Tech

Companies shifting production away from China are facing major challenges in Vietnam

In brief: For the last few years, several tech companies have been on a quest to reduce their reliance on China to manufacture their products. Suppliers of Apple, Google, Amazon, Dell, and Microsoft, have made some progress in expanding to neighboring Asian countries. Still, new Covid-19 outbreaks and a lack of local engineering talent are slowing down this transition.

In 2019, during the trade war between China and the US, there were numerous reports that tech giants were exploring options to move away from the heat and best protect their financial interests. Their main goal was (and still is) to shift as much of their manufacturing as possible away from China and into countries like India, Vietnam, and Mexico, where labor is less expensive, and the resulting products aren’t subject to inflated import taxes.

This line of thinking is also endorsed by manufacturers like Foxconn, which believes China can no longer be “the world’s factory.” However, the process has been far from a smooth one, with companies like Amazon and Apple quickly running into issues like unfair pay and child labor, on top of a series of political barriers and supply chain bottlenecks that aren’t easy to overcome.

Then the pandemic hit, making the perils of the tech industry’s heavy reliance on China all the more obvious. More than a year later, new Covid-19 outbreaks are still affecting the ability of tech companies and their key suppliers to shift production to places like Vietnam and India.

According to Nikkei, Apple will now start making AirPods in China instead of Vietnam. At the same time, Google and Amazon will do the same with the mass production of the Pixel 6 smartphone and various smart home devices, despite the higher cost of Chinese labor. Other companies may also follow in their footsteps while they reassess the risks of dealing with strict border controls and local lockdowns, as well as the possibility that some suppliers might use forced labor.

Chief among their concerns is that developing new supply chains and building more production capacity in India and Vietnam requires engineering talent, which is hard to find locally and even harder to bring in due to travel restrictions. As a result, companies can only manufacture the same products they make elsewhere, making these countries less competitive. For instance, Apple has had to postpone plans to move some MacBook and iPad production to Vietnam, which is likely true for any other company planning to make tablets and laptops in the country.

IDC analysts believe officials will eventually ease the restrictions as time goes on, and the process started in 2018 will continue. In the meantime, it looks like China will be able to keep its title as the “world’s factory” for some time yet.

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