But rising costs of sourcing from China have ramped up over the years and now, with the burden of tariffs, some importers are reaching the tipping point. World trade is a zero sum game - which essentially means there is a pie and it gets cut into pieces. One guy gets a bigger piece so someone else gets a smaller chunk. We sent more work over to China as it was a great value proposition and less was left for the UAW, teamsters, and other well-paid workers here. Over the last few decades, our infrastructure has been hollowed out. Neither Democrat nor Republican politicians had an interest in R&D tax credits nor incentives for our innovations to be built in new factories here. Regardless of your politics, our relations with China are not going well and continue to decline. The protests in Hong Kong are destabilizing resources and the stress and finger pointing from the pandemic have created additional problems. The risks and repercussions of overly concentrating the supply chain on one geographical/ political source are now painfully apparent.
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The strategy of China +1 is now becoming a standard approach for many audio manufacturers. And the +1 is loud and clear: Vietnam.
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Moving away won't be easy for Asian transplants in China, as they are finding the supply chains there are more developed compared with emerging markets. Local Chinese governments also offer tax incentives and friendly investment policies to encourage manufacturers to stay.
For all these reasons and many more, we won't be completely leaving China anytime soon, and the strategy of China +1 is the message of the day. And who the +1 is has become loud and clear: Vietnam.
Vietnam is looking to be the best addition, due to its close proximity to China, and therefore, close access to the component parts via air, sea, or land. Moreover, labor costs are about a third of China's, and the current workforce is full of fresh engineering graduates. The government is offering tax breaks and subsidies to those who want to set up their business in the country.
Let me preface that by saying I am only the messenger, along with a warning. Vietnam's total population is 95 million, and it won't take too many customers transferring their Chinese-sourced production to Vietnam before there are more jobs than workers... soon followed by unions and inflation. There must be some sense of déjà vu for those who remember Korea in the mid-1980s - when salaries went from $0.40 cents an hour to $8.00 an hour by the time the Olympics took place in Korea (1988). At least for the speaker industry, production moved onto China and never came back. Around this time, there also was a huge shift of high-tech manufacturing to Malaysia and the resultant ramping up of wages and inflation throughout the 1990s, was abruptly followed by the exodus of manufacturing business to China. This process left the Malaysian economy devastated by a 10-year depression and the long-dark audio factories of Eastech, YKS, Forum Audio, Dai-ichi Malaysia, Yahorng and others.
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Founded in 1999, Sound Corp is a leading OEM/ODM audio manufacturer in Vietnam. Its facilities are located in the Binh Duong province (25 km from Ho Chi Minh City (Saigon).
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Vietnam is the easternmost country on the Indochina Peninsula and is bordered by China to the north, Laos and Cambodia to the west, and part of Thailand to the Southwest. The capital city has been Hanoi since the reunification of North and South Vietnam in 1976, while the largest city is Saigon (Ho Chi Minh City). Da Nang's city and port is in central Vietnam. Since 2000, Vietnam's economic growth rate has been among the highest in the world and Vietnam's production base has matured. Industrial parks are in the south, central, and the north. In the Loudspeaker Industry Sourcebook (LIS) 2020 directory (www.loudspeakerindustrysourcebook.com), you will see many firms from the Bac Ninh Province in the Red River Delta of the north.
While as of yet, there are no non-stop flights from the US to Vietnam, it is within the range of the 787-9 (of which Vietnamese Air happens to have a few). There are many International flights to Vietnam from China, Taiwan, Hong Kong, and the Philippines to the main airports in Hanoi and Saigon.
In central Vietnam, Da Nang's industrial parks are likely to attract many audio factories (GGEC has its new factory there). International flights to Da Nang airport operate from Singapore, Seoul Korea, and Kuala Lumpur, Malaysia. Hotels prices are reasonable, even for the international chains. Ho Chi Min (Saigon) to Hanoi is a two-hour flight and Saigon City to DaNang is a 1 hour and 20 minute flight. Domestic flights are inexpensive and safe. Conversely, the train takes forever (20 hours from Saigon to Da Nang, and 30+ hours all the way to Hanoi).
Vietnam is on track to attract nearly $40 billion USD in foreign direct investments this year. That word comes from Vietnam's government - which says it's the highest inbound investment figure in 10 years. And money for manufacturing and other projects is coming from elsewhere in the region. This year, South Korea is the country's biggest source of outside financing - making up more than 20% of all foreign direct investment flowing to Vietnam. Second is Hong Kong - with nearly the same amount.
Singapore, Japan and China round out the top five foreign investors in Vietnam. US firms are also increasing their presence in Vietnam - sometimes by way of their suppliers. Apple's largest assembly contractor Foxconn has recently increased its presence in Vietnam. In 2007, Foxconn announced that it would invest $5 billion in Vietnam and this was expected to help bring Vietnam into the global supply chain. Foxconn kickstarted its Vietnamese investment by opening two factories, worth $160 million in total, in Bac Ninh's Que Vo Industrial Park.
The minimum wage is $1,000 per year but in the main cities, salaries are much higher. Still, China factory salaries are halved in Vietnam for the same work. Some of the established audio manufacturers have already moved significant production to Vietnam. Twenty years ago ESTec (Korea) came to Vietnam with its first factory. Soon ESTec and Foster (Japan) built joint-venture speaker factories, both in the north. Today, microspeaker giants AAC, Goertek, and Bujeon all have factories in Vietnam.
Luxshare is not that well-known as yet, but this Taiwan group is an Apple vendor (AirPods) and includes Merry Electronics and Sonavox, and is firmly in Vietnam. GoerTek, the other AirPods vendor has announced its intention to also move production of the wireless earphones from China to Vietnam to avoid being caught up in the escalating trade friction between the United States and China.
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Hank Tech was one of several manufacturers with modern facilities in Vietnam, hoping to attract OEM business at CES 2020.
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Aside from loudspeaker assembly developments, there has been a long-established speaker parts infrastructure in Vietnam. In 1996, Taiwanese transplant CX Technology wanted to expand from Taiwan but not to China. Its bold move was to establish a production base for forging back plates and top plates in Vietnam. PoYun, known for its voice coils (and diaphragms), has been in Vietnam since 2012 and recently opened a new plant in the Hai Duong province in the north.
Uniquely, the Vietnamese supply chain boasts a very special member in Power Development, a neodymium magnet factory. I would mention that the ore is readily available from California and from Australia (these sources now supply 40% of Chinese feedstock).
Korean Anam, established its Vietnamese factory in 2013 and further expanded in 2018, making integrated audio electronics (e.g., soundbars) for large corporations.
While the golden days of Vietnam speaker manufacturing may only last for the next 5 years or so before this low-cost country with smart people gains the standard of living they deserve, Cambodia and Laos are just next door...
The upcoming September issue of Voice Coil magazine will feature a special focus article on Vietnam, and a directory of audio factories and trade shows.
