Even as Apple and others move suppliers in, the boom has its skeptics.
An electric vehicle factory in Haiphong, Vietnam. Nick Ut/Getty Images
By LAM LE
2 NOVEMBER 2022 • HANOI, VIETNAM
The coastal port of Haiphong, Vietnam, used to be famous for aromatic noodle dishes and organized crime. Nowadays, it’s better known as a burgeoning industrial region, where electronics makers set up shop to escape the crowded south. Optimism abounds in a place like this. “We don’t just sell land, we sell the future,” Hoang Vinh Tuan, a manager at real estate developer Deep C Industrial Zones, told Rest of World.
In one of Deep C’s high-spec complexes, a new facility is humming with workers for Pegatron, the Taiwanese supplier to tech giants like Apple and Microsoft. Inside, employees are already refurbishing game consoles; across the road, half-finished construction will eventually house Sirtec, another Taiwanese maker of Apple parts.
It’s part of a boom in industrial infrastructure deep in Vietnam’s north, designed to lure tech manufacturers out of China and into the country. When Rest of World visited in October, Deep C staffers walked groups of visitors through their Haiphong site, displaying ready-built workshops and warehouses, an irrigation system designed to collect rainwater, even a wind turbine — which, the guides proudly informed, was the first one installed in northern Vietnam.
“In the last five years, we’ve sold more than 50% of what we sold in the first 20 years [of operating],” Bruno Jaspaert, the company’s general director, told Rest of World. Most of those clients are international; the following week, Jaspaert was bound for Taiwan, where he planned to woo more companies to Haiphong.
It’s been a tumultuous few years for tech, with past months seeing a global boom turn into a crash. When Apple, Microsoft and others started planning to relocate facilities away from China in 2019, their moves were spurred by former U.S. President Donald Trump’s trade war. Now, the pull has become a push: China’s intensifying Covid-19 restrictions, combined with aggressive U.S. moves to secure its tech supply chain, have made the prospect of staying rooted in China ever more risky.
Vietnam has leaped to welcome the wave of tech manufacturers. From tax breaks and shiny new infrastructure, to participation in more than a dozen free trade agreements and the promise of a carbon-neutral economy by 2050, the country is doing everything it can to entice tech giants looking to spread out their production bases. Local media have celebrated planned factory expansions by Sharp, Nintendo, and Lenovo, along with a May trip by Prime Minister Pham Minh Chinh to Silicon Valley, where he met with Apple CEO Tim Cook and other tech executives.
Rest of World spoke to local Vietnamese tech suppliers, industry groups, and experts — some of whom were energized at the pace of change. Others feared the scramble to welcome foreign firms was premature, and came at the expense of homegrown competitors.
Either way, infrastructure is going up at a rapid pace. In Bac Giang, a two-hour drive from Haiphong, dotted between empty, overgrown plots and recruitment agencies, advertisements blare for “high-class accommodation” for tech factory workers. Located adjacent to nightclubs and Chinese and Korean restaurants, they’re sleek, air-conditioned, and hung with multilingual signs aimed at managers from abroad. When Rest of World visited in August, they were still half-empty, waiting for inhabitants.
Meanwhile, the asphalt is barely dry on the Van Don-Mong Cai highway, inaugurated in September, that allows passengers to speed from Haiphong to Shenzhen in just 12 hours. The highway is so new, in fact, that it doesn’t yet have a gas station along the road. Nearby, the airport of Cat Bi is expanding to gain new cargo and passenger terminals.
Pham Minh Hoang, a project manager at Haiphong-based factory builder Hai Long Construction, told Rest of World that at the onset of the trade war, small Chinese tech suppliers started knocking on his door. Over the Covid-19 pandemic, some of them even monitored construction over video link from China, determined to keep to plan. But more recently, bigger brands have required his services: This year, Hai Long built a steel structure for a new factory for LG Display, and signed an agreement on a facility for Amkor Technology, an Arizona-headquartered semiconductor maker.
“We’re very busy,” said Hoang. “The projects are getting bigger and bigger, and the requirements are getting more and more stringent.”
Apple, in particular, has made recent, swift moves to bring its production and assembly arms out of China. The company shifted some production of the iPad, Apple Watch, MacBook, and AirPods to Vietnam, and is assembling the iPhone 13 and 14 in India. In 2015, there were eight Apple suppliers in Vietnam. Now, there are 26 — many of which have emerged since 2019, a year into the trade war. They include new suppliers in assembling and testing semiconductors, packaging and manufacturing of circuit boards, among others.
But none of these new companies are Vietnamese. And so, local businesses in the tech supply chain don’t share the same exuberance as those in construction and real estate.
“Vietnam is rolling out the red carpet for foreign investors,” said Truong Thi Chi Binh, deputy chair of the Vietnam Association of Supporting Industries, an industry group for manufacturers, to Rest of World. “Basically, [Vietnam] offers [them] a lot of tax exemptions; otherwise, they would run to another country in a blink of an eye.”
Depending on their sector and location, foreign-invested companies may enjoy up to four years of tax exemptions, followed by just a 5% corporate income tax rate until Year 13, 10% between Year 14 and 15, and then 20% afterward. That equates to a tax rate of just 4.35% in the first 15 years, among the lowest in the world.
Vietnam lacks a strong set of domestic suppliers to begin with, said Timothy Sturgeon, senior researcher at the Massachusetts Institute of Technology’s Industrial Performance Center, to Rest of World — which means it’s hard for them to carve out a place in all this new activity. “[Apple and others] may be coming, but they will have to bring their suppliers with them … and these will be firms from around the world, including China, but not Vietnam,” he said.
Nguyen Van Man’s company, Minh Man Manufacturing & Printing Labels, makes labels and printed products for Samsung, Sharp, and Mitsubishi. But when he heard that Apple was shifting yet more production into his country, he knew he’d never have the glory of printing the plastic casing that read “Assembled in Vietnam.”
“It’s like the carrot and the stick. We see the carrot, but it’s not easy to eat,” said Man to Rest of World. He speaks quickly, matter-of-factly, smoking as he talks. He has been in the printing business since 1995, and has seen contracts for big tech brands time and again going to Japanese, Taiwanese, and other competitors, like Canada-headquartered CCL Design, who have set up shop in Vietnam. He once lost a contract with a U.S. client, he said, because he didn’t have a yard big enough to accommodate workers in case of a fire emergency.
“They just borrow our land, borrow our labor for export,” said Man. He’s doing his best to rally fellow Vietnamese companies to advocate for inclusion in the tech giants’ plans, saying that at the moment, all they’re doing is “stepping on one another.”
“It’s like the carrot and the stick. We see the carrot, but it’s not easy to eat”
High industrial real estate prices — usually over $100 per square meter in the north — have been pushing domestic companies further away from concentrated industrial zones towards cramped residential areas. It doesn’t help that the development of industrial zones in Vietnam is left to individual provinces, which, in turn, outsource this to the private sector.
“Once private companies are allocated land, they just want to fill it up as fast as possible to maximize investment performance,” said Binh.
Meanwhile, those freshly built, half-empty workers’ dorms in Bac Giang province are prompting worry, two landlords told Rest of World. Tech factory workers have been moving away from industrial areas and back to their hometowns in the countryside, meaning that competition for warm bodies to occupy these new factories is rising. In June, Foxconn accused Chinese rival suppliers of intending to poach its Vietnamese workers by setting up factories close by.
Dat, a 20-year-old Pegatron worker, told Rest of World that he interviewed with the company one day and was on the factory floor the next, welding the Samsung styluses used for their smartphones. By the end of the week, he’d clocked more overtime days than not, running 12-hour shifts. He was circumspect: “The work is comfortable, and the pay is alright — 8 million to 9.5 million dong a month ($320–$380), higher than the surrounding factories,” said Dat, requesting to be identified only by his first name as he wasn’t authorized to speak to the press.
Although buildings are expanding, space is still tight. As of June, 83% of the real estate in the north is already occupied, according to a report by real estate company Savills. The Vietnamese government approved nine more industrial parks earlier this year, but they’re due to come into operation at a lag, between the end of 2023 and 2025.
A visitor would never suspect that tension in Haiphong. Pegatron’s newest factory looks out onto the green, gentle South China Sea, overlooking a grassy square installed with the unheard-of luxury of outdoor exercise equipment. The night Rest of World visited, the weather was stormy, with continual rain, but a Belgian beer festival carried on regardless, and a string orchestra harmonized arrangements of popular songs. For some, the good times are just beginning.
Lam Le is a freelance journalist based in Hanoi, Vietnam.