Apple CEO Tim Cook made headlines in April of this year when he visited Vietnam. This Southeast Asian nation has quickly become a technology giant’s most important manufacturing hub. Vietnam appeared on Apple’s radar in 2022 after China’s strict COVID-19 policies had disrupted production. Supply chain uncertainty prompted Apple to reduce its dependence on China for product assembly, and Vietnam’s COVID response has been praised as an exemplary model for public health services. Not only did the move to Vietnam improve Apple’s supply chain resilience, but the transition also enabled Apple to tap into Vietnam’s consumer appetite for smartphones. Apple now stands as Vietnam’s third-largest smartphone vendor, a hopeful boost during a discouraging quarter, which has seen global shipments of new iPhones fall precipitously under intense competition from other suppliers.
But Apple isn’t just assembling iPhones in Vietnam. The company is moving some essential iPad engineering resources there, too. There have been reports that Vietnam is now a site for developing and manufacturing the MacBook and Apple Watch. According to Vietnam’s Ministry of Industry and Trade, Apple has completed the relocation of 11 audio-visual device manufacturing plants to Vietnam.
Apple isn’t the first company to discover the advantages of manufacturing electronics in Vietnam. Samsung has long had a presence in the country’s northern region. It’s also worth noting that Apple’s move to Vietnam was made more accessible because some of its contract manufacturers, notably Quant and Foxconn, had already set up operations there.
Is Vietnam Really Diversifying the Supply Chain?
However, before we conclude that the migration of electronics manufacturing to Vietnam (by Apple and other tech giants) has spurned China, we should note that Vietnam remains reliant on China for parts in many of the products it assembles for export. Likewise, China seems content to employ Vietnam to make an end-run around U.S. tariffs. As Darren Tay, lead economist at research firm BMI, recently told Reuters, “The surge in Chinese imports in Vietnam coinciding with the increase in Vietnamese exports to the U.S. may be seen by the U.S. as Chinese firms using Vietnam to skirt the additional tariffs imposed on their goods.”
In other words, China depends on Vietnam to get its products into American markets, as Vietnam relies heavily on China for parts. Thus, companies looking to outsource electronics manufacturing to Vietnam might have to source parts from China. This complex arrangement requires knowledge of the situation in Vietnam and China and the ability to forge a reliable supply chain by contracting with proven suppliers.
How Vietnam Became Successful in the Electronics Manufacturing Industry
Vietnam’s growth as an electronics manufacturing hub has been driven mainly by foreign investment. Numerous multinational corporations have supplied the capital to build the necessary infrastructure to support the industry’s growth. This foreign investment was no accident but a response to a carefully crafted, three-part strategy, which includes:
- Trade liberalization — Vietnam has entered a series of free trade agreements through its membership in the Association of Southeast Asian Nations (ASEAN). For example, the recently ratified EU-Vietnam Free Trade Agreement will eliminate most tariffs, which had an average of around 8.9 percent.
- Tax incentives — The Vietnamese government provides corporate income tax incentives for companies operating in industry sectors and specified industrial zones or areas needing economic development. Foreign firms making high-tech investments can receive preferential tax rates for 10 to 15 years with the potential for another 15-year extension. Initial investments can also earn tax holidays of up to four years.
- Government reforms—The Vietnamese government has targeted specific industry sectors for development, and it’s no surprise that electronics and telecommunications have made the list.
In addition to the deliberately business-friendly climate, Vietnam has favorable demographics for further industrialization. For the next 15 years or so, Vietnam will be coasting on the “golden population,” a situation where the number of working-age adults will outweigh the number of juvenile and elderly dependents. Thus, an ample workforce commands lower wages than their Chinese counterparts. Despite the lower cost, a healthy portion of Vietnamese laborers are impressively skilled due to high literacy rates. These include highly qualified electrical and I.T. engineers.
These factors have enabled Vietnam to rise in the ranks of electronics exporters, from 47th place in 2001 to 12th place in 2019, highlighting the benefits of manufacturing electronics in Vietnam. Vietnam’s exports of mobile phones were estimated at $57.9 billion in 2022. If you’re wondering who the buyers are, the top five purchasers are China ($16 billion), USA (almost $12 billion), South Korea ($5 billion), UAE (more than $2 billion), and Hong Kong (just over $2 billion).
However, smartphones don’t tell the whole story, and Apple isn’t the only big fish that Vietnam has netted. Amkor has announced its plan to construct a $1.6 billion factory. Meanwhile, Google plans to manufacture Pixel smartphones in Vietnam. Intel has expanded the second phase of its chip testing facility in Ho Chi Minh City, bringing its total investment in the country to $4 billion. Vietnam also reports deals with numerous leading retailers and manufacturers, such as Walmart, Amazon, Boeing, Carrefour, Central Group, Coppel (Mexico), IKEA (Sweden), Aeon, and Uniqlo (Japan).
Challenges and Limitations of Manufacturing in Vietnam
Now for the bad news. Vietnam’s electronics, computer, and component manufacturing growth has relied on foreign-invested enterprises, and that dependence will likely last for a while. If you’re a huge multinational corporation that wants to build a facility to manufacture your products, you can make an acceptable deal here. But, if you’re a small company looking to outsource the building of a gadget or two, your choice of suppliers might be limited.
This situation is dynamic and likely to change radically by 2030, given the government’s goal of becoming an electronics manufacturing hub. Yet even now, electronics suppliers are hanging their shingles out in the northern provinces, such as Bac Giang, Hai Phong, and Bac Ninh, offering their services as global electronics contract manufacturers. But how can a foreign company know whether they’re dealing with a trustworthy supplier with a proven pedigree or a fly-by-night operation that’s not ready for prime time?
Companies looking to outsource electronics manufacturing to Vietnam should consult a contractor with reliable knowledge of the country because they have actual boots on the ground, especially when considering the challenges of outsourcing electronics to Vietnam. The contractor should also be able to source necessary components from Chinese suppliers whenever necessary.
Work with Genimex
At Genimex, we’ve been producing for companies with East Asian manufacturers. Not only are we firmly established within China, but our Vietnam office has assembled a trustworthy network of suppliers for various products, which is essential when transitioning electronics production from China to Vietnam. We are ready to assist companies for whom Vietnam or China is a good fit.
{
"@context": "https://schema.org",
"@type": "BlogPosting",
"mainEntityOfPage": {
"@type": "WebPage",
"@id": "https://www.genimexgroup.com/is-vietnam-the-new-go-to-destination-for-outsourced-electronics-manufacturing/"
},
"headline": "Is Vietnam the New Go-To Destination for Outsourced Electronics Manufacturing?",
"description": "Discover why Vietnam is emerging as a top destination for electronics manufacturing. Learn key benefits, challenges, and supply chain insights today!",
"image": "https://www.genimexgroup.com/wp-content/uploads/2024/07/iStock-1607039350-300x208.jpg",
"author": {
"@type": "Organization",
"name": ""
},
"publisher": {
"@type": "Organization",
"name": "Genimex",
"logo": {
"@type": "ImageObject",
"url": "https://www.genimexgroup.com/wp-content/themes/genimex/src/images/logo/genimex_logo_gray.svg"
}
},
"datePublished": "2024-07-31"
}
{
"@context": "https://schema.org",
"@type": "FAQPage",
"mainEntity": [
{
"@type": "Question",
"name": "Why are companies moving electronics manufacturing to Vietnam?",
"acceptedAnswer": {
"@type": "Answer",
"text": "Companies are moving electronics manufacturing to Vietnam to diversify their supply chains, reduce dependency on China, benefit from lower labor costs, and take advantage of Vietnam's business-friendly policies and growing skilled workforce."
}
},
{
"@type": "Question",
"name": "Does Vietnam rely on China for electronics components?",
"acceptedAnswer": {
"@type": "Answer",
"text": "Yes, Vietnam still relies heavily on China for many parts and components used in electronics assembly, making the two countries' supply chains closely linked."
}
},
{
"@type": "Question",
"name": "What advantages does Vietnam offer for electronics manufacturing?",
"acceptedAnswer": {
"@type": "Answer",
"text": "Vietnam offers advantages such as competitive labor costs, a growing skilled workforce, government incentives, trade agreements, and a strategic location for exports."
}
},
{
"@type": "Question",
"name": "What challenges do companies face when outsourcing electronics manufacturing to Vietnam?",
"acceptedAnswer": {
"@type": "Answer",
"text": "Challenges include a limited number of experienced suppliers for smaller companies, reliance on foreign investment, dependence on imported components (especially from China), and the need to carefully vet manufacturing partners."
}
}
]
}
