Diversifying Supply Chains: Apple's Growing Investment in Vietnam

Apple is looking to purchase more components from Vietnam, showing a growing trend among tech companies worldwide to diversify their supply chains, reduce expenses, and tap into new markets.

During a meeting with Vietnamese Prime Minister Pham Minh Chinh in Hanoi on Tuesday, CEO Tim Cook announced this commitment, as stated by Vietnam’s government.

Apple (AAPL) has invested nearly $16 billion in its supply chain in Vietnam since 2019, creating over 200,000 jobs in the country. The government quoted Cook as saying this. Cook also mentioned that Apple is prepared to increase cooperation and investments in Vietnam, as stated in the government's announcement.

US President Joe Biden holds a press conference in Hanoi on September 10, 2023, on the first day of a visit in Vietnam. Biden travels to Vietnam to deepen cooperation between the two nations, in the face of China's growing ambitions in the region.

US President Joe Biden visited Hanoi on September 10, 2023, to strengthen the partnership between the United States and Vietnam, amidst China's increasing influence in the area. Biden's trip aims to enhance collaboration between the two countries.

Saul Loeb/AFP/Getty Images

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Vietnam's increasing significance is becoming more apparent to global companies seeking alternatives to China amidst rising trade tensions between Beijing and the West. His visit underscores the booming opportunities that Vietnam has to offer as a viable option.

Vietnam is considered a key beneficiary of multinational companies looking to diversify their manufacturing operations. This strategy, known as "China plus one," has been beneficial for the country. Thuy Anh Nguyen, a strategist at Dragon Capital, a local fund management firm that focuses on investing in Vietnamese companies, highlighted this trend.

Nguyen, whose firm oversees $6 billion in assets, mentioned that labor costs in Vietnam's manufacturing sector are approximately half of those in neighboring China. This cost advantage has made Vietnam an attractive destination for companies looking to expand their manufacturing hubs.

Vietnam has transitioned from producing primarily low-value products such as textiles to more advanced tech products like iPhones and iPads, which are considered higher-value items. This shift has enabled the country to move up the value chain.

According to the Ministry of Planning and Investment, Vietnam received over $4.29 billion in foreign direct investment in the first two months of the year, marking an increase of nearly 39% compared to the same period in 2023. The majority of the new investments were directed towards the processing and manufacturing sector.

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Lately, countries like Vietnam and India in Asia have become popular choices for manufacturers looking for new locations. This shift is happening as relationships between Beijing and the Western countries are becoming strained.

Vietnam has been identified as an ideal location for tech companies looking to expand beyond China. Dan Ives, a senior equity analyst at Wedbush Securities, highlighted the country's abundance of skilled engineers as a key factor in this assessment.

According to Ives, Vietnam offers more than just the production of inexpensive electronics. He emphasized that the country is now positioning itself further up the value chain, a development that was previously not considered by foreign companies just a couple of years ago.

The United States and Vietnam, once enemies in war, have now become closer than ever. The value of US imports of Vietnamese goods has increased significantly, with a more than 360% growth in the decade leading up to the end of 2023, reaching over $144 billion, according to US government data.

In September, the two countries officially elevated their diplomatic relationship to a "comprehensive strategic partnership." This symbolic but crucial step further solidifies Vietnam as a key destination for increased US investment, especially in important technologies like semiconductor chips.

Apple CEO Tim Cook at a visit to a school in Hanoi on April 16, 2024.

Apple CEO Tim Cook at a visit to a school in Hanoi on April 16, 2024.

Intel (INTC) has recognized Vietnam's growth as well. This year, the company has invested $1.5 billion in a massive campus near Ho Chi Minh City. Intel states that this will be their biggest assembly and test facility globally.

Relations between the United States and China have worsened. The trade war that started in 2018 with tariffs imposed by Washington on Chinese imports escalated further last year with both sides implementing export controls on chipmaking in retaliation.

Amidst the pandemic, China's rigorous zero-Covid approach disrupted global supply chains, highlighting the dangers of relying too heavily on a single production hub.

The consumer market was impacted when the world’s largest iPhone factory, owned by Foxconn in central China, had to close temporarily in 2022 due to worker concerns about the coronavirus spreading.

Vietnam has another advantage, says Nguyen: A booming, educated, and youthful population. That’s a big draw for foreign tech companies looking to hire workers for their factories, and find consumers for their products.

Nguyen pointed out that Vietnam has a population of 100 million people, making it comparable to the size of the biggest country in Europe. She also highlighted the rapid increase in smartphone adoption in the country.

The International Monetary Fund predicts that Vietnam's economy will grow by 5.8% this year, surpassing the global average of 3.2%. Looking ahead to 2025, the forecast is even more promising with a projected growth rate of 6.5% in Vietnam, putting it close to India's rate of expansion.

Despite the impressive growth figures, it is important to note that Vietnam's market size is significantly smaller compared to India. Nevertheless, like India, Vietnam has been successful in attracting major foreign companies such as Tesla (TSLA) to establish factories in the country.

For the time being, Vietnam is more appealing to foreign companies in terms of the supply side, according to Ives from Wedbush Securities. On the other hand, India's attractiveness includes both supply and demand factors.

Reporting for this article was contributed by Juliana Liu.

Editor's P/S:

The article highlights the growing trend among tech companies to diversify their supply chains by investing in Vietnam. Apple's commitment to increase its presence in the country is a testament to Vietnam's strategic importance as a manufacturing hub. The country's low labor costs, skilled engineers, and booming consumer market make it an attractive destination for foreign companies looking to expand their operations beyond China.

Vietnam's shift towards producing higher-value tech products, such as iPhones and iPads, is a significant development that has enabled the country to move up the value chain. This transition has been supported by the government's efforts to attract foreign investment and create a favorable business environment. The country's strong economic growth and youthful population further enhance its appeal to foreign companies. As the world continues to grapple with supply chain disruptions and geopolitical tensions, Vietnam is well-positioned to benefit from the ongoing shift towards diversification and localization of manufacturing.