Gaming giant Nintendo has announced that it is moving part of the production capacity for its Switch console from China to Vietnam. In a statement quoted by USA TODAY, the company revealed that while the bulk of production will remain in China, starting this summer, some of the consoles will be built in Vietnam as part of an effort to “diversify its manufacturing options.”
The Nintendo Switch will be assembled in Vietnam in addition to China, where almost all of the units are currently built.https://t.co/vZcv0Jcnjt
— Nikkei Asian Review (@NAR) July 8, 2019
The move comes at a suspicious time. The U.S. remains Nintendo’s biggest console market, and the ongoing U.S./China trade dispute could potentially see Nintendo lose out after being caught up in a raft of new tariffs on Chinese goods. An excerpt from the statement reads:
“For the past several years, we have been exploring options for assembling product in Vietnam to diversify our manufacturing options. While we will continue to manufacture Nintendo Switch consoles in China, we will also gradually begin to manufacture a portion of our consoles in Vietnam, starting this summer.”
Fear of Trump or Just a Tactical Move?
Nintendo has been eager to dispel the notion that the move is an attempt to skirt Trump’s tariffs. Through both official and unofficial channels, the company denies this scenario, instead pointing to the not-insignificant risk attached to having probably its most important console at the moment manufactured in only one country. Away from the press however, its actions tend to belie its claim.
In the fiscal year ended March 2019, Nintendo shifted 17 million Switch consoles, bringing total sales from its launch in 2017 to 34.75 million units. Clearly, the idea of leaving the fate of this wildly popular product at the mercy of the proverbial fighting elephants cannot be anything other than a nightmare for Nintendo.
With a wide host of customization options, the box art for #DAEMONXMACHINA features just one of the many types of Arsenals that await. Defend the planet in your customized mech on 9/13, only on #NintendoSwitch!https://t.co/gKUyC50yeW pic.twitter.com/iYQJn0PDX6
— Nintendo of America (@NintendoAmerica) July 9, 2019
In June, Nintendo and its main competitors Sony and Microsoft penned a joint letter to the White House requesting for game consoles to be taken off Trump’s proposed list of items to be hit with new tariffs. Taking into account the fact that 96 percent of all consoles imported into the U.S. are made in China, it is not surprising that any of these companies would want to create a Plan B for itself in case China and the U.S. decide to go full rochambeau.
As Chinese Costs Go Up, Competition Bites Nintendo Too
Regardless of the scenario that is painted by a new U.S. tariff regime, it would be uncharitable to leave out the fact that China itself is no longer quite the obvious choice it once was in terms of manufacturing. Chinese wages are growing in line with its economic transition from continental superpower to a global hegemon. In more than a few cases, jobs have been moved from China to other Southeast Asian countries, primarily Vietnam, Cambodia, and Bangladesh.
Microsoft and Sony are clearly backing the horse of streaming as the gaming entertainment of the future. CCN reported recently that both companies went into a partnership that will see Sony use Microsoft’s Azure cloud solution to stream games to users instead of requiring them to buy a DVD and expensive hardware. Publicly Nintendo remains coy on the issue, sending out mixed signals. But under the surface, the company is almost certainly scrambling to get its own equivalent up and running.
In the light of these circumstances, the prospect of increasing Chinese manufacturing costs and the possibility of damaging tariffs on its top-selling console are probably enough to convince management to shift some production to Vietnam. What happens next in the battle to capture the 5G future of gaming however, is still very much anyone’s guess.