Source: DIGITimes

Will ASML be affected with the geopolitical uncertainties in the future, given the world’s most advanced high-NA EUV machines is touted to be the ultimate weapon for a technological leapfrog for its customers. 

1. Dan Hutcheson, vice chair of TechInsights, who has covered ASML since the 1970s, when it was still a subsidiary of Philips, and Marc Hijink, the author of Focus – the ASML Way and a reporter at Dutch newspaper NRC, joined DIGITIMES Asia for an insightful talk to address these questions.

Navigating Geopolitical Uncertainties

Although ASML and other semiconductor equipment providers benefit from the demand driven by export controls imposed by the United States to China, geopolitics may have long-lasting implications on the industry as extra capacities and ecosystems are built.

Hutcheson and Hijink see ASML following their customers’ footsteps to decentralise their productions from the Western Pacific corridor to the United States and Europe. Still, the efficiency of its customers’ fab operations may be a concern.

“We’re in a new world where the utilization of the tools is lower,” said Hutcheson, “The problem is, if you can’t find the workers to run the tools or to repair them, keep them running, your wafer fab is useless.”

Hijink observed that Asia will remain an important center for chip production in the future despite the onshoring efforts of various countries and the talent shortage issue since South Korea and Taiwan remain an important part of ASML’s expansion.

ASML’s Monopoly Status Unlikely To Be Challenged

Yet, Hijink cautioned, “ASML’s biggest fear is that the current restrictions on Chinese technology might even stimulate it in the long term and create an even bigger problem.” He pointed out that the less China gets access to these Western lithography tools, the more the Chinese companies are inclined to build their own. “Even though they might not be able to compete with ASML and Nikon now, you see more room for growth and R&D money in the long term.”

Yet, Hutcheson believes no company can challenge ASML lithography monopoly without massive government subsidies.

“Five decades ago, I developed this maxim that the number of unsubsidised competitors a market can sustain is equal to 1/5 the total market size divided by the cost to develop a new generation of technology, and then you subtract 1.5 times that cost,” said Hutcheson. “To attract another competitor in the market, the risk bar must be low enough that there’s enough available R&D to support the development of at least 1.5 more tools than what exists in the market at that time.”

Over those five decades, that maximum is held across 100, or there have been more sub-markets of semiconductor equipment, and that explains the market consolidation of the market from more than 20 semiconductor equipment makers in the 1980s to just a handful right now for lithography, explained Hutcheson.

As a semiconductor industry veteran, Hutcheson witnessed how ASML survived over the past four decades of vicissitudes through better management and technological development. Hijink added that ASML survived because it out-invested in R&D during the low cycles despite being on the brink of bankruptcy several times and cleverly invited its customers TSMC, Intel, and Samsung to invest in it and co-develop the EUV machine.

By getting the investments, ASML managed to get the money to acquire Cymer, the light source company based in San Diego, and establish a strategic alliance with ZEISS, the German lens maker. Those key components and e-beam technology created ASML’s secret sauce of success that competitors cannot copy.

However, repeating such success is getting harder.

“No single company can afford to do it alone, as R&D becomes more and more expensive,” Hutcheson quoted John Chen of Nvidia, who was the first R&D president at TSMC, that,” IC no longer means integrated circuit going forward, IC means industry collaboration.”

Hutcheson estimates that the cost of developing a new EUV tool from scratch would require multiple trillions of dollars, which is equal to the Gross Domestic Product for some countries, and that’s assuming that one gets around all the IP barriers in place. “To some extent, it levels the geopolitical playing field. So maybe EUV should receive the Nobel Peace Prize because no country can attack any other country unless they have the EUV,” quipped Hutcheson.

Can High-NA Machines Help Technology Leapfrog?

As Intel, Samsung, and TSMC are aiming to mass produce 2nm chips in the next few years and advance towards 1.4-1.6 nm, the ASML’s high-NA EUVs are making the headlines of semiconductor industry newspapers.

As always, ASML ships the US$300 million High-NA machines to customers according to the timetable agreed with customers and does the laborious adjusting and error corrections with customers. The media has been describing high-NA EUVs as the key for technology catch-uppers to leapfrog the incumbent. However, Hutcheson delved deeply into the intricacies involved in the complex processes of semiconductor manufacturing beyond lithography.

“There’s a lot of technology issues in the 2nm and 1.4nm era. And we will have to see if they can pull it off and turn it into an advantage,” Hutcheson explained that lithography is not the only factor at stake, there are also issues with the gate-all-around (GAA) structures, due to the leakage problems with that. “There’s also reliability problems, and the epitaxial layer is pretty poor. So really, there are more material and systems engineering problems than lithography problems.”

Though Intel has seemingly bought up all available high-NA machines for the year, TSMC is not in a hurry to apply it to its 1.4-1.6nm process. However, ASML said all of their customers who have bought EUVs are going to upgrade to High-NA EUVs.

“I think that Intel has to do more, try to leapfrog TSMC, which is a daring move, but that’s just one part of Intel’s challenge,” said Hijink. “Their biggest challenge is not the technology, but the fact that they want to do foundry business because they have to create enough wafer footprint or enough scale to be economically viable with huge competitors like Samsung and TSMC. So that adds to the problem of adopting a new technology where they’re not as experienced.”

Hutcheson cautioned that it is too early to judge the outcome of technology competitions. Yet seeing from the history of the semiconductors industry, decades of research, blood, sweat, and tears, and fixing tonnes of errors, plus making the right decisions at the right timing and building deep trust with customers made ASML and TSMC what they are today.

ASML, a blend of European, Asian, and American cultures as the result of acquisitions, can be a great teacher for TSMC, which is just starting to expand its footprints to the US and Europe. With such a close bond between the two, with AI being the main driving force for semiconductor’s future growth, one can be sure there will not be short of fascinating stories in the future.

Editor’s note: For more insights and analysis from Hutcheson and Hijink on the industry, watch DIGITIMES Asia’s new GeoWatch video, ‘Decoding Excellence: ASML’s Evolution Towards Leadership and Beyond.’ Click the link here to access this informative video: https://dgt.ms/geowatch0516

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Aptiv was a former partner in Motional with Hyundai, Motional is a joint venture between Aptiv and Hyundai Motor Company, which uses the IONIQ 5 electric car as its robotaxi. The EV is used in Las Vegas through Uber and Lyft.

“While our Motional joint venture continues to make progress on their technology road map, we’ve decided to no longer allocate capital to it,” Aptiv CEO Kevin Clark said during the earnings call.

Aptiv’s 2024 profit forecast of US$5.55 to US$6.05 per share includes a non-cash equity loss of about US$340 million, or US$1.20 of earnings per share, related to Motional’s losses. South Korean automaker Hyundai Motor Group agreed to pump nearly US$1 billion into self-driving company Motional.

The Hyundai Group’s new investment will see it acquire 11% of Motional’s common equity held by Aptiv for US$448 million. The funds will come from different firms across the Hyundai brand, including Kia and Hyundai Mobis (parts supplier).

In a statement to The Korean Economic Daily, the group will also fund Motional with an additional US$475 million, with the investment again split between Hyundai, Kia and Hyundai Mobis. 

“Hyundai Motor Group decided to obtain stable management rights in Motional to proactively develop autonomous driving technology and internalise core technology… Hyundai Motor Group decided to obtain stable management rights in Motional to proactively develop autonomous driving technology and internalise core technology.” it read.

Aptiv joins Ford Motor, Volkswagen and General Motors in cutting down or backing out of the technology, which is often touted as the future of mobility. Reuters heard from Evangelos Simoudis, an investor, author and corporate adviser, who said:

“Companies are realising that attaining level 4 of autonomous driving is way more difficult and expensive than the industry predicted.”

Level 4 autonomous driving refers to the vehicle moving automatically in longitudinal and lateral axes and the driver does not have to keep their eyes on the road or supervise the vehicle. Last October, GM got into trouble after an accident involving a pedestrian with its robotaxi. It resulted in General Motors’ Cruise recalling 950 driverless cars from the roads across the United States and slapped with federal investigations.

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The manipulator, designed by a team at the University of Bristol and based at the Bristol Robotics Laboratory, is able to apply very specific forces over a range similar to forces used by human examiners and can detect lumps using sensor technology at larger depths than before. This could revolutionise how women monitor their breast health by giving them access to safe electronic CBEs, located in easily accessible places, such as pharmacies and health centres, which provide accurate results.

Precision, repeatability and accuracy are of paramount importance in these tactile medical examinations to ensure favourable patient outcomes. A range of automatic and semi-automatic devices have been proposed to aid with optimising this task, particularly for difficult to detect and hard to reach situations such as during minimally invasive surgery.

The research team included a mix of postgraduate and undergraduate researchers, supervised by Dr Antonia Tzemanaki from Bristol Robotics Laboratory. Lead author George Jenkinson explained:

“There are conflicting ideas about how useful carrying out Clinical Breast Examinations (CBE) are for the health outcomes of the population. “It’s generally agreed upon that if it is well performed, then it can be a very useful and low risk diagnostic technique.

“There have been a few attempts in the past to use technology to improve the standard to which healthcare professionals can perform a CBE by having a robot or electronic device physically palpate breast tissue. But the last decade or so of technological advances in manipulation and sensor technology mean that we are now in a better position to do this.

“The first question that we want to answer as part of this is whether a specialised manipulator can be demonstrated to have the dexterity necessary to palpate a realistic breast size and shape.”

Intelligent Technology Fusion

The team created their manipulator using 3D printing and other Computerised Numerical Control (CNC) techniques and employed a combination of laboratory experiments and simulated experiments on a fake (silicone) breast and its digital twin, both modelled on a volunteer at the Simulation and Modelling in Medicine and Surgery research group at Imperial College London.

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Cleveland Clinic is the first medical center in the United States to have performed a minimally invasive gastric sleeve procedure using a recently FDA-approved surgery robot with magnetic technology. Gastric sleeve surgery, also called sleeve gastrectomy, is one of the most common bariatric surgery procedures. It removes a large portion of the stomach, leaving behind a narrow “sleeve”.

Matthew Kroh, M.D., section head of surgical endoscopy and vice chair of innovation and technology with Cleveland Clinic’s Digestive Disease Institute, led the team that successfully performed the operation in September. Following the procedure to treat obesity, the patient is doing well.

“Advances in robotic technology allow surgeons to perform minimally invasive surgery with less incisions. As a result, patients experience less pain, fewer scars and a quicker recovery,” said Dr Kroh.

The robot with magnetic technology was recently approved by the FDA for minimally invasive gastric sleeve surgery. Image courtesy of Cleveland Clinic.

The combination of magnetic technology with a surgery robot enhances minimally invasive surgery and provides benefits for patients and surgeons. Reflecting on the first case using a surgical robot with magnetic technology, Dr. Kroh highlighted the use of one of the robotic arms fitted with a surgical camera.

“It is an advantage for the surgeon to control the robotic arm with the camera to view inside the body and visualize the tissues and organs during the surgery. Without the robot, the surgical camera would be fitted on a thin rod, and I would communicate with an assistant to ask for the camera to be moved.”

With the use of magnetic technology, surgeons can use the magnet to gently manipulate tissue and organs as needed depending on the surgery. Dr. Kroh and lead surgeon Andrew Strong, M.D., used the magnetic technology to gently move the liver to see the stomach while the abdominal procedure was performed laparoscopically.

Without the magnetic technology, an additional incision would have been needed so that a surgical assistant could hold the liver in place during the surgery using a laparoscopic instrument. Dr. Kroh said that with fewer incisions, patients experience less pain and scarring.

“In addition, research shows that there may be faster recovery by using magnetic technology to hold the liver in place during a procedure instead of using a surgical instrument,” said Dr. Kroh.

Prior to the FDA approval of the magnetic-assisted surgical robot, Dr. Kroh and colleagues observed the use of that platform on cases done internationally. The research paper, published in Annals of Surgery Open, concluded that the robotic platform brings the benefits of magnetic surgery by reducing incisions and provides full-camera control for the surgeon.

“Robotic technologies will increasingly incorporate more advanced imaging and navigation systems to allow us to do operations more effectively and safely,” said Dr. Kroh.

In August 2023, the magnetic-assisted robotic surgery platform was FDA-approved for abdominal surgeries, including gallbladder removal and bariatric surgery. Since the first case at Cleveland Clinic in September, Dr. Kroh and his team have successfully performed additional procedures using the robotic platform, including a gastric bypass procedure.

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GROB is a pioneer of electromobility: The manufacturing technology and process expertise of the Bavarian family-owned company are used by over two-thirds of all EV suppliers. GROB earned this market leadership not only through courage and foresight, but also through high quality standards with ZEISS’ commitment towards enhanced standards and productivity.

Electrification is a key economic and ecological success factor – especially in the mobility sector. It is often said that Germany is a lagger on electromobility. However at GROB, a supplier of manufacturing and automation systems, they only smile at such statements. Martin Negele, Head of Quality Assurance says:

“At GROB, we recognised several years ago that the future belongs to e-drives. Despite being a controversial topic then, we took the plunge. This has paid off: today, we have a 67% market share in stator technology alone. If you look at an e-drive train, it is very likely that our production technology is behind it,” Martin Negele explains.

GROB earns this leading role mainly by striving for uncompromising quality, enabled by a close partnership with ZEISS. With its Industrial Quality Solutions division, ZEISS is the only provider to offer a complete portfolio of state-of-the-art quality solutions.

“We combine microscopic, tactile and optical measurement technology to achieve optimum results,” Martin Negele noted.

This means producing a demanding part such as a stator can be fully executed with maximum certainty and productivity.

Stator: Challenges In Manufacturing And Quality Assurance

In addition to many other advantages, the drive technology of EVs impresses with its fundamentally simple design: In an electric motor, a rotating electromagnet, the rotor, turns in the magnetic field of an immovable permanent magnet, the stator. 

However, producing these components, especially the stator is anything but simple in spite of consisting a sheet metal housing, laminated core, and induction coils made of coated copper. Even with such a “simple” component, there are high performance requirements today. For this reason, automotive manufacturers are also increasingly using hairpin technology, i.e. plug-in coils, instead of winding wire coils for their stators.

Read more here at page 39

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Source: IoT World Today

Tesla is recalling more than 2 million vehicles due to a brake system warning light issue. The recall says the warning light indicator letter font size was not in compliance with size height requirements, making it difficult for a driver to detect when illuminated, according to the National Highway Traffic Safety Administration.

The issue was discovered during a routine compliance audit involving a 2023 Tesla Model Y. Following the discovery, the NHTSA notified Tesla about the vehicle not complying with letter font size height requirements.

The recall impacts 2,193,869 vehicles and includes 2012-2023 Model S, 2016-2024 Model X, 2017-2023 Model 3, 2019-2024 Model Y and 2024 Tesla Cybertruck vehicles. Tesla began deploying an over-the-air software release in late January to affected vehicles. That update will increase the letter font size of the Brake, Park and Antilock Brake System (ABS). Remaining vehicles are expected to receive the over-the-air update this month. 

It’s not a great start of the year for Tesla, which last week announced it was recalling nearly 200,000 vehicles over concerns with the rearview camera sensing system.

In early January, Tesla recalled more than 1.6 million vehicles in China to address worries over its Autopilot driver-assistance tech, less than a month after the company was forced to recall more than 2 million vehicles in the United States to effectively address the same problem.

With the increasing number of mishaps involving technology which converted a good population of the world, things may not be as rosy as what at least Musk would like it to be. The technology-obsessed billionaire who just proudly announced his wireless brain chip which is supposed to enable individuals to control devices just by thinking may need to brace himself for more unexpected technical glitches, and maybe more PR speed bumps. 

Nonetheless, we cannot run away from the fact that technology neither qualifies as a replacement for job, nor an effective tool to lighten the load for some, or shave costs for others. While might modify the way we operate, for what is worth, there has to be a balance in utilising technology and recognise the importance of human interference. 

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When the news broke, all that were mentioned was the defendant is in his mid 60s, experienced in Samsung and SK Hynix (both semiconductor titans). More dirt was aired when Asia Financial revealed his name – Choi Jin-seok.

Korea Times added Choi was described as a “master in production yields,”. He was formerly a senior executive at Samsung Electronics, the world’s top memory chip maker, and three-time winner of Samsung’s annual “proud Samsung men” awards.

After 18 years at Samsung, he joined Hynix Semiconductor in 2001, which later became SK Hynix, Samsung’s toughest competitor in the global memory chip sector. He was a “hidden force” in improving SK’s chip production yields.

Guilty Till Proven Innocent?

When he was named Chief Executive of a company invested in by a regional Chinese government in 2020, Seoul’s intelligence agencies raised the alarm about economic espionage and technology theft. Local prosecutors said the former executive hired some 200 ex-Samsung and SK engineers, and allegedly stole Samsung’s key factory specifications as well as clean-room designs.

If there were not enough panic, prosecution’s speculated millions of Samsung’s advanced chip facilities data sets had already been stolen. Fuelling the fire is another testimony from another former Samsung executive who was also approached by Chinese agents to work at a Chinese semiconductor firm.

“This case is an alarm bell to major South Korean tech companies and South Korea itself. Technicians, researchers and engineers at Samsung and SK are being targeted by Chinese agents. The main concern is understanding the whereabouts of skilled workers and knowledge is much harder than controlling the movement of products through restrictive measures and tightened export controls,” the source noted.

He added, “Semiconductor- and battery-related technologies, viewed as crucial for defense and backbone industries, have become much more difficult to steal or even acquire via acquisition deals, I would presume efforts by the Chinese government to scout skilled semiconductor and battery engineers will accelerate.”

South Korea is home to world-class memory chip and battery manufacturers including LG Energy Solution and Samsung SDI, the country is situated to better protect tech intellectual property. Data provided by the National Intelligence Service (NIS) showed 93 cases of suspected industrial espionage were detected from 2018 to last year. The semiconductor, display and battery industries were the prime targets.

A Question Of Ethics

The impact on the country’s economy through the loss of intellectual property is one of the main concerns among South Korean officials. Estimates by the Federation of Korean Industries (FKI) revealed the annual costs of intellectual property theft for the country are somewhere between KRW56 trillion and KRW60 trillion. China is responsible for at least 85% of that figure.

“Industrial espionage has already become a major flashpoint in U.S.-China relations, and will be the same for Seoul’s relationship with Beijing,” said Park Hyeong-kwan, Professor Of Department of Police Administration at Gachon University.

He added that China’s growing business intelligence targeting of U.S. officials and experienced U.S. business executives has become a major justification for U.S. technology restrictions. If the speculations are proven right, it could only further tarnish the name of China for the wrong reasons.

There is no shame in trying to be self-reliant, but when Intellectual Property Rights are added to the mix, it will be a major public relations crisis for China with the biggest blow directed at ethics.

Samsung may not be spared either — what catalysed the criminal act when the defendant has all the experience and knowledge? This came shortly after the several data leaks thanks to A.I. chatbots.

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Tesla famously slashed its prices to make their vehicles more affordable. Unfortunately, it failed to outdo BYD in China as the latter has American investment titans’ support.

One of them is Charlie Munger, who proclaimed having Berkshire Hathaway pump in capital to support BYD is one of his best decisions. He was quoted at a meeting with Daily Journal Corporation, “I have never helped do anything at Berkshire that was as good as BYD. BYD is so much ahead of Tesla in China. It’s almost ridiculous.” Munger pointed out that BYD increased the price of some of its more popular models, while Tesla had to offer discounts for its cars. Expiring consumer subsidies for electric vehicles may be pushing car companies to slash prices to retain customers.

The Big Factor

Why are American investors more interested in a China-made electric vehicle than its own native? Both nations (China and United States) have government support in terms of incentives. Labour costs in China are certainly more affordable — a well-known fact.

In terms of government support, Tesla has lost its first-mover advantage resulting in lacklustre performance. Kristin Dziczek from Federal Reserve Bank of Chicago noted in a Trade Talk podcast last December, “Despite Tesla’s early lead, the United States really is lagging behind other countries in EV adoption. In 2021, just 5 percent of US vehicle sales were EVs. In China and Europe, that number is more like 16-17 percent.”

She added, “In 2009, as part of the American Recovery and Reinvestment Act (ARRA), the federal government offered up to US$7,500 of EV tax credit per vehicle. These credits were structured so that any American buying a qualified EV could get the credit, and the more battery power in the vehicle, the bigger the credit.”

As of February 2023, General Motors (GM) and Tesla have reportedly reached their respective sales limits, so the credit for their vehicles was phased out. For GM, the credit began to phase out in April 2020.  Tesla’s began to phase out in December 2019.

China’s Edge In EV

Apart from government support, what gave China its pole position in the electric vehicle turf versus America? Giving credit where it is due, BYD has been smart in navigating technology challenges in the business world.

The technologies from both countries are certainly on par. However, it is notable that BYD has become a patent leader with a whopping 19,837 domestically by end of 2021 registered by Statista.com. It clocked 297 overseas patents in the same year, amounting to 3,411 as at 2021.

The republic has become a major producer of EV batteries, with many of the world’s largest battery manufacturers located in China, with Contemporary Amperex Technology Company Limited (CATL) taking the lead. This has allowed Chinese EV manufacturers to have better access to battery technology and be more competitive in the global market. 

Putting it altogether, China’s pole position in the electric vehicles market is well-deserved. The Chinese government is still actively offering subsidies to promote electric vehicle adoption, including that for infrastructure. The latter is for companies that install and operate public charging stations. Nonetheless, it is important to note there is also a cap in China’s subsidy – except it has not reached its limit.

Hence, it would not be surprising if an EV price war occurs. With various measures in place to make it affordable, it would not be long when the industry witnesses a price war between the two titans. The irony remains: American investors are more keen on Chinese EVs. Not to mention, the “biggest winners” are the consumers.

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• Speed – extremely short forming time > increase in productivity
• Flexibility – accommodate difficult operation
• Precision
• One machine – four different processes (when interchanging the process module): Radial, Tangential, Orbital & Roller

Forming with one and the same machine!

• Easy to use – no need to understand CNC programming
• Reduction of scrap / NOK parts
• Low energy cost – far lower than conventional pneumatic machines
• Protection of your investment!! – easily change over to a different application
• Fully digital process – very short time to change the setup. Every time exactly the same parameters and result of the processed parts
• Intelligent process – accommodate components with great tolerances and produce consistently OK parts
• Full & comprehensive process data log to meet requirements regarding data archiving, traceability with MES, Industry 4.0, etc.
• Setup, parameter changes, communication via operator interface panel (HMI) or simply a Windows-based PC While applying the various forming methods, in combination with a linear motion to and from the workpiece and integrated rotational drive, superb control over the forming process is possible.

Consultation

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Article by BalTec AG / SEA@baltec.com

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Source: Lien Hoang, Nikkei Asia

Flip over an Apple Watch or MacBook box in the future, and it might say, “Assembled in Vietnam.” The imprimatur of Apple would be a win for Hanoi, which for more than a decade has made a priority of attracting top technology brands like Intel, Samsung and Xiaomi to set up supply chains in the country.

Apple sources AirPods earphones from Vietnam and is testing watch and laptop production. Making those more complex devices would be a badge of success for the country’s manufacturing industry and its determination to join the global electronics supply chain.

Vietnam is already the only economy of its size and development level to have cracked the top six on Apple’s coveted supplier list — the iPhone maker in 2020 sourced from 21 suppliers in Vietnam, up from 14 in 2018.

None of those suppliers, however, are Vietnamese. Vietnam’s success in attracting supply chain business — and its failure to create its own domestic high-technology sector — has created a dilemma for policymakers and some curious contradictions in the economy. Vietnam has recorded technology export growth that no substantial Asian rival has matched: High-tech goods as a share of exports hit 42 percent in 2020, up from 13 percent in 2010.

But the country added little value of its own to these exports and has no homegrown tech champions. According to a white paper published by the Ministry of Industry and Trade in 2019, Vietnam lagged most of its Asian neighbors in yardsticks such as trade in value added and manufacturing value added, which measure the contribution of the domestic economy to trade.

Industry leaders express frustration that much of their sector remains a glorified assembly line for other countries’ big brands. Samsung Electronics is another example: the technology giant named only foreign companies among the 25 in Vietnam on its 2020 top suppliers list, despite operating in the country for 14 years and relying on it for half of its smartphone shipments.

“You have something called the glass ceiling. It’s very difficult to break through that ceiling,” the ministry’s multilateral trade director Luong Hoang Thai said, referring to Vietnam’s efforts to advance up the global value chain.

In previous decades, Asia’s “tiger” economies demonstrated that such a journey could be made. South Korea, Taiwan and China all started from low-tech manufacturing and advanced steadily to cars, semiconductors and robots. Indeed, Vietnam has many of the advantages those countries did: a disciplined workforce, low costs and a state industrial policy. But Vietnam lacks some critical elements such as skills and good infrastructure.

“Even though many of the East Asian countries try to follow this kind of model,” Thai said, “very few have been successful, going all the way toward the stage of innovation.”

Meanwhile, it is not clear whether the progress made by the previous generation of Asian economies is even possible today, with the global economy transformed by decades of falling tariffs, and China’s manufacturing dominance. Globalisation may be entering a new and profoundly unpredictable phase as industrial policy makes a comeback and the world redraws trade lines due to supply-chain instability, skepticism of globalism and geopolitical competition.

Vietnam’s trade role has vaulted into a national debate, to the extent that is possible in a state that stifles speech. Some say it’s been slow to enact a clear strategy, such as pushing priority industries to locally source a certain percentage of components, while others say its day is yet to come.

“Before, we hated capitalism,” said Tran Dinh Lam, director of the Center for Vietnamese and Southeast Asian Studies, arguing Vietnam needs time to catch up, having only ditched its planned economy model in the 1980s. “And then we opened the door and we welcomed everyone.”

Economist Phung Tung, Director of the Mekong Development Research Institute, said success would mean that trade benefits most of society, and companies in Vietnam become competitive manufacturers like China’s Oppo or Malaysian chipmaker Silterra, two recent arrivals to the technology sector. But in a parallel dimension failure would, a local institute says, doom Vietnam to be “forever stuck as an assembly platform,” plagued by congestion, stagnation, inequality, or Argentina-style debt crises.

To avoid this middle-income trap, Tung said Vietnam must find its spot in the world’s new strategic trade game.

Promising First Steps

Due south of Hanoi, skyscrapers swiftly give way to fields where water buffalo graze and shirts act as scarecrows. Drive an hour out, and the skyline changes again, in Ha Nam, a once-rural province known for communist revolutionaries and sixth-century folk dances.

Now, though, industrial parks have supplanted marshland, a haven for foreign tech companies that have come to redesign their supply chains. Tenants include Apple supplier Wistron, Seoul Semiconductor, and Anam Electronics, which exports JBL Bluetooth speakers and Yamaha sound systems. Interest in Vietnam as a factory center has risen in line with trends north of the border three hours away.

In the past decade, wage inflation in China’s southern coastal manufacturing centers priced out many suppliers, who then sought to shift production to lower-wage Vietnam.

More recently Vietnam has been the beneficiary of much bad news. First, the U.S.-China trade war, which pushed American companies (along with many Chinese companies) to move suppliers to Vietnam in an effort to escape sanctions. Then came the COVID-19 pandemic, when lockdowns in China hastened more companies — including Apple — to shift production out of China and toward Vietnam.

When shutdowns raised costs to ship goods out of China, for example, Anam turned to a subwoofer speaker producer in Vietnam. In Ha Nam, the South Korean company’s factory contains a rainbow of smart speakers, circuit boards fill an entire room and bots ferry parts between workstations.

“[Vietnam] has been doing well so far by attracting investment,” Anam Vietnam Director Park Hyeon-su said. However, if the country does not upgrade to complex products, it risks a “vicious cycle of technological decline, environmental pollution, low labor productivity, high energy consumption and low efficiency.”

The Vietnamese economy more than doubled in size from 2010 to 2020, according to the World Bank. But the country has a limited window to take advantage of the explosive growth. “The low-hanging fruit of industrialization is to capitalize on your endowments, which is cheap labor,” Natixis economist Trinh Nguyen said.

For Vietnam, she added, “that is set to disappear.”

In other words, if wages increase, companies that currently find Vietnam hospitable might eventually leave for cheaper countries like neighboring Cambodia. The supply chain industry is fraught with politics that makes investments particularly unstable: Companies might also be drawn away by their own government’s homecoming policies (Japan), or by the desire to “nearshore” next to big markets (Latin America or Africa). Other risks include inbound investment that is low-quality or creates pollution as well as tech advancements that make it costlier and harder for poor countries to move up the value chain.

Localisation is starting to happen with Toyota Motor, one of the most profitable foreign investors in Vietnam. Six of the 46 in-country suppliers were Vietnamese, the automaker’s 2021 sustainability report says. Giai Phong Rubber spent the past two years working to become No. 7 — a goal it achieved in July.

Just over the Red River from Hanoi, GPR workers pump out rubber components for appliances, from LG Electronics vacuums to Panasonic washers, against the hiss of compressors and the acidic smell of latex. Chu Trong Thanh, GPR’s Chief Customer Officer, told Nikkei that the company had “dared to step out of” its comfort zone in the appliance and motorbike industries to make car parts “for the honor of the country.”

“When working with Toyota, they are on another level,” Thanh said, adding that he had adopted a just-in-time inventory system and other tactics to join the Japanese giant’s supply chain.

Too Few And Far Between

Less important than a single company’s capacity, though, is the structure and scale of a manufacturing sector that can accommodate large clients. Amazon, for example, brought in staff to scout suppliers like CNCTech, which said it gave the scouts a tour of its machine parts, molding and assembly plant.

The e-commerce player could buy millions of smart doorbells or Wi-Fi devices a year, but no orders came of the trip, said An Do, director of business development for CNCTech, whose products go into self-lacing Nikes and Sharp headphones.

“The story with Amazon is they want to find or build a community of suppliers big enough to have redundancy,” he told Nikkei, walking around a factory in northern Vinh Phuc province where employees tested internet routers in soundproof rooms while sofa-sized machines punched diodes onto circuit boards. “If later they just have one supplier, the risk for them is very big.”

The Seattle-based Amazon does source some doorbells and cameras from Vietnam, but, An Do said, major purchasing managers want a whole ecosystem to secure their production. In China, for instance, entire villages are devoted to supplying just fabric, silicon wafers, or auto parts. Vietnam lacks such clusters — its supporting industries are more scattered and less integrated into global supply chains.

The country’s programs to develop a web of suppliers are “primitive, cumbersome and highly limited,” such as with matching workshops where business cards are exchanged but contracts not inked, according to a 2020 report by Vietnam’s Institute for Economics and Policy Research and Japan’s National Graduate Institute for Policy Studies.

The joint report recommended models like Malaysia, which published clear tax and other incentives for suppliers, or Thailand, which had 10 technical centers, such as for machinery training. Analysts point to two other ways manufacturers gained capacity in China: developing products for a big domestic market before going abroad and supplying to foreign clients before growing into a major competitor in their own right.

“Even though we have attracted a lot of investment there is a weak linkage between the [foreign] sector and the domestic sector,” the trade ministry’s Thai said. “That’s why you have not seen a lot of spillover impact in terms of technology, management and other skills.”

A Rocky Road Ahead

In its pitch to investors, Vietnam waves single-party stability as well as trade pacts, shipping lanes and low costs in a market of 99 million. But it lacks something like a Taiwanese managerial class, high-value national champions in the vein of Hyundai Motor or Acer, and high-skilled labor to power such corporations. As with much of the economy, the solution is a delicate balancing act: More training will bring these skills but also push up wage costs, which will encourage companies to decamp to cheaper shores.

Vietnam GDP more than doubled in past decade

Support for and training the workforce, on the face of it, should not be much of a problem: One of the rare countries run by a workers’ party, Vietnam has labour protections from paternity leave to pensions for freelancers. But can an authoritarian state that brooks no criticism also foster the problem-solving and critical thinking that high-skilled work demands?

That is hard to do in a society that discourages people from questioning authorities, from teachers to officials, said Ha Dang, founder of fair-labour consultancy Respect Vietnam. She added there is a dearth of substantive training to benefit workers long-term.

“Many companies like employees who do what they’re told, they like discipline,” she said in an interview.

But the perennial complaint among bosses is their struggle to hire creative and self-directed staff. Managers, professionals and technicians comprise 10.7 percent of Vietnam’s workforce, the lowest in Southeast Asia’s six big economies, according to the International Labour Organisation.

The next gripe from investors is logistics costs eating up margins, equivalent to 20 percent of gross domestic product, compared with an average 12.9 percent in Asia and 10.8 percent globally, according to a 2021 report from business research firm Vietnam Industry Research and Consultancy.

Land transport claims most of the cost, though highways are less than 5 percent of roads, the report said. Congestion and disrepair are rife, as Vietnam struggles with major projects: a north-south expressway; a second airport for Ho Chi Minh City; and the country’s biggest port, planned for the city.

Construction is slow, requiring 166 days for a permit, versus Asia’s average of 132.3 days, says the World Bank’s Doing Business 2020. More recently, Russia’s war in Ukraine and China’s COVID lockdowns have hit supplies from wood to steel.

These compound Vietnam’s older problems, delaying infrastructure: red tape, bad project forecasts, and land disputes, which can turn violent, most infamously in the deadly Dong Tam standoff between police and villagers in 2020. The Sydney-based Global Infrastructure Hub forecasts Vietnam will spend $503 billion on infrastructure by 2040, but needs $605 billion.

If civil servants were afraid of getting in trouble for approving risky projects before, they have more reason to fear now under an intensifying graft crackdown, which has seen officials jailed for “economic mismanagement causing losses to the state budget.” One developer described it in the lexicon of investors: “There is no upside for the bureaucrat, there is only downside risk.”

So construction timelines are stretched by Kafkaesque minutiae, from forms signed in the wrong ink color, to disagreement about which agency must give approval.

Can You Repeat The Past?

Vietnam is not alone in its 21st-century trade struggles: Thailand, Indonesia and Malaysia are not the new South Koreas, either. One question some economists are asking is whether the success stories of a previous century are repeatable in the new one.

From the 1960s Seoul and Taipei took a strategic approach to the global economy. They designed specific industrial policies, erected trade barriers, educated their workforces and picked winners that grew into export giants. They did so, however, in another era. Vietnam today has been able to replicate some of South Korea’s and Taiwan’s export success, but key differences make for an uncertain road ahead.

The country also has massive competition its forebears did not: China. In addition, globalisation has been on the march for decades now, eliminating the ability to erect the kind of tariff barriers that helped early movers like Sony gain an advantage. The global playing field that now exists makes it difficult for Vietnam to use similar protectionist policies to foster its own export giants, economist Phung Tung says.

“The big difference in my mind is in the late 1990s and early 2000s, when China really entered a phase of rapid growth, the size of the tradable sector had grown tremendously, facilitated by low-cost container shipping,” Harvard Business School professor Willy Shih told Nikkei. That made bids by “countries trying to move up the value chain much harder, because they had to compete with a flood of cheap Chinese goods.”

Taiwan and South Korea became democratic advanced economies when offshoring was entering the nomenclature and before the World Trade Organisation slashed tariffs. Xuan Nguyen, an economist at Australia’s Deakin University, estimates import taxes went from 20 percent in the 1980s to 5 percent before the trade war. Vietnam currently has 15 trade deals.

“It’s really tough now,” said Tung. “In the past, each country could use policies like tax or non-tariff barriers to protect companies. But you cannot do that now.” And with more multinationals from Tesla to Toshiba than ever, “It’s really hard for the new one to enter the market.”

Xuan Nguyen said that multinational corporations are further cementing the advantage they gained when their home countries industrialized decades ago, such as by filling their factories with ever-improving tech like robots and seamlessly moving production across borders by hiring contract manufacturers. “The landscape [of] globalization,” he said, “has changed dramatically between the 1980s and nowadays.”

Yet Vietnam is making progress, Tung said. Samsung is planning a research center and to start producing some semiconductor parts in the country. Investors consider these and Apple’s decision to make Apple Watches in Vietnam harbingers that more sophisticated manufacturing is in the cards.

While Malaysia has a stronger supply chain for electronics and Thailand for cars, the countries have “been hobbled by lack of vision due to volatile domestic politics,” Natixis’ Nguyen said, adding that the situation gives Vietnam a chance to surpass its neighbors if it is strategic.

Back at the internet-devices factory, An Do of CNCTech hopes the country embarks on such a course before pollution and old age take over. The workforce is young, but seniors’ ranks are growing: Vietnam is in the top 10 of countries with the fastest-growing dependency ratios.

“We are developing the economy,” he said, slipping on an orange jumpsuit needed to enter the sanitized factory. The investment influx is “good in the short term, but if we don’t make use of it, it becomes a burden. We in Vietnam need something more radical.”

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