Companies relocating production from China face major challenges in Vietnam.

In short: Over the past several years, several technology companies have tried to reduce their dependence on China for their products. Suppliers Apple, Google, Amazon, Dell and Microsoft have had some success in expanding their operations to neighboring Asian countries. However, new outbreaks of Covid-19 and a shortage of local engineers are slowing this transition.

In 2019, during the trade war between China and the United States, there were many reports of tech giants exploring ways to get away from the heat and best protect their financial interests. Their main goal was (and still is) to move as much of their production as possible from China to countries such as India, Vietnam and Mexico, where labor is cheaper and the products received are not subject to excessive import taxes. …

This mindset is also supported by manufacturers such as Foxconn, who believe that China can no longer be a “global factory.” The process was far from smooth, however, with companies like Amazon and Apple quickly grappling with issues such as unfair pay and child labor, in addition to a series of political barriers and supply chain bottlenecks that were not easy to overcome.

Then a pandemic struck, and the danger of the technology industry’s heavy reliance on China became even more apparent. More than a year later, new outbreaks of Covid-19 are still affecting the ability of tech companies and their key suppliers to relocate production to places like Vietnam and India.

According to Nikkei, Apple will now start making AirPods in China instead of Vietnam. At the same time, Google and Amazon will do the same with mass production of the Pixel 6 smartphone and various smart home devices, despite the higher cost of Chinese labor. Other companies may also follow in their footsteps, overestimating the risks of tight border controls and local lockdowns, and the possibility that some suppliers may use forced labor.

Their main concern is that developing new supply chains and expanding manufacturing capacity in India and Vietnam requires engineering talent that is difficult to find locally and even more difficult to attract due to travel restrictions. As a result, companies can only manufacture the same products as elsewhere, making these countries less competitive. For example, Apple had to postpone plans to move its MacBook and iPad production to Vietnam, which is probably true of any other company planning to make tablets and laptops in the country.

IDC analysts believe that over time, officials will soften the restrictions and the process, which began in 2018, will continue. Meanwhile, it seems that China will be able to retain the title of “world factory” for some time to come.

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