Apple suppliers: bets on Vietnam will pay off

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Rising US-China tensions are putting pressure on Apple to diversify its manufacturing base. Finding suitable options has not been easy. But Vietnam now looks set to play a bigger role. Apple is reportedly moving iPad product development resources to the south-east Asian nation for the first time.

Scrutiny of Apple’s dependence on China, where it makes about 90 per cent of its products, intensified last year in a row over Chinese factory workers’ protests over lockdowns. Since then, suppliers have placed their bets on Mexico, Malaysia, Thailand, Indonesia, Vietnam and India to become alternatives to China. 

Apple has moved some of its iPhone production entry-level models and lower price products such as AirPods outside of China. But no one country seemed to be the right fit. Now, there is more clarity. Apple is working with China’s BYD, a key iPad assembler, to move the resources needed to design and develop new products to Vietnam.

Companies that invested in production facilities in Vietnam are set to have an edge if that shift accelerates. Chinese supplier Luxshare has been investing in Vietnam since 2019. Taiwanese suppliers Quanta Computer and Compal Electronics also gained a head start. Their shares are up more than 30 per cent this year.

Vietnam’s attractions include a monthly minimum wage that is low at about $190. Labour force participation is high, exceeding 75 per cent of the working-age population. Vietnam’s proximity to China, with which it shares a terrestrial border, makes for efficient supply chain logistics. 

Apple is likely to remain dependent on manufacturing in China for a long time. That is a consequence of the deeply entrenched supplier ecosystem and the need for scale for large volume products such as phones and accessories. But analysts expect as much as 30 per cent of production capacity to shift from China to south-east Asia over the next two years. Early bets will pay off.