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So much is the demand for space in the Deep Sea Two industrial estate in northern Vietnam that its developer is already thinking about how to build more by pushing back the South China Sea.
Some of the largest suppliers to global tech companies such as Apple are located in Deep Sea Two, close to Haiphong, northern Vietnam’s largest port. Now geopolitical tensions between Beijing and Washington and risks to business from the COVID-19 pandemic are prompting more manufacturers to move out of China – and Belgian developer Deep Sea, which operates five zones in Vietnam, Getting ready.
If there is enough demand, “we will reclaim land from the sea”, said Dung Bui Thi Thuy, a marketing executive.
The rapid turnaround in countries such as Vietnam is part of a growing “China plus one” strategy to remodel global supply chains. As the rivalry between China and the US heats up over technology and security, more companies fear curbs on what and where they can manufacture. As a result, many are increasing production in China, which is still the world’s largest manufacturing hub, with expansion in other countries.
“Koreans, Taiwanese, Chinese – there seems to be an unstoppable transfer or at least a transfer from mainland China to other countries,” said Koen Soenens, director of sales and marketing for Deep Sea. “Foreign companies are in China right now, ask them what’s next. (They say) ‘For the Chinese market, we stay in China; We are looking for a new location to serve our overseas customers.
But the trend also highlights the risks and uncertainties of shifting resources to countries like Vietnam, where bureaucracy and physical infrastructure, including power grids, are straining under the weight of demand, as countries adjust to headwinds from a turbulent global economy. is facing.
Vietnam’s export-led growth has lifted millions of people out of poverty over the past 30 years, and the country has secured a bigger role in the tech supply chain: Apple already produces millions of AirPods there.
But a European diplomat there said the country was “at a crossroads” where it must simplify bureaucracy, create a more transparent regulatory framework and get rid of “absurd” red tape.
“They’ve got this strong investment trend. , , So far it has been easy for them,” the diplomat said, questioning whether Vietnam has the infrastructure for further development.
Vietnam is set to earn $22.4 billion from foreign direct investment projects in 2022, a 13.5 percent increase from the previous year, according to government data. Although FDI in the first five months of the year is slightly lower than the same period last year, investors, analysts and officials said interest remains strong. Vietnam attracted 962 new FDI projects in the first five months of the year, up from 578 in the same period last year.
Vietnam’s Finance Minister Ho Duc Phoc said in an interview that the country’s infrastructure is “improving and becoming more modern” and highlighted a big attraction for investors: cheap labor.
“We have an abundant and cheap supply of labour. , , (It) will be cheaper in the long run,” he told the Financial Times.
Still, some investors are already looking hard at the labor market. Soenens points to Pegatron, one of Apple’s biggest suppliers, which began producing electronic components in Haiphong in 2021. By the end of next year, the Taiwanese company expects to have 20,000 workers in the deep sea.
Koen Soenens © Linh Pham/FT
“How will they find those people? Possibly thanks to his investment in dormitories for workers, outside the city limits,” Soenens said.
At the Thanh Oi industrial complex in Hanoi, about 150 km away, where B. Brown employs approximately 1,100 people, the medical technology company is considering building dormitories on the site as it plans to invest and double its workforce within the next five years.
The labor market is tight and “getting more and more difficult.” , , Every company needs highly skilled workers”, said Torben Minko, managing director of B. Braun Vietnam. you have to come.
Vietnam’s highly qualified youth also expect to earn far more than the monthly minimum wage, which is 4.68 million dong ($198) for the largest cities. “I can tell you now that the normal average salary for people my age is 15 million to 18 million a month,” said Tran Khanh Li, a 24-year-old business developer in Ho Chi Minh City.
New investors soon find that the bureaucratic wheels are turning slowly in a consensus-driven and decentralized system that requires multiple signatures for every approval. Companies already in Vietnam said expansion was difficult.
The delay has increased due to a major crackdown on corruption. “Governments are paralyzed by worry about procurement, fear of making mistakes and going to jail for corruption or misuse of public resources,” said a Western official.
The Finance Minister said that the impact of the action on business has been minimal. “The objective . . . is to make the economy healthy and transparent, to protect the rights of citizens and enterprises,” he said.
“The length and complexity of the process is an issue,” said Jean-Jacques Boufflet, vice president of the European Chamber of Commerce in Vietnam. He cited the absence of a centralized investment agency as one of the reasons why approvals for everything from work permits are granted. Solar panels move slowly.
As Vietnam continues to develop, it remains highly dependent on ties to China’s crucible of manufacturing around the Pearl River Delta, which – as Deep Sea’s marketing materials state in Haiphong – is only “12 trucking hours” away.
This proximity allows for easier transfer of materials but makes Vietnam’s supply chain more vulnerable, according to Brian Lee Shun Rong, an economist at Maybank in Singapore. “What if there is a disruption in the flow of imports from China?” They said.
“This is our weak heel,” said Michael Koklari, chief economist at VinaCapital in Ho Chi Minh City. “To the extent that the supply chains are there,[like]Samsung or LG are bringing their entire supply chains here.”
One solution is for large anchor investors to play a role in improving the entire supplier ecosystem. Samsung, which has six factories in Vietnam as well as a research and development center and is the largest foreign investor, said that since 2015, it has partnered with nearly 400 Vietnamese companies to help improve product quality. work done.
Another solution is for companies to move into clusters. Deep Sea gives the example of Pyong Hwa Automotive, which moved to the Haiphong area in 2019 along with three others.
Whatever the skepticism about labor, infrastructure or other issues, few expect the rise of “China plus one” to end anytime soon. “The gates open, they come in,” said Deep Sea’s Soenens, which is considering further sites. “It doesn’t stop.”
Additional reporting by Andy Lin in Hong Kong
So much is the demand for space in the Deep Sea Two industrial estate in northern Vietnam that its developer is already thinking about how to build more by pushing back the South China Sea.
Some of the largest suppliers to global tech companies such as Apple are located in Deep Sea Two, close to Haiphong, northern Vietnam’s largest port. Now geopolitical tensions between Beijing and Washington and risks to business from the COVID-19 pandemic are prompting more manufacturers to move out of China – and Belgian developer Deep Sea, which operates five zones in Vietnam, Getting ready.
If there is enough demand, “we will reclaim land from the sea”, said Dung Bui Thi Thuy, a marketing executive.
The rapid turnaround in countries such as Vietnam is part of a growing “China plus one” strategy to remodel global supply chains. As the rivalry between China and the US heats up over technology and security, more companies fear curbs on what and where they can manufacture. As a result, many are increasing production in China, which is still the world’s largest manufacturing hub, with expansion in other countries.
“Koreans, Taiwanese, Chinese – there seems to be an unstoppable transfer or at least a transfer from mainland China to other countries,” said Koen Soenens, director of sales and marketing for Deep Sea. “Foreign companies are in China right now, ask them what’s next. (They say) ‘For the Chinese market, we stay in China; We are looking for a new location to serve our overseas customers.
But the trend also highlights the risks and uncertainties of shifting resources to countries like Vietnam, where bureaucracy and physical infrastructure, including power grids, are straining under the weight of demand, as countries adjust to headwinds from a turbulent global economy. is facing.
Vietnam’s export-led growth has lifted millions of people out of poverty over the past 30 years, and the country has secured a bigger role in the tech supply chain: Apple already produces millions of AirPods there.
But a European diplomat there said the country was “at a crossroads” where it must simplify bureaucracy, create a more transparent regulatory framework and get rid of “absurd” red tape.
“They’ve got this strong investment trend. , , So far it has been easy for them,” the diplomat said, questioning whether Vietnam has the infrastructure for further development.
Vietnam is set to earn $22.4 billion from foreign direct investment projects in 2022, a 13.5 percent increase from the previous year, according to government data. Although FDI in the first five months of the year is slightly lower than the same period last year, investors, analysts and officials said interest remains strong. Vietnam attracted 962 new FDI projects in the first five months of the year, up from 578 in the same period last year.
Vietnam’s Finance Minister Ho Duc Phoc said in an interview that the country’s infrastructure is “improving and becoming more modern” and highlighted a big attraction for investors: cheap labor.
“We have an abundant and cheap supply of labour. , , (It) will be cheaper in the long run,” he told the Financial Times.
Still, some investors are already looking hard at the labor market. Soenens points to Pegatron, one of Apple’s biggest suppliers, which began producing electronic components in Haiphong in 2021. By the end of next year, the Taiwanese company expects to have 20,000 workers in the deep sea.
Koen Soenens © Linh Pham/FT
“How will they find those people? Possibly thanks to his investment in dormitories for workers, outside the city limits,” Soenens said.
At the Thanh Oi industrial complex in Hanoi, about 150 km away, where B. Brown employs approximately 1,100 people, the medical technology company is considering building dormitories on the site as it plans to invest and double its workforce within the next five years.
The labor market is tight and “getting more and more difficult.” , , Every company needs highly skilled workers”, said Torben Minko, managing director of B. Braun Vietnam. you have to come.
Vietnam’s highly qualified youth also expect to earn far more than the monthly minimum wage, which is 4.68 million dong ($198) for the largest cities. “I can tell you now that the normal average salary for people my age is 15 million to 18 million a month,” said Tran Khanh Li, a 24-year-old business developer in Ho Chi Minh City.
New investors soon find that the bureaucratic wheels are turning slowly in a consensus-driven and decentralized system that requires multiple signatures for every approval. Companies already in Vietnam said expansion was difficult.
The delay has increased due to a major crackdown on corruption. “Governments are paralyzed by worry about procurement, fear of making mistakes and going to jail for corruption or misuse of public resources,” said a Western official.
The Finance Minister said that the impact of the action on business has been minimal. “The objective . . . is to make the economy healthy and transparent, to protect the rights of citizens and enterprises,” he said.
“The length and complexity of the process is an issue,” said Jean-Jacques Boufflet, vice president of the European Chamber of Commerce in Vietnam. He cited the absence of a centralized investment agency as one of the reasons why approvals for everything from work permits are granted. Solar panels move slowly.
As Vietnam continues to develop, it remains highly dependent on ties to China’s crucible of manufacturing around the Pearl River Delta, which – as Deep Sea’s marketing materials state in Haiphong – is only “12 trucking hours” away.
This proximity allows for easier transfer of materials but makes Vietnam’s supply chain more vulnerable, according to Brian Lee Shun Rong, an economist at Maybank in Singapore. “What if there is a disruption in the flow of imports from China?” They said.
“This is our weak heel,” said Michael Koklari, chief economist at VinaCapital in Ho Chi Minh City. “To the extent that the supply chains are there,[like]Samsung or LG are bringing their entire supply chains here.”
One solution is for large anchor investors to play a role in improving the entire supplier ecosystem. Samsung, which has six factories in Vietnam as well as a research and development center and is the largest foreign investor, said that since 2015, it has partnered with nearly 400 Vietnamese companies to help improve product quality. work done.
Another solution is for companies to move into clusters. Deep Sea gives the example of Pyong Hwa Automotive, which moved to the Haiphong area in 2019 along with three others.
Whatever the skepticism about labor, infrastructure or other issues, few expect the rise of “China plus one” to end anytime soon. “The gates open, they come in,” said Deep Sea’s Soenens, which is considering further sites. “It doesn’t stop.”
Additional reporting by Andy Lin in Hong Kong
