The relocation of 39 Microsoft production lines to Vietnam stamps the country as a global centre for smartphone manufacturing.
In mid-August Microsoft, the new owner of Nokia’s Devices and Services business (which includes both smart devices and mobile devices), announced the $300 million factory in northern Bac Ninh province, which previously only produced feature phones, would be its major global smartphone manufacturing base. According to a dispatch sent to the Bac Ninh People’s Committee in May, Microsoft will close four factories in China, Hungary and Mexico and shift 39 production lines to Vietnam in the last quarter of this year and the first few months of next year.
Samsung has also identified Vietnam as its “complete global manufacturing base” and has poured nearly $6 billion in registered capital into the country to date. Leaders at the company said that in the five years of production in the country its investment had increased twelve-fold. Another giant in the smartphone manufacturing sector, LG Electronics, has also announced it expects its $1.5 billion factory in Hai Phong city to begin operations in October or November. Different from Microsoft and Samsung, LG has not yet chosen smartphones as the factory’s key product and instead will begin by manufacturing TVs, washing machines, and air conditioners. It has, however, confirmed that it intends to invest in manufacturing smartphones at some point.
Vietnam also appears as a destination of potential for support industries. In June the UK’s Laird PLC set up its first manufacturing plant in the country in order to expand its international reach and benefit from Vietnam’s proximity to key Asian markets, with an initial investment of $4.7 million. The new factory, at Bac Ninh province’s Que Vo Industrial Park, will allow the company to better serve manufacturers of smartphones, portable electronics, and other devices, in the context of Vietnam emerging as a new global base for electronics manufacturing. “Vietnam has grown to become a leading manufacturing centre for many global technology companies, and we’re very glad to be among them,” Laird’s CEO, Mr David Lockwood, said. “This plant will further strengthen our design and manufacturing capabilities worldwide.”
Besides Laird, Wintek - the leading Taiwan-based touch screen manufacturer - is also planning to expand in Vietnam. According to information from the northern Bac Giang People’s Committee, where Wintek is operating a $1.2 billion manufacturing project, the company has submitted a report on its second phase of investment in the province with the same amount as its first phase; a handy $1 billion.
Mr Duangdej Yuaikwamdee, Deputy Managing Director of Reed Tradex Company Limited, who specialise in holding industrial exhibitions in Southeast Asia, underlined that Vietnam is integrating deeper and deeper into the global electronic manufacturing chain. “Many of our customers have shown an interest in Vietnam’s electronics sector,” he said. “I think that Vietnam ranks first in terms of potential in Southeast Asia, followed by Indonesia and Thailand.”
More to come
When asked why Vietnam has been successful in attracting foreign direct investment (FDI), Mr Stephen Elop, formerly CEO of Nokia and now Executive Vice President of the Microsoft Devices Group, believes the country has advantages in having a large population and, hence, a promising workforce. “Vietnam also has a wonderful geographical location that gives it direct access to the international product transport stream,” he added. Government incentives for high-tech enterprises and the active cooperation of local authorities have also given impetus to the big guns arriving in Vietnam. “Authorities have provided us with various incentives, including preferential income tax rates,” Mr Elop revealed.
The incentives are not only granted to Microsoft but also to any other company that wants to invest in high-tech. Regarding preferential tax rates and exemptions, Bac Ninh province disclosed that the Prime Minister has agreed that it provide handsome terms to Samsung Display on the proviso that the project proceeds as agreed. The Bac Ninh People’s Committee will also continue to present additional incentives to the local People’s Council to consider.
Enterprises in high-tech will also receive infrastructure support (clean water, waste treatment systems, road networks, and electricity) from the government and local authorities to ensure optimum efficiency. According to Mr Nguyen Van Toan, Vice Chairman of the Vietnam Association for Foreign Invested Enterprises (VAFIE), Vietnam has substantial opportunities to attract multinational corporations, especially in the high-tech sector.
Besides being a stable investment environment, Mr Toan also emphasised that Vietnam is now ready to integrate and participate in a variety of bilateral as well as multilateral economic agreements. “These indicate that Vietnam is ready to join hands with other countries and develop together,” he said. “Infrastructure and human resources have seen advances and local people and enterprises are changing their attitudes towards attracting foreign capital.”
When higher FDI comes more job opportunities for Vietnamese workers will follow. Microsoft plans to recruit tens of thousands of new employees from Bac Ninh and neighbouring provinces. Nokia (now Microsoft Vietnam) has recruited 5,500 factory employees and 2,000 office staff, and plans to double its number of engineers. With $1 billion in new investment, Wintek anticipates it will need 51,000 employees at its plant in Bac Giang province. These projects will all contribute significantly to the economic and technological development of Bac Ninh and Bac Giang provinces in particular and Vietnam in general.
With such benefits it would seem reasonable that the government grants attractive incentives to these giant investors. Nevertheless, in order to retain them as long-term investors while attracting new investors, Mr Toan recommends related authorities continue improving the business environment and at the same time address troublesome administrative procedures. “Vietnam will have to foster its administrative procedures reform in order to improve transparency while developing its existing infrastructure, and foreign investment will be certain to increase,” an executive at Samsung Electronics Vietnam told VET.
A trend has emerged recently whereby giant electronics manufacturers chose to move away from China due to macro instabilities and rising labour costs. As a neighbour with an even better economic geographical location, political and economic stability, and much lower labour costs for similar quality, this represents a golden opportunity for Vietnam to increase its profile in the eyes of investors. In addition to its positive macro-economic factors, the Prime Minister’s order to delay the implementation of the Ministry of Science and Technology’s Circular No 20/2014, which was due to take effect on September 1 and banned the import of old machinery, so that Microsoft could relocate the 39 production lines expresses the country’s dynamism and flexibility in encouraging investors to come to the country.
Apple is yet to invest in Vietnam but the country’s potential means it’s on the giant’s radar. Ms Haslinda Amin from Bloomberg television in Singapore recently reported that “Apple is having some discussions with FPT to develop the Vietnamese market in the near future.” According to figures from Reuters, Apple’s sales revenue in Vietnam increased by more than 300 per cent in the first quarter of this year; five times faster than its growth rate in India, where the company has invested heavily to win market share.
Last year Vietnam was among Apple’s third-wave markets to receive the iPhone 5S. This year it is one of the second-wave markets to sell the iPhone 6. Given the current macro-economic context and the endeavours of the Vietnamese Government, Vietnam may well be one of the first markets to the sell the iPhone 7 or 7S.