New changes in the market
Recently, many changes from the Covid-19 epidemic have greatly affected the global economy, including the electronics industry in general and electronic components transformation in particular, especially when China – the main manufacturing hub of the world is experiencing a lot of wobble. According to the ECAI report, the electronic components market has lost about 12% and the global demand for tablets, shipments worldwide fell to 24.6 million units in Q1/2020, down 43.44% compared to the previous quarter and 18.27% over the same period in 2019.
In this situation, according to the Nikkei Asian Review, Google and Microsoft are currently trying to accelerate the transfer of hardware production lines to other parts of Asia, including Thailand and Vietnam. Microsoft promisingly start its production in Vietnam in Q2/2020 for the products of laptops and desktops. Earlier, Nikkei’s report showed that AirPods have been produced in Vietnam since early March 2020.
By the end of Q1/2020, Vietnam’s export of phones and components reached US $ 12,876 billion, up 6.2% over the same period in 2019, accounting for 20.36% of Vietnam’s total merchandise export turnover, the largest contribution in the total export turnover of Vietnam. By the end of Q1/2020, exports of computers and electronic components reached over 9.08 billion USD, up 28.7% over the same period in 2019, accounting for over 14.36% of Vietnam’s total merchandise export turnover in Q1/2020.
Vietnam – An attractive destination for foreign investment
Vietnam electronics industry is an attractive destination for FDI inflows with a number of notable FDI projects in 2019 and the first 3 months of 2020, such as: Electronic equipment manufacturing factory project with registered capital of USD 260 million invested by Goertek (Hongkong) Co., Limited in Bac Ninh; Project of Meiko Electronics Co., Ltd. (Hong Kong) in Hanoi adjusted to increase investment capital by another 200 million USD; The project of manufacturing electronic components, peripheral devices and optical devices (Taiwan) in Hai Phong which has adjusted to increase the investment capital by another 68 million USD.
Export turnover of computers, electronic products and components of Vietnam to China in Q1/2020 reached US $ 2,584 million, up 45.93% over the same period in 2019. China is an import market that the largest computers, electronic products and components from Vietnam accounted for 28.46% of total product export turnover, followed by the US and Hong Kong markets with export turnover of over US $ 1,956 million and 686 million dollars respectively.
Computers, electronic products and components ranked 4th place in the top 10 export items in Q1/2020 with the highest FDI rate with 86.78%, led by mobile phones and components with the highest proportion. The electronic components transformation in Vietnam is still an attractive market for foreign investors, especially businesses from Japan and Korea.
The sharp increase in exports of computers, electronic products and components is due to the increasing market demand (the need to shelter in place due to the Covid-19 epidemic and work from home). In addition, the Covid-19 epidemic also caused computer manufacturing companies in China, the world’s manufacturing hub, to close down. The supply is slowing down, unable to meet the demand increasing so fast, even businesses have to order tens of thousands of personal computers to equip their manpower.
The difficulties faced by electronics components industry
The biggest inadequacy in the tax policy for electronics, telecommunications and information technology is that imported CBU products are entitled to the tax rate of 0%, and if importing discrete components for assembly, they will be taxed. In fact, this policy has a great influence on the domestic electronics and telecommunications industry when compete with imported goods.
Risk of increasing labor costs
According to VEPR, average wages in Vietnam are increasing faster than labor productivity. Specifically, according to JobStreet.com, in 2018, the average wage increase rate of Vietnam from 20% to 24%, while in other countries only about 16%. However, labor productivity in 2018 only increased by 5.77%. This can reduce job growth and reduce the profit rate of the business. Labor costs in Vietnam are currently only about half that of China, however, with the effects of inflation as well as government policies (minimum wage increase), in the long run, labor costs in Vietnam The increase in the South will become a huge risk for the electronic components transformation, because as labor costs increase, Vietnam’s competitive advantage is on the decline.
Supply of raw materials
In the mean time, most of the raw materials for electronic component production still have to be imported because Vietnam has not yet been able to produce but the processing stage. Therefore, although the annual export value is quite high, the import turnover is also very large. January 2020 was the time when the Covid-19 outbreak spread out in China – the main source of electronic components and devices. Therefore, the production of electronic components of Vietnam in particular and electronics in general is seriously affected, making the production index significantly reduced.
Industry development forecast
Facing these given challenges, Vietnamese companies are still the bright spot of industrial production in the context of the negative Covid -19 epidemic. In Q1/2020, the index of manufacturing electronic products, computers and optical products increased by 14.3% over the same period last year (except for the production of civil electronic products with a negligible decrease). This result is due to a number of foreign-invested enterprises continuing to move into Vietnam, namely LG moved all production lines from Korea to Hai Phong; and better exports to traditional electronics markets; Vietnam benefited because China was affected by the disease.