Vietnam News

Pandemic, trade wars accelerate Vietnam’s rise as world factory

Trade wars and the pandemic have accelerated Vietnam’s push to challenge China as the world’s factory, as the nation’s careful management of COVID-19 adds to its attraction to companies looking to dodge US tariffs.

The drift toward Vietnam began some years ago as Chinese labour costs began to creep up. It accelerated with the US-China trade war and this year the pandemic underlined the benefits of diversification, said Rob Subbaraman, Nomura’s head of global macro research.

« It’s a structural shift that we expect to continue. In coming years we will see a much bigger flow of intra-Asia investment from north Asia to south Asia, » he said.

« In the north – and that includes Japan and Taiwan as well as obviously China – populations are ageing, pension funds are getting bigger and, as these countries get richer, wage costs are also going up, and ASEAN nations and India will attract more investment. »

His comments came as the the Vietnamese government said Taiwan’s Pegatron, which builds devices for tech giants including Microsoft, Apple and Sony, had confirmed plans to invest $US1 billion ($1.3 billion) to build a manufacturing complex at Nam Dinh Vu industrial park near the city of Hai Phong in the north of the country.

Pegatron will join other iPhone manufacturers Wistron and Hon Hai Precision Industry in expanding operations in Vietnam.

The release of the three-stage plan – which will culminate with the shift of Pegatron’s research and development centre from China to Vietnam – coincided with reports Foxconn, another Taiwanese giant, is shifting more of its Apple manufacturing from China to Vietnam.

Last month Reuters reported Foxconn would expand its plant in Vietnam’s north-eastern Bac Giang province to accommodate the new assembly lines. The company has been diversifying out of China for years.

Other market watchers say recent investment decisions demonstrate the different approaches taken by south-east Asian nations to woo multinationals.

Regulatory certainty

Indonesia has taken steps to streamline regulation and reduce generous worker entitlements this year, but the country still views global giants as a source of industrial development. Various government departments do impose strict requirements for local input or content – demands that can change at will depending on the minister in charge.

In contrast, Vietnam makes a point of providing the regulatory certainty multinationals value.

Recent investment decisions by Apple and its suppliers reveal how these strategies can play out.

In 2017, Apple overturned a ban on iPhone sales in Indonesia by committing $US44 million to a research and development facility, thus addressing the Indonesian government’s demands it feature local content.

However, that pales against the jobs generated by the Apple global machine in Vietnam in recent years. Although Indonesia can rely on its huge consumer market to pull in funds – in recent months the likes of Google and Amazon have piled into Indonesian tech companies Gojek and Tokopedia – it struggles to attract investment in factories.

Now multinationals can also consider differences in pandemic management. Nomura economists have noted Asia as a whole has done a much better job of containing the coronavirus than Western nations.

Although Indonesia could soon be rolling out a China-developed vaccine, thousands of new cases a day put its recovery behind Vietnam, which has logged just 1377 cases since the pandemic began.

While it will be a mixed story of recovery, overall Asia is well positioned to benefit as global growth takes off next year, once the virus is suppressed, according to Mr Subbaraman.

« Asia is in a pole position to attract the biggest share of capital inflows next year. As uncertainty over COVID-19 eases, business will accelerate investment decisions, » he said.

By Emma Connors – The Australian Financial Review – December 9, 2020

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