5-8 percent range from 2000 to 2018, driven by a steady inflow of foreign direct investment, it is struggling to raise its GDP per capita, which was around $2,700 in 2019 - ranked 130th in the world. 

There are predictions that Vietnam’s economy can overtake Singapore within a few years if it's able to maintain the current growth trajectory. 

Oxford Economics says that around 4 percent of global electronic exports will come from Vietnam by 2025. 

It’s also unlikely that the US would take any drastic tariff measures against Vietnamese exports as it looks at the Southeast Asian country as a manufacturing counterweight to China. 

But the FDI and outsourcing facilities have put pressure on Hanoi to invest more in housing and infrastructure as major cities have seen a surge in rents.