U.S-China trade war a boon for Taiwan tech manufacturers
Country’s tech firms are looking to bulk up manufacturing operations on their exports
BAC NINH, Vietnam — No country on Earth has benefited from President Donald Trump’s trade fight with China more than Vietnam.
The country’s factories have swelled with orders as American tariffs cause companies to reconsider making their products in China. Now, more big technology firms are looking to bulk up their manufacturing operations in Vietnam, lifting the ambitions of a nation already well on its way to becoming a powerhouse maker of smartphones and other high-end gadgets.
First, though, Vietnam needs to get better at making the little plastic casings on your earbuds.
Vu Huu Thang’s company in the northern city of Bac Ninh, Bac Viet Technology, produces small plastic parts for Canon printers, Korg musical instruments, and Samsung cellphones and phone accessories, including earbuds. He said it would be hard for his firm to compete against Chinese suppliers as long as he had to buy 70 to 100 tons of imported plastic material every month, most of it made in China.
“Vietnam cannot compare with
China,” Thang said. “When we buy materials, it’s 5, 10% more expensive than China already.” And the Vietnamese market is too small, he said, to entice plastic producers to set up plants here.
Negotiators for the U.S. and China are meeting in Shanghai this week to try to find a way forward in resolving their bruising trade war. But for some companies, spooked by what now appears to be a definitive darkening in the United States’ relations with China, the appeal of working in the world’s second-largest economy may already be tarnished for good. With smartphones, video game consoles and other consumer favorites potentially next on Trump’s tariff list, gadget-makers in particular are feeling pressure to find new low-wage places to make or finish their products.
Apple has homed in on Vietnam and India as it intensifies its search for ways to diversify its supply chain. Nintendo has accelerated a shift in the production of its Switch console to Vietnam from China, according to Panjiva, a supply chain research
firm. The Taiwanese electronics behemoth Foxconn, a major assembler of iPhones, said in January that it had acquired landuse rights in Vietnam and had pumped $200 million into an Indian subsidiary. Other Taiwanese and Chinese partners to Apple have indicated that they are considering ramping up operations in Vietnam as well.
Even so, this nation of nearly 100 million people is not about to replace China as a manufacturing hub overnight. Land here can be expensive, and readyto-use factories and warehouses are in short supply. Recruiting enough trained workers and managers is another potential challenge.
“It’s definitely stretching Vietnam’s capabilities,” said Frederick R. Burke, a managing director in Ho Chi Minh City for the law firm Baker McKenzie. Even though the country’s labor force is expanding by 1 million people a year, he added, “people are talking about labor shortages already.”
Vietnam also does not have vast galaxies of companies churning out specialized components, parts and materials like those that manufacturers can call upon in China.
Tran Thu Thuy said that “of course” she would love to
work with Apple someday. Thuy’s firm, HTMP, makes metal molds that factories use to produce plastic and die-cast parts. She gestured toward a nearby MacBook. One day, she said, HTMP might be able to make the molds for metal laptop bodies. But she knows the company has to improve in many ways before that day can come.
“There’s a long list,” she said.
Vietnam is already a colossus in producing shoes, clothes and other types of labor-intensive goods, having long ago begun siphoning business away from its giant northern neighbor.
Nike and Adidas now make close to half their sneakers in Vietnam. As factories have sprung up, the Vietnamese government has pledged to improve roads, ports and power plants. Hanoi has also signed deals with governments around the world to reduce tariffs, including an agreement reached last month with the European Union.
The Trump administration has not failed to notice that its import levies have been shifting global commerce in Vietnam’s direction. The Treasury has put Hanoi on a watch list for manipulating the value of the Vietnamese currency,
the dong, to help exporters. Trump suggested last month that Vietnam might be the next target for punitive tariffs, calling the country “almost the single worst abuser of everybody.”
In response, the Vietnamese government said it wanted mutually beneficial trade ties with the United States, and it highlighted its efforts to punish exporters who illegally relabeled their goods as “Made in Vietnam” to dodge U.S. taxes.
Yet even Trump’s feuding seems unlikely to reverse the broader shifts that are turning north Vietnam into a major hub for electronics. Many of the hulking factory complexes that stretch across the horizon in long, palm-fringed rows are in no small part thanks to one company.
More than a decade ago, Samsung Electronics, the South Korean titan, set up a plant in Bac Ninh to reduce its dependence on China. The move was prescient. Costs in China continued to increase, and Samsung’s sales there withered after Beijing called for boycotts on South Korean products over Seoul’s embrace of an U.S. missile defense system in 2017.
Samsung has since closed all but one of its smartphone plants in China. It
now assembles around half the handsets it sells worldwide in Vietnam. Samsung’s subsidiaries in the country, which employ around 100,000 people, accounted for nearly a third of the company’s $220 billion in sales last year.
A Samsung spokeswoman said about 90% of those sales involved goods shipped from Vietnam to other countries. That implies Samsung alone accounted for a quarter of Vietnam’s exports in 2018, although even that might not fully capture the company’s effect on the wider economy. Samsung’s success in Vietnam helped convince many of its South Korean suppliers that they needed to be here, too.
“When you are a big company and you move to a place, everything follows you,” said Filippo Bortoletti, the deputy manager in Hanoi at the business advisory firm Dezan Shira.
Some Vietnamese business owners say the blessings are mixed, though. Foreign giants, they say, come to Vietnam and work largely with vendors they already use elsewhere, leaving little room in their supply chains for local upstarts.
Samsung has 35 Vietnamese suppliers, the company spokeswoman said. Apple
declined to comment.
When Samsung first set up in the country, it bought some of the metal fixtures used on its assembly lines from a local firm, Vietnam Precision Mechanical Service & Trading, or VPMS. But then more of Samsung’s South Korean partners started coming into the country, and after a year, Samsung and VPMS stopped working together, said Nguyen Xuan Hoang, one of the Vietnamese company’s founders.
Price and quality were not the issue, Hoang said, over the hissing and clanging of machinery at his factory near Bac Ninh. The problem was scale: Samsung needed many more fixtures than VPMS could deliver.
Vu Tien Cuong’s company, Fitek, produces industrial equipment for Samsung, Canon and other big firms around Bac Ninh. He acknowledged that most Vietnamese suppliers had quality and productivity issues that kept them from winning business from multinational companies. But he thinks that the root problem is inexperience, not a lack of money or knowledge.
“Day by day,” Cuong said, Vietnam’s supplier base is improving and “growing up.”