Transforming into a "Rising Star" in the Global Supply Chain

Alongside attracting a substantial source of foreign investment (accumulated to over USD 462 billion to date), Vietnam is transforming into a "rising star" in the global supply chain.

"The Dragon" has entered the house

BYD is the largest electric vehicle manufacturer in China with headquarters in Shenzhen. While BYD's sales have been rapidly increasing in 2023, the majority still comes from the Chinese market. Therefore, BYD aims to expand its market and plans to build an electric vehicle manufacturing plant in Vietnam with a scale of up to USD 250 million.

During the meeting with Deputy Prime Minister Tran Hong Ha in May 2023, Mr. Wang Chuanfu, Chairman of BYD, expressed hope that Vietnam would create favorable conditions for the company to complete investment procedures and quickly commence electric vehicle production. Additionally, BYD will establish a supporting industrial business chain for this project.

This is significant news, but what has recently brought BYD into the spotlight is the collaboration with Apple, the world's largest company with a market capitalization exceeding USD 3 trillion, to transfer New Product Introduction (NPI) resources for the iPad to Vietnam.

Nikkei Asia Review reported this development. According to the plan, the technical verification process for testing the iPad prototype will begin in mid-February 2024 and is expected to be completed by the second half of 2024.

In fact, BYD started its investment activities in Vietnam since September 2021, with a plant in Phu Tho totaling USD 269 million and an additional investment of USD 183.7 million this year. This is where BYD manufactures and assembles iPads for Apple since August 2022.

However, between manufacturing, assembly, and transferring NPI lies two different stories. NPI requires significant resources from both Apple and suppliers, not only in terms of engineers but also investment in laboratories to test new product features. Most of this process is currently carried out in China, with the collaboration of engineers from Apple's headquarters. This marks the first time Apple has transferred NPI to Vietnam, emphasizing the importance of Vietnam in Apple's supply chain.

"Vietnam always plays a crucial and strategic role in production, with the potential to become one of the next global manufacturing centers," said Mr. Ivan Lam, a technical analyst at Counterpoint Research, to Nikkei Asia Review, noting that Apple's recent supply chain map has demonstrated the capabilities of facilities in Vietnam for iPad production and expansion.

In 2016, there was information that Apple, the technology giant, planned to invest USD 1 billion to build a database center serving the Asia-Pacific region. Apple also visited several locations, including Hanoi, to plan its entry into the Vietnamese market.

Although that plan was not mentioned later, Apple chose to shift its supply chain to Vietnam. This is why companies like Foxconn, Pegatron, Winston, Luxshare, Goertek, BYD, etc., have continuously invested and expanded their factories in Vietnam. AirPods, MacBooks, and more Apple products have been brought to Vietnam by Apple's manufacturers.

More than just "setting foot," "The Dragon" has entered the house. Apple does not have direct manufacturing plants, but in Vietnam, there are currently 31 factories owned by partner manufacturers in 14 provinces and cities.

However, this number will not stop there. In a meeting with Prime Minister Pham Minh Chinh in May 2023, Tim Cook, CEO of Apple, stated that Apple wants to engage more deeply and expand the supply chain in the Vietnamese market.

The rising star

Goertek's production area in Que Vo Industrial Park is nearly 400,000 square meters, with over 30,000 workers. Without witnessing it firsthand, it is hard to believe the scale of Goertek's operations in Vietnam.

Goertek came to Vietnam in 2013 after securing contracts to supply components to Samsung, the largest foreign investor in Vietnam to date.

At that time, about one-third of Goertek's output was for Samsung. Currently, in addition to Samsung, Goertek has many other customers.

In a conversation with a reporter from Bao Dau Tu in mid-2021, Mr. Yoshinaga Kazuyoshi, General Director of Goertek Vietnam, mentioned a global major customer with the code "001." About 50% of this customer's wireless headphones are produced in Vietnam by Goertek.

For security reasons, Goertek's customer name is encrypted. However, in 2021, media reports revealed that AirPods were being produced in Vietnam. That was also the year when, despite being affected by Covid-19, Goertek's revenue in Vietnam still increased by over 20%, reaching USD 3.3 billion.

Since then, Goertek has continued to expand its investment in both Bac Ninh and Nghe An. Goertek's customers not only include Samsung and Apple but also many other tech giants. After 10 years, Goertek's investment capital in Bac Ninh alone has increased to nearly USD 1 billion. Earlier this year, an investment of USD 280 million was deployed in Nam Son Industrial Park - Hap Linh.

Mr. Jiang Bin, Chairman of the Goertek Group, recently stated in a meeting with the leaders of Bac Ninh province that Goertek will triple or quadruple its investment in Bac Ninh. That is certainly a significant figure.

Not only Goertek or other Apple partners, but many other investors are also "targeting" Vietnam. Samsung and LG have also continuously increased their investments in the past two years. Last year, Samsung invested over USD 2 billion more in factories in Thai Nguyen and Ho Chi Minh City. LG is no less competitive. Earlier this year, LG Innotek increased its investment capital by over USD 1 billion. The significant investments by these companies, along with Amkor, Hana Micron, etc., have made Vietnam a new global manufacturing center.

"Leading technology corporations favor investing in Vietnam," said Mr. Christopher J Marriott, CEO of Savills Southeast Asia, affirming that Vietnam is considered one of the prominent destinations with production capabilities meeting the expectations of international investors.

Even HSBC acknowledges that Vietnam has "transformed" into a "rising star" in the global supply chain, gaining a significant global market share in various sectors, including textiles, footwear, and electronics.

However, it's not just textiles and footwear, as it was before. Since 2008, many technology giants have shifted their supply chains to Vietnam. This trend has strengthened during the U.S.-China trade tensions and the pandemic, intensifying the trend of supply chain relocation.

That is why, in just 11 months of 2023, despite the impact of the global decrease in purchasing power, Vietnam's electronic exports still achieved positive results. In this period, exports of phones and components reached USD 48.49 billion (lower than the USD 54.89 billion of the same period last year). Meanwhile, exports of computers and electronic products were USD 51.64 billion, cameras and camcorders and components were USD 6.79 billion, and machinery and equipment were USD 39.28 billion.

These figures are expected to continue to rise as semiconductor companies accelerate their investment in Vietnam. "Vietnam has proven that it has the capability to become a crucial link in the global supply chain," emphasized Mr. John Neuffer, President of the Semiconductor Industry Association.

35-year Turning Point

Since the historic Foreign Investment Law in Vietnam was enacted in December 1987, Vietnam has become a typical success story in attracting foreign investment, more precisely, it has now become a "foreign investment cooperation" hub.

In October 2018, when summarizing 30 years of attracting foreign investment, Prime Minister Nguyen Xuan Phuc mentioned a new principle in attracting foreign investment. It is not simply "attracting" capital; Vietnam will "cooperate" with foreign investors. Vietnam will not only be a place to receive capital from investors and businesses but will also be proactive, cooperating on the principles of equality, choice, to elevate the production level and enhance the autonomy of the national economy. The goal is for foreign investment to bring benefits to both investors, the state, and the economy from economic, social, and environmental perspectives.

This has been concretized in Resolution 50-NQ/TW of the Party Central Committee on improving the system and policies to enhance the quality and efficiency of foreign investment cooperation until 2030. The direction of attracting investment in high technology, source technology, Industry 4.0, etc., has also been clearly stated in this resolution. This is a significant turning point that has brought about significant successes for Vietnam in attracting foreign investment since 2018.

According to the figures released by the Foreign Investment Agency (Ministry of Planning and Investment), as of November 20, 2023, the whole country has 38,844 valid projects, with a total registered capital of USD 462.4 billion. The accumulated realized capital of foreign direct investment projects is estimated at USD 294.2 billion, equivalent to 63.6% of the total registered capital still in effect. Of this, only from 2018 to now, the registered investment capital has reached USD 200 billion, and the disbursed capital is USD 111.85 billion, accounting for 43.25% and 38% of the total foreign investment that Vietnam has obtained in the past 35 years.

And it's not just the capital; the crucial point is that foreign investment in Vietnam has undergone a significant shift towards high-tech industries, taking Vietnam to a higher level in the value chain. Foreign direct investment has also made a significant contribution to Vietnam's socio-economic development. This has been affirmed in the past 35 years, especially in recent years when the Vietnamese economy has been seriously affected by the pandemic.

These comparisons are enough to show how Vietnam has become a "rising star" in the past 5 years, including 3 years under the severe impact of Covid-19. Although this title has been mentioned by international investors and experts for many years, perhaps now Vietnam is truly the "rising star."

Professor Carl Thayer, a Vietnamese scholar currently living in Australia, recently co-authored a book titled "Vietnam: The Rising Star of Asia." This is not only the recognition of international experts but also the aspiration of Vietnam, not only in attracting foreign investment but also in overall economic development.

However, aspiration is one thing. Action is needed to turn that dream into reality.

(To be continued)

Source: Báo ??u T? Online (Dec, 2023)