Pegatron, a Taiwanese electronics manufacturer, purchased a $22.9 million land plot in Haiphong, Vietnam. The firm intends to launch a new plant on the site later this year. It is establishing the facility as part of a $1 billion Vietnamese production capacity project.
Pegatron makes electronic devices, peripherals, and components for Samsung, Microsoft, and Sony. The company also is Apple’s second-largest contract manufacturer, but their relationship has become strained recently because of its labor policy violations.
Why Pegatron is Building Production Capacity in Vietnam
Pegatron has a fairly diverse supply chain, with factories in East Asia, Europe, and North America. However, the company moved to build out its production capacity to avoid new tariffs generated by the ongoing U.S.-China trade war. It chose Vietnam as the location for its new manufacturing base, likely due to its affordable real estate.
Last September, the firm secured approval from local officials to commence work on its Southeast Asian initiative.
The first phase of its project includes a $19 million investment in the city of Haiphong. Next, the company wants to spend $981 million through 2027 to build new consumer electronics and communications equipment factories in the area. The corporation believes its project will bring 22,000 jobs to the area and generate $4.31 million in tax revenue.
Pegatron’s first Vietnamese plant will not begin volume production until later this year, but it is already making devices in the region. Last year, it rented a facility in Haiphong to make Samsung smartphone styluses.
Apple Labor Policy Violations
In November 2020, Apple announced it placed Pegatron on probation for violating its code of conduct in its Chinese factories. The Big Tech giant took action after discovering its supplier had student staffers taking night shifts, working overtime, and completing tasks unrelated to their majors. The corporation also said the manufacturer falsified documents to conceal its infractions.
Pegatron revealed it pulled students from its production lines upon learning of the policy violations. The firm said it would properly compensate the affected workers and provide “all necessary support and care.” It also terminated the executive responsible for overseeing its student employment program and committed to conducting an internal compliance audit.
Pegatron’s probationary status with Apple only affects new business, and its pre-existing contracts to assemble iPhones are unaffected.
Recent labor policy violations notwithstanding, the manufacturer is still pressing ahead with its production capacity diversification initiative. In addition to its Vietnam activities, the corporation plans to invest $150 million to build new factories in India. It established a subsidiary in Chennai and will receive government financial support in setting up the new plant.
Pegatron intends for at least one of its Indian plants to assemble iPhones for Apple. But the firm will need to assure Apple of its labor standards to maintain the business relationship that accounts for half of its annual revenue. The Silicon Valley giant recently put Wistron, another one of its manufacturing partners, on probation last December for labor law violations.
Ideally, Pegatron will adopt a hypervigilant attitude regarding its labor practices in light of Apple’s increased scrutiny of its partners. Otherwise, it might end up with several, newly built factories it cannot afford to maintain.