Vietnam: Beneficiaries of the "de sinicization" of the supply chain

Multinational corporations seek to reduce their dependence on Chinese manufacturing, and Vietnam will be one of the biggest beneficiaries, although it still faces bottlenecks in labor, infrastructure, and component supply.

Vietnam

Trump(Trump)When the government began imposing tariffs on Chinese goods two years ago, Vietnam seemed to be one of the countries that would benefit the most from a trend where companies were considering relocating out of China, Asia's largest manufacturing base, to achieve supply chain diversification.

Asian business veterans like to compare Vietnam's rising economy and thriving business environment with those of the last century80The prosperity driven by foreign investment that emerged in Thailand during the era, or China20The manufacturing industry took off a year ago.

Supporters of this viewpoint point out that Vietnam has shown remarkable performance in producing products that meet international standards, and has joined an increasing number of free trade agreements, including the recent one with the European Union(EU)Reached a free trade agreement with the UK.

Novel coronavirus pneumoniaCOVID-19, i.e2019The COVID-19 pandemic, coupled with Vietnam's closure of borders for most international travelers, has constrained the ability of businesses to conduct due diligence in the country, calming down some of the hype surrounding Vietnam. However, analysts say that this epidemic has also made companies realize the necessity of diversifying their supply chains and reducing their dependence on China. China is the first country to suffer from the COVID-19 crisis.

Ho Chi Minh CityVinaCapitalMichael Cochrane, Chief Economist of the company(Michael Kokalari)"Enterprises thought they had a global supply chain, but COVID-19 made them understand that they had a Chinese supply chain. The phenomenon of enterprises moving from China to Vietnam has just begun, and next year we will see this process accelerate."

A prominent example is Apple, which is known for having a huge manufacturing base in China(Apple)In the second quarter of this year, when most parts of the world were still under lockdown, Apple began mass producing parts in VietnamAirPodsWireless headset. However, Vietnam still faces significant challenges as a country where manufacturing activities flow in, and new entrants to the country must face these challenges.

Vietnam's labor market is not as strong as China's. The space supply in industrial parks is tight, especially in the southern Ho Chi Minh City area, which is the headquarters of most of Vietnam's clothing, furniture, and other export enterprises. For a long time, the city's Johor Bahru International Airport(Tan Son Nhat International Airport)Always operating at overload. The expansion project is underway, and a new airport is also under construction, but it is expected to2025It takes years to complete.

Most importantly, many parts needed to manufacture high-value products in Vietnam - from microchips to smart phones - still need to be purchased from Chinese Mainland, South Korea, Taiwan or other places, and then transported to Vietnam by air for assembly. From the supplier group(supply base)On this level, Vietnam cannot compare with China.

Consulting Company Insurance Group(Control Risks)Deputy DirectorNguyen Phuong LinhAfter relocating to Vietnam, many companies still have to rely on China's supply chain. Faced with the large-scale transfer of manufacturing, Vietnam is not yet ready. Infrastructure is incomplete, logistics needs improvement, and labor is no longer as cheap compared to neighboring countries

At the same time, trade tensions between Vietnam and the United States are intensifying - another unfavorable factor for Vietnam's export industry development. Against the backdrop of the widening trade deficit between the United States and Vietnam, the outgoing US Trade Representative Robert Lighthizer(Robert Lighthizer)Recently launched against Vietnam“301Terms and Conditions(Section 301)Investigation, including investigating whether Vietnam is manipulating its own exchange rate. The Vietnamese government denies this accusation.

Although it is currently unclear which Biden will take office soon(Biden)How will the government affect this investigation, but Washington has used the same procedure to impose tariffs on Chinese products exported to the United States, which has sparked a US China trade war.

Business people say that in response to these difficulties, the Vietnamese market is adjusting to adapt to the situation, even during the pandemic.

Some new industrial parks are currently under development. For example, Prolos, the largest warehouse operator in Asia(GLP)We are currently developing projects in the metropolitan areas of Hanoi and Ho Chi Minh City, and plan to do so in the future3Annual investment15Billion US dollars to expand its business in Vietnam.

Vietnam's macroeconomic data remains strong. According to data from the National Bureau of Statistics of Vietnam, despite the impact of the epidemic, as of11During the month of the year, foreign direct investment(FDI)Only decreased2%, for172USD100mn Vietnam's economy is expected to grow this year2.4%The government is2021The growth target set for the year is6.5%。

Analysts say that multinational companies are currently building their supplier base in Vietnam, which is expected to bring Vietnam's manufacturing industry to a level similar to that of China over time. We are seeing a significant scale of supply chain building activities emerging here, "said Kokarari.