Why is Foxconn changing its direction to expand production in Vietnam?

Foxconn will spend $ 270 million (about 1.77 billion yuan) to establish a new company FuKang Technology Company Limited in Vietnam to expand production. Some sources said, the new factory is mainly to please Apple with the demand for decentralized production of products. Foxconn will transfer part of the iPad and MacBook assembly line to Vietnam, and is expected to start production in the first half of 2021.

Foxconn entered Vietnam in 2007 and has three small-scale factories, mainly manufacturing and assembling computers and auto parts. This transfer of assembly lines to Vietnam will be Foxconn’s first iPad production outside of China. Due to changes in the international trade environment, Foxconn and other foundries are required by customers to supply supply chains serving two major markets, China and the US.

In that context, Vietnam’s cheap labor force is a prominent factor for companies to choose. Foxconn is speeding up the global production capacity layout, previously set a target that, in the future, overseas production capacity will account for 30% of the company’s total production capacity.

Reduce production and logistics costs

Every hour after work, thousands of employees from the Foxconn factory in Bac Ninh, Vietnam gather out of the factory gate. The people who have been here say, as if they were in Dongguan, China. At night, after work, the workers wear helmets and ride motorbikes, they also use bicycles as means of transport. The number of workers increased dramatically, making the whole dirt road gray, if it rains, the road is muddy and difficult to flow.

There were a lot of young women in the crowd, each wearing a badge on their collar, and most of the female workers were wearing pink-red work clothes. Many workers will go to restaurants near the factory to buy a meal after work. The stalls are simple, all open-air, on the ground there is a large umbrella for the stalls.

The above is a scene of Foxconn workers at a Vietnamese factory described above by a reporter from AI Finance. These young Vietnamese workers look no different than Foxconn’s 757,000 workers in China, but if you compare the income, you will see that the difference is not small.

Foxconn workers at the Bac Ninh factory buy food after work (Photo taken from the clip)

With a basic salary of about 4.2 million VND, plus overtime working at 1.7 to 2.8 million VND, their monthly income will be 6-7 million VND. While Foxconn recruits workers in China, the monthly salary of unskilled workers is about 14 – 21 million VND, the higher position will be up to 35 million VND, much higher than the salary in Vietnam.

For Foxconn, a multinational company engaged in labor-intensive market competition, the cost of labor is one of the most sensitive factors. Foxconn plans to invest 7.3 trillion VND (equivalent to 2.059 billion yuan) in the construction of dormitories for employees in Vietnam in July this year, which is certainly good news.

Regarding the expansion of production capacity in Vietnam, Foxconn declined to answer on reasons of company policy and trade secrets. Recently, Foxconn’s factory in Vietnam has produced the first batch of display panels, the factory will produce 20,000 panels per year, mostly for export.

In fact, in early July this year, Foxconn asked the local government to approve the establishment of a 600-hectare industrial park in Bac Giang. On November 25, Liu Yangwei also announced that Foxconn will manufacture a wide range of products in Vietnam, including televisions, transmission equipment and computer-related products.

In addition, from a production standpoint, China’s labor and land costs are on the rise, while Vietnam is catching up with the period of rapid industrialization. Lower labor costs and more support from local authorities. In addition, from a geographical transport perspective of Vietnam, production development has lower logistics costs. And now not only Foxconn, many Chinese companies have also moved their production lines to Vietnam.

Supply chain restructuring

According to the report, Foxconn has invested US $ 270 million to establish a new company, FuKang Technology Company Limited, in preparation for the expansion of production capacity in Vietnam.

Recently, Samsung is also building a factory in Vietnam, but analysts said that this is related to the Samsung mobile phone market share in China is quite bleak. Samsung has invested 13.7 billion USD in Vietnam to build 8 production facilities. In addition, Samsung also announced that it would build the world’s largest Samsung factory in Vietnam.

Analysts said that Foxconn, Samsung and other companies moved their factories to Vietnam, in addition to considering the cost factor, they also considered “supply chain security”, they said that the supply chain relatively dispersed will be more secure. In addition, Vietnam joined the RECP (Regional Comprehensive Economic Partnership) in mid-November this year, a very positive sign in the opening of trade.