Despite decreasing COVID-19 cases, China continues to conduct mass testing and neighborhood lockdowns, sticking to hardline restrictions to stamp out all infections.
But this zero-COVID policy is alienating one powerful economy from the rest of the world and forcing investors and the business community to look elsewhere to avoid any disruption in the supply chain.
Apple supplier Pegatron is the recent to emphasize its intent to expand production to other countries outside China, including Vietnam. Pegatron suspended its operations in Shanghai and Kunshan in April due to strict COVID-19 protocols, which has led to labor shortages and production and delivery delays. The Taiwan-headquartered company assembles about 20% to 30% of all iPhones.
Pegatron president Liao Syh-jang told Reuters last week that “expansions in Vietnam,” as well as in India, Indonesia, and North America, are needed to solve labor shortages, address the gap between peak and low seasons, and increase the utilization of its production capacity.
Pegatron has been planning to expand to Vietnam since 2020 and is said to be building a factory in Hai Phong, according to VnExpress.
Another Apple supplier, BYD, also plans to begin commercial production of iPads in Vietnam this month, after it has successfully done a trial run in May. This move highlights Vietnam’s growing importance to Apple’s production line and strengthens its reputation as a rising electronics production powerhouse.
“The factory has been running a trial phase since May and is scheduled to start commercial production this month,” Nguyen Ngoc Hanh, head of the management board for industrial parks in Phu Tho province, told Bloomberg.
BYD has already employed 4,000 workers and plans to hire 8,000 more. It has been granted a construction license to build a $268-million factory in Phu Tho, with a capacity to make 4.33 million tablets a year from as early as June. It also eyes an annual production of 50 million units of optical glass.
Production and supply constraints presented by China’s COVID restrictions are estimated to cost Apple as much as $8 billion in sales. With the shifting of productions to Vietnam, Apple aims for a favorable business environment for its operations.
In a meeting with Vietnamese Prime Minister Pham Minh Chin in March, Apple CEO Tim Cook reaffirmed the tech firm’s plans to further extend its supply chain in the country.
Last year, Vietnam awarded a license to a unit of Taiwan’s Foxconn to build a $270 million plant capable of producing eight million laptops and tablets annually. Foxconn has moved some iPad and MacBook assembly to the country from China, where it operates 12 factories across nine cities, at the request of Apple Inc. to diversify production and minimize the impact of China-US trade tensions.
Other Apple suppliers like Luxshare and Goertek have already established their production facilities in Vietnam.