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Manufacturers want to quit China for Vietnam, but find it impossible

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Re: Manufacturers want to quit China for Vietnam, but find it impossible

#21
It took China almost 30 years to cultivate economic development zones into the logistics chain to build the first iPhone. That kind of development can't be replicated in a few years, is likely out of reach for smaller nations (read anyone except India) or viable in a geographically distributed fashion. The problem isn't just moving factories but have a geographically centralized logistics chain where thousands of components are within hours of each other, supported by millions of specialized high skill labor, preferably with similar language proficiency, where new production can be rapidly iterated to meet market demands. A "small" country with 100 million people are not going train a large proportion off their entire population to fill football fields with tooling engineers and other specialists. It's just not demographically in their cards. And it's that level of centralized scale that enables China to manufacture high end electronics in the timescales that modern business cycles require.

That's why all the outsourced electronics production so far are low end assembly in countries adjacent to China where components made in China (other than very high end IC) can be quickly shipped to them have locals can be trained to assemble processes that has been matured and figured out in China. If all Chinese manufacturing magically shifted across ASEAN countries, I don't think there would be the collective capability to organize logistically to produce and iterate a new annual Apple product launch - the entire Tim Cook screw anecdote. The nature of manufacturing has changed. Maybe India can replicate that, they are not starting from zero, but I don't know if Indian democracy can make the extremely unpopular changes Chinese state directed capitalism / SEZ went through. This isn't an issue that can be solved by funneling money / FDI, these things take much longer time than a few years and still can't replicate the advantages of Chinese scale on things where scale matters. There's a qualitative difference in different governance models ability to execute policy and realize capabilities. Distributing Chinese manufacturing among bunch of competing countries with inevitably expensive and inefficient physical and regulatory interconnects just won't produce the same capabilities.

Even if we ignore the fact that countries like Vietnam are reaching infrastructure and labour limits, i.e. they literally at land, road, port, worker capacity which will optimistically take decades to cultivate - generations in terms of expertise that can't be rushed. Or that a lot of the factories that moved out of China are Chinese owned so money and control is still tied to CPC. Or China might undercut ASEAN by setting up parallel manufacturing in Chinese influenced Africa. There's still the matter of automation. Shorterm, China is targeting to increase automation from 68 industrial robots per 10,000 employees (14th in the world) to 150/10,000 employees (9th). For reference, top4 is Korea 631 /Singapore 488 / Germany 309 / Japan 303. China is not stopping at 150 long term, their poor demographics lack of youth due to family planning means labour heavy manufacturing is on the way out, but automation will potentially enable China to retain all their manufacturing advantages in terms of logistics and expertise in long run. And once China learns to make advanced integrated circuits and airplane engines, maybe software, they'll more or less have no western dependencies.

Re: Manufacturers want to quit China for Vietnam, but find it impossible

#22

Earlier quoted context omitted.

> The Vietnamese government is actually pretty good in terms of freedoms. Wait, what? They recently kidnapped an ex-party member in germany. It was 2017 or so. I can't believe that a country which honors you freedom would do something like this.

They are a one-party communist state and so are not nearly as good as America, but on the economic freedom index they are close to Hong Kong. Not the greatest country but better than some others where every industry is national (not just China). https://www.globalpropertyguide.com/Asia/Vietnam/economic-fr...

The link you sent talked about changes in economic freedom... but barely made it clear what they are talking about or measuring. Nevermnind if a site dedicated to global property purchases is likely to be an authority on economic freedom. That site does however say where they get their data: the Heritage Foundation's Economic Freedom Index.

So how does that source characterize Vietnam? "Mostly Unfree", 128 in their ranking of countries. And Hong Kong... "Free", 1 in their rankings... though we'll see how well that holds up over the next few years. So not so close to Hong Kong.

Heritage goes on to say...

"Background

The Socialist Republic of Vietnam remains a Communist dictatorship characterized by repression of dissenting political views and the absence of civil liberties. Economic liberalization began in 1986 with doi moi (renovation) reforms to transition to a more industrial and market-based economy. Vietnam joined the World Trade Organization in 2007 and signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in 2018. Vietnam’s economic growth, based on tourism and manufactured exports, was among the world’s fastest during the decade-long tenure of former Prime Minister Nguyen Tan Dung. In 2016, Dung was forced out after losing election as General Secretary of the Communist Party of Vietnam. State-managed economic liberalization continues under the leadership of General Secretary Nguyen Phu Trong."

So while they do say that things are getting better... they aren't exactly calling it Hong Kong just yet.

https://www.heritage.org/index/ranking

Re: Manufacturers want to quit China for Vietnam, but find it impossible

#23
post #21

It took China almost 30 years to cultivate economic development zones into the logistics chain to build the first iPhone. That kind of development can't be replicated in a few years, is likely out of reach for smaller nations (read anyone except India) or viable in a geographically distributed fashion. The problem isn't just moving factories but have a geographically centralized logistics chain where thousands of com…

I agree with most what you analyzed. However this is somewhat debatable,

   their poor demographics lack of youth due to family planning means labour heavy manufacturing is on the way out...
I am not sure if you are aware that the family planning policy (aka 1-child policy) has already been lifted years ago. The declining birth rate has to do with the young urban population don't want to have offsprings as much as their parents (social-economical changes, education cost etc.)

Re: Manufacturers want to quit China for Vietnam, but find it impossible

#24

This tariff situation is quickly becoming an amazing opportunity for developing countries. The labor shortages being talked about can only be resolved through higher wages, which means that the people at the bottom will get a cut of the new money. In the end the world will be a lot richer and the money will be in the hands of relatively livable countries like Vietnam. (The Vietnamese government is actually pretty goo…

Where goes the money for the subsidy come from

Re: Manufacturers want to quit China for Vietnam, but find it impossible

#25
post #23
post #21

It took China almost 30 years to cultivate economic development zones into the logistics chain to build the first iPhone. That kind of development can't be replicated in a few years, is likely out of reach for smaller nations (read anyone except India) or viable in a geographically distributed fashion. The problem isn't just moving factories but have a geographically centralized logistics chain where thousands of com…

I agree with most what you analyzed. However this is somewhat debatable, their poor demographics lack of youth due to family planning means labour heavy manufacturing is on the way out... I am not sure if you are aware that the family planning policy (aka 1-child policy) has already been lifted years ago. The declining birth rate has to do with the young urban population don't want to have offsprings as much as their…

I'm aware, lifting restrictions doesn't mean increasingly urbanized population will have 2+ children. Chinese women are marrying and starting families late, if at all. Or that new generations will want to work in factories vs air conditioned offices as China pivots towards service driven growth and internal consumption. And as wages grow it becomes infeasible to compete on labour with less developed countries. Automation means most manufacturing doesn't have to leave China for the same reasons why manufacturing never left the US. It just won't be done by people anymore.

Re: Manufacturers want to quit China for Vietnam, but find it impossible

#26
post #18

This tariff situation is quickly becoming an amazing opportunity for developing countries. The labor shortages being talked about can only be resolved through higher wages, which means that the people at the bottom will get a cut of the new money. In the end the world will be a lot richer and the money will be in the hands of relatively livable countries like Vietnam. (The Vietnamese government is actually pretty goo…

You have no idea what vietnam is like. Someone capable of spewing such garbage with confidence has no credibility about anything

I do. I spend 3 months/year there.

Cops are very corrupt and most people won’t even report traffic accidents. If you are a foreigner/non-vietnamese, many hospitals won’t even treat you. Abject poverty, aside from a couple of big cities.

Some may like it because with a little money, you can get away with anything.

Re: Manufacturers want to quit China for Vietnam, but find it impossible

#27

1) For anyone wondering, yes, many of these companies would have the same (or worse) problems if they tried to manufacture in the US. Our domestic supply chains for a lot of industries have dried up (or never developed). US factories also usually have higher minimum quantities and take much longer to tool up. 2) I'm surprised the article didn't mention Africa at all. A lot of Chinese industrialists are investing in A…

Our domestic supply chains for a lot of industries have dried up (or never developed).

You make it sound like supply chains are permanent, immutable things that can't be created and dismantled at will. It happens all the time.

Yes, there are countries where an existing supply chain is an advantage. But those supply chains weren't always there. They were created when manufacturing demand arrived. The same thing can happen in the United States, Canada, Europe, Brazil, or pretty much any other company.

It's happened before. It'll happen again.

If I was looking for a country to for long-term manufacturing strategies right now, I'd be taking a hard look at African countries.

Agreed. I read/heard somewhere the notion that Africa is tired of making plastic shoes for China, and wants to start moving toward electronics. Considering the labor availability, sea access, and mineral wealth available, I could see that happening.

Re: Manufacturers want to quit China for Vietnam, but find it impossible

#28
I'm from the bay area and moved to Vietnam 3 years ago. I'm watching all of this happen in realtime. I've recently completed a 8500km motorbike trip around all of Vietnam, southern Cambodia and Northern Laos.

In the south of Vietnam, HCMC, there is massive growth. Huge amounts of construction. The city is over populated and growing rapidly. Millions of kids work for $200 a month.

In the north of Vietnam, there is many illegal roads being cut through the forests and jungles to ship things from China. I've ridden these same dirt roads on a motorbike and seen the trucks. Did you know that Vietnam is also building a wall between themselves and China?

All over Vietnam, people are making babies in huge numbers. There is a lot of family pressure to do so. They may only have 100m people now, but every single shack and house has 2-3 babies in it. It will be very interesting to see what happens to all these humans over the next 20 years as this country grows at a rapid pace.

Cities in the north like Hai Phong are expanding rapidly. It is a massive port city that does trade with China and elsewhere. There is a road leading to the airport where all the super wealthy old vietnamese guys spend their 'retired' days riding their bicycles. Anyone who thinks Vietnam is poor should see the absurd size of the mansions here. This is where Samsung has their factories. A massive car factory (Vinfast) was recently built here as well.

In Cambodia and Laos, the Chinese are building a trade route directly through the two countries. Literally cutting a huge freeway and railroad from north to south. Buying up all the land and stripping it. Zero concern for the environment. Even cutting holes through mountains. In return, China Power is also building hydro dams, which are causing lakes to dry up and rivers to flood in the wet season. Google 'china Sihanouk' to see what's happening there. My guess is that if you look on a map, this will give China a great water route directly to Africa. Here is an example of the roadway: http://www.xinhuanet.com/english/2019-07/28/c_138264471.htm

I feel like nobody is talking about this, but it is happening. I've seen it first hand. This tariff situation is making huge waves that will affect this whole planet.

Edit: I just noticed the overhead image of the factory complex in Binh Duong. I've been to those same buildings!

Re: Manufacturers want to quit China for Vietnam, but find it impossible

#29

I'm from the bay area and moved to Vietnam 3 years ago. I'm watching all of this happen in realtime. I've recently completed a 8500km motorbike trip around all of Vietnam, southern Cambodia and Northern Laos. In the south of Vietnam, HCMC, there is massive growth. Huge amounts of construction. The city is over populated and growing rapidly. Millions of kids work for $200 a month. In the north of Vietnam, there is man…

Once u have used all all your resources - what else do u do? Enter a new market, under the guise of alturism, give that country cheap credit... and soon enough you have a new colony!

Re: Manufacturers want to quit China for Vietnam, but find it impossible

#30

I'm from the bay area and moved to Vietnam 3 years ago. I'm watching all of this happen in realtime. I've recently completed a 8500km motorbike trip around all of Vietnam, southern Cambodia and Northern Laos. In the south of Vietnam, HCMC, there is massive growth. Huge amounts of construction. The city is over populated and growing rapidly. Millions of kids work for $200 a month. In the north of Vietnam, there is man…

I haven’t followed China’s expansion into Vietnam as closely as I should’ve. Do you have any articles I can read on the above, or good twitter accounts to follow on the topic?
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