CNN — LONDON (CNN) — Apple plans to buy more parts from Vietnam as the world looks beyond China to secure supply chains, cut costs and explore new markets. This highlights trends among high-tech companies.
Vietnam’s CEO Tim Cook made the pledge during a meeting with Prime Minister Pham Minh Trinh in Hanoi on Tuesday, the Vietnamese government said.
Apple (AAPL) has already spent about $16 billion through its supply chain in the country since 2019, the government quoted Cook as saying. He added that the company has created more than 200,000 jobs in Vietnam.
Cook said Apple is “ready to increase our cooperation and investment activities” in the Southeast Asian country, according to a statement.
His visit underscores Vietnam’s growing importance to global companies seeking alternatives to China as trade tensions between China and the West have intensified in recent years.
Vietnam is a “big beneficiary” of multinational companies’ move to diversify their manufacturing bases, a strategy known as “China plus one,” said Dragon Capital, a local fund management firm that invests exclusively in Vietnam. Strategist Thuy Anh Nguyen said. companies.
Nguyen, who manages $6 billion in assets for the company, told CNN that manufacturing labor costs in Vietnam are about half that of neighboring China.
Thanks to this, Vietnam has been able to shift from producing mainly “low-value products” like textiles to producing high-tech products like iPhones and iPads, she said. “It’s a higher value commodity. That’s how we move up the value chain.”
Vietnam attracted more than $4.29 billion in foreign direct investment in the first two months of this year, an increase of almost 39% compared to the same period in 2023, according to the country’s Ministry of Planning and Investment. Most of the new investment went to the processing and manufacturing sector.
“Perfect landing spot”
In recent years, as relations between the Chinese government and the West have deteriorated, fast-growing Asian economies such as Vietnam and India have emerged as alternative manufacturing hubs.
Dan Ives, senior equity analyst at Wedbush Securities, said Vietnam is a “perfect landing spot for high-tech companies to diversify outside of China,” citing domestic training as one factor. He pointed out the large number of engineers who received the training.
“We’re not just talking about (manufacturing) low-cost electronics,” he told CNN. “We’re talking up the value chain…two years ago it wasn’t even on[foreign companies’]radar.”
Once war enemies, the United States and Vietnam are growing closer, with U.S. imports of Vietnamese goods jumping more than 360% to $144 billion in the decade to the end of 2023, according to U.S. government data. exceeded.
In September, the two countries officially upgraded their diplomatic relationship to a “comprehensive strategic partnership.” This is a symbolic but very important move, positioning Vietnam as a destination for further US investment, including in critical technologies such as semiconductor chips.
Intel (INTC) is also paying attention to Vietnam’s rise. In 2021, the company will invest $1.5 billion in a sprawling campus on the outskirts of Ho Chi Minh City that will become the world’s largest single assembly and testing facility.
At the same time, relations between the United States and China are deteriorating. The trade war between the two countries began in 2018 when the U.S. government imposed tariffs on many Chinese imports, but escalated last year after both countries introduced retaliatory semiconductor manufacturing export controls.
Meanwhile, during the pandemic, China’s strict zero-corona policy has disrupted global supply chains and presented the risks of concentrating production in one place.
Notably, the world’s largest iPhone factory, located in central China and owned by Taiwanese manufacturer Foxconn, was forced to temporarily close in 2022 after workers revolted due to concerns about the spread of the coronavirus. That’s what happened.
consumer market
Vietnam has another advantage, Nguyen says. It’s a rapidly growing, educated, and young population. That’s a big draw for foreign tech companies looking to hire workers in factories and find consumers for their products.
“Vietnam has a population of 100 million people. If it were Europe, it would be the largest country,” she said, also noting that smartphone penetration is rapidly increasing in Vietnam.
The International Monetary Fund predicts that Vietnam’s economy will grow by 5.8% this year, well above the global average of 3.2%. The fund predicts Vietnam’s growth rate to be 6.5% in 2025. This is not far from India’s pace of expansion.
Still, Vietnam is a much smaller market than India, which is also encouraging large foreign companies, including Tesla (TSLA), to set up factories in the country.
For now, Vietnam’s appeal to foreign companies is “more about supply than demand,” says Wedbush Securities’ Ives, but for India it’s more of a combination of both.
Juliana Liu contributed reporting.
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