The amount of geopolitical discord around the world at present is stunning: Thailand, Vietnam, Korea and other major electronics manufacturing hubs are seeing a rise in nationalism and severe internal tension over how to address foreign pressure.
Thailand in May endured yet another military coup — its 19th since declaring independence from its monarchy in 1932. Some observers feel the military wants a permanent seat in the national parliament, a move that could hinder its democratic movement.
In Vietnam, citizens are outraged at what it feels is Chinese strong-arm tactics. Its Northern neighbor has provoked many Southeastern nations over the past few years, often by occupying seaborne territory that others had staked claims to in the past. (The Philippines have a similar complaint dating to 2012, when China evicted Philippine fishermen from their long-held fishing grounds.) Lately, Chinese oil rigs took up in Vietnamese waters, leading to riots at Fittec, Foxconn and elsewhere, where domestic workers took aim at their Chinese* employers.
Korea is losing business to Vietnam, aided in part by its own OEMs: Korea is now the largest investor there, pumping in nearly 23% of all outside investments in the first quarter this year. As Samsung relocates its cellphone manufacturing there, Vietnam is on track to produce 250 million handsets this year, versus 200 million in China and just 30 million in South Korea. As the linked article indicates, as of March 2014, Samsung Electronics subcontractors had invested an aggregate $2 billion in Vietnam. Meanwhile, while Samsung buys a reported 53% of its parts from Japan, South Koreans now view Japan as their second-leading military threat, next to North Korea, and resentment from World War II is rising once again.
Indonesia is suffering through a contested presidential election, one that involves an ex-general and the possibility of an overturned ballot result.
Japan, my friend Dr. Hayao Nakahara tells me, has essentially stopped investing in new manufacturing sites in China, with the only new developments minor capacity add-ons to existing plants. The two nations have been at odds over everything from possession of uninhabited islands in the East China Sea to a rehashing of wartime atrocities.
Southeast Asia is home to the bulk of the world’s electronics production, and holds the majority share of products built for the consumer, industrial/instrumentation, telecommunications, PC and peripherals end-markets (not to mention the vast majority of the raw materials and components supply). We’ve absorbed several of nature’s bullets of late — flooding in Thailand, the typhoon in Malaysia and of course the 2011 earthquake and subsequent tsunami in Japan. I am told that the media reports have exaggerated what’s happening on the ground in Southeast Asia, and that on a day-to-day basis little dissent is noticeable. That may be true, and to be sure, the self-inflicted disruptions have thus far been held to a minimum. Given the number of countries involved — unprecedented in recent times — and the enormity of what’s at stake, we can’t help but feel it will take some luck if the next supply-chain breakdown is only as bad than the last.
*Fittec is based in Hong Kong, Foxconn in Taiwan, but most employees and manufacturing for both companies are in China.