Vietnam becomes vital link in supply chain as business pivots from China

[Viet]

https://www.ft.com/content/29070eda-3a0c-4034-827e-0b31a0f3ef11

Space at the Deep C Two industrial estate in northern Vietnam is in such demand that its developer is already thinking about how to create more — by pushing back the South China Sea. Some of the biggest suppliers to global tech companies such as Apple are clustered at Deep C Two, close to northern Vietnam’s biggest port, Haiphong.

Now geopolitical tensions between Beijing and Washington and the risks to business exposed by the Covid-19 pandemic are spurring more manufacturers to shift out of China — and Deep C, a Belgian developer which runs five zones in Vietnam, is getting ready. If there is enough demand, “we will reclaim the land from the sea”, said Dung Bui Thi Thuy, a marketing executive.

The accelerating shift to countries such as Vietnam is part of a growing “China plus one” strategy to redraw global supply chains. As rivalries grow between China and the US over technology and security, more companies fear curbs on what and where they can manufacture. As a result, many are supplementing production in China, still the world’s biggest manufacturing hub, with expansion to other countries.

“Koreans, Taiwanese, Chinese — there seems to be an unstoppable transfer or at least relocation from mainland China into other countries,” said Koen Soenens, Deep C’s sales and marketing director. “Foreign companies currently in China, ask them what’s next. [They say] ‘For the Chinese market, we stay in China; to serve our overseas clients, we are looking for a new location.

But the trend also exposes the risks and uncertainties of shifting resources to countries such as Vietnam, where the bureaucratic and physical infrastructure, including the electricity grid, is straining under the weight of demand just as the country faces headwinds from a turbulent global economy.

Vietnam’s export-led growth has pulled millions of people out of poverty over the past 30 years, and the country has won a big role in the tech supply chain: Apple already produces millions of AirPods there. But one European diplomat there said the country was “at a crossroads” where it had to ease bureaucracy, create a more transparent regulatory framework and get rid of “absurd” red tape. “They received this strong trend of investment . . . up till now it has been easy for them,” the diplomat said, questioning whether Vietnam had the infrastructure for further growth.

The Deep C industrial zone in Haiphong, Vietnam

The Deep C industrial zone in Haiphong, Vietnam, is home to some of the biggest suppliers to global tech companies © Linh Pham/FT Vietnam generated $22.4bn from foreign direct investment projects in 2022, an increase of 13.5 per cent over the previous year, according to government data. While FDI is slightly down in the first five months of the year on the same period last year, investors, analysts and officials said interest remained strong. Vietnam attracted 962 new FDI projects in the first five months of the year, up from 578 in the same period last year.