A manufacturer for Apple, Chinese company GoerTek, would begin testing manufacturing processes for the newest generation of AirPods at its audio factory in northern Vietnam, the Nikkei Asian Review recently quoted two sources with knowledge of the plan as saying.

Foxconn, a key manufacturer for the iPhone, in January acquired 250,000 square meters of land in an industrial park in the northern Bac Giang Province. While the Taiwanese company did not indicate it was for Apple-related production, it said in a separate filing that it was selling the land to a unit of Hong Kong-listed FIT Hon Teng, an iPhone cable and connector maker it controls.

Economist Vo Tri Thanh said that Apple has been considering Vietnam as a possible location to manufacture its products over the last few months, but increasing labor costs could narrow the possibility of being chosen.

"Vietnam’s labor cost is now no longer the most competitive factor when compared with other countries in the region, as it has been rising in recent years, faster than productivity growth," he told VnExpress International.

Financial information services provider Fitch Group said in a recent report that Vietnam was among three countries with the largest minimum wage growth in East Asia, with an average year-on-year growth rate of 8.8 percent between 2015 and 2019.

Ahead of Vietnam were Laos and China, where the minimum wages rose 14.6 and 9.8 percent each year respectively, it said.

A World Bank report in December last year also found that Vietnam’s labor costs, which it defines as the cost of all payments to all workers in a firm divided equally, was the highest among comparator countries in Southeast Asia.

It said wage costs of about $2,739 per worker for the median Vietnamese firm was about twice as high as in Laos, Myanmar and Malaysia, and about 30 to 45 percent higher than in Cambodia, Thailand and the Philippines.

Skilled labor

Experts also said that Apple and similar companies would struggle to find enough skilled labors in the country. Nihad Ahmed, senior economist for Vietnam at FocusEconomics, a global network of economics analysts, had said earlier that the country’s number of skilled workers was far behind China, Singapore, Malaysia and Thailand.

Economist Thanh added: "Vietnam’s manufacturing sector is still in dire need of more senior and middle-level managers. This could make Vietnam less competitive when Apple puts it on the table with other regional countries."

The skilled labor supply will be even smaller with several companies eyeing a production shift to Vietnam, not just Apple. It has been reported that Japanese gaming company Nintento and consumer electronics firm Sharp are preparing to move parts of their production to Vietnam.

High land costs is another challenge. Rents in industrial parks in Ho Chi Minh City and neighboring localities in the second quarter increased 15.8 percent against the same period last year to $95 per square meter, according to real estate firm Jones Lang LaSalle Vietnam (JLL).

Real estate services firm CBRE in an April report said that in 2018 it recorded "an increase in production facilities shifting from China to alternative locations in Southeast Asia, including Vietnam," leading to an increase in rents.

Another concern is Vietnam’s dependence on China for materials needed for production. Data from Vietnam Customs show that in the first six months, China dominated Vietnam’s imports of machines, equipment and materials for textile and footwear, phone parts, plastics and metal. China was Vietnam’s largest import market in the same period, accounting for 29.5 percent of its total import value.

Vu Huu Thang, deputy director of a company in the northern Bac Ninh Province which produces plastic parts for Canon printers and Samsung smartphones, said that his company is not likely have the chance to compete against Chinese suppliers as most of his material is imported from China.

"We import up to 100 tons of plastic a month from China as material in Vietnam is 5-10 percent costlier. If Foxconn were to make Apple products in Vietnam, it would likely use all materials from China. Vietnamese firms will have little chance to join Apple’s supply chain," he told VnExpress International.

Economist Ngo Tri Long also said that high imports from China make Vietnam less likely to be chosen as Apple’s next manufacturing base. Many companies still cling to China for their production, because materials are cheaper and available in larger quantities than in any other country, he said.

"Apple still has a lot of options for its plans to shift production, Vietnam is just one of them."