News that a Taiwanese supplier for Apple and Samsung with factories in China plans to set up new production facilities in Vietnam following a US-China “phase one” deal is a signal that the trade friction merely hastened the process of electronics manufacturers diversifying from China, according to an analyst.
Why it matters: The so-called phase one trade deal was expected to restore confidence in China’s economy, but Pegatron’s move shows that tech companies are still trying to disentangle their supply chains from “the world’s factory” to mitigate risk.
“The trade war accelerated manufacturers’ moving away from China and it sent a strong message: Do not put all your eggs in one basket.” (our translation)
—Will Wong, smartphone analyst at IDC Singapore
Details: Vietnam lacks the level of infrastructure and skilled labor pool that supports China’s manufacturing capacity, Will Wong, a Singapore-based smartphone analyst at market research firm International Data corporation, told TechNode. But local governments remain hopeful that it will become central to electronics supply chains in the future and are trying to attract investment, he added.
- Pegatron has already leased a production facility in a city in northern Vietnam called Haiphong, Bloomberg reported on Tuesday. In that facility, the Taipei-based company plans to make styluses for South Korean smartphone giant Samsung, the report said.
- The electronics manufacturer is also looking for a site in north Vietnam to build a production facility from scratch, but Pegatron doesn’t plan on shifting iPhone assembly to Vietnam, according to the report.
- The company’s share prices showed no significant fluctuation since the announcement, declining 0.6% by market close on Wednesday.
Context: Increasing labor costs and stricter regulation in China had tech companies looking for manufacturing facilities elsewhere prior to the trade war, Wong said.
- It is uncertain what the impact of this trend will be on the Chinese economy. Under the “Made in China 2025” strategic plan, Beijing wants China to shift from being the “world’s factory” into a high-tech powerhouse that develops its own auto technology, semiconductors, robots, pharmaceuticals, and more.
- Foxconn, the world’s largest electronics manufacturer, in June assured investors that it had an “agile” plan to move iPhone production out of China in case tariffs rendered US-bound exports too expensive.
- “If Apple needs us to move our supply chain, we can do that with the fastest speed. US-China relations are changing dramatically and we are closely monitoring them, and so does Apple,” Young-Way Liu, a member of Foxconn’s operation committee said at the time.
- Pegatron spun off Taiwanese laptop maker Asus in 2009 to make motherboards.
Includes contributions from Wei Sheng.