As more and more businesses turn away from China, could Vietnam be in line to take over as the world’s leading manufacturing hub?
For years now, China has been the go-to destination for manufacturers looking to set up shop. Big tech giants such as Apple and Samsung have long had a presence in the country, drawn by its vast pool of cheap labor.
However, that all changed with the outbreak of COVID-19.
China’s strict Mao-style lockdown measures, designed to prevent the virus from spreading to just even one person, came at a huge cost to businesses. Many were forced to shutter their factories, leading to massive disruptions in global supply chains.
Many companies moved production to other countries in an attempt to keep the wheels of commerce turning, and it was Vietnam that emerged as the big winner.
Vietnam offers attractive alternative
The country’s close proximity to China, low labor costs, and relatively stable political environment made it an attractive alternative for manufacturers, reports Al Jazeera.
In June, Apple announced that it was moving production of its popular iPad from China to Vietnam. China’s leading iPad assembler BYD has also been helping Apple build production lines in the Southeast Asian country.
“Vietnam is not the only place that multinationals are looking at to diversify out of China, but Vietnam is probably the most successful,” said Greg Poling, director of the Southeast Asia Program at the Center for Strategic and International Studies (CSIS) in an interview with Al Jazeera.
However, concerns remain as to whether or not Vietnam can sustainably handle the influx of businesses and ensure an environment that is conducive to innovation and creativity. A report by the Asian Development Bank highlighted the need for policy reforms to attract more high-tech businesses and create a favorable startup ecosystem.
Albert Tan, an associate professor at the Asian Institute of Management in Manila, Philippines, told Al Jazeera that a major issue is how fast Vietnam can increase its manufacturing and engineering capabilities.
Question marks remain
Furthermore, consumer spending has been hit hard by the pandemic, which could put a dent in demand for products and affect the momentum that Vietnam has built up. In August, Samsung announced it was scaling back production at its massive smartphone plant in Vietnam due to falling demand.
Shortly thereafter, Vietnam’s government issued a decree that allows authorities to collect user data from social media companies and telecommunications providers. The move was seen as a way to tighten the country’s cybersecurity rules, but it also raised concerns about freedom of speech and privacy.
And then there are other questions about infrastructure, corruption and the quality and volume of labor available.
Nonetheless, Vietnam is on its way to becoming a leading global manufacturing hub. And with the US-China trade war showing no signs of slowing down, the coveted top spot could be up for grabs.