Apple tells suppliers about diversifying production outside of China

During the height of the trade war with China, when the US cut tariffs on products shipped to the US from China, Apple considered moving production from China to India and Vietnam. According to The Wall Street JournalApple has been in contact with its contract manufacturers about making such a move. This time around, it’s not a trade war, but an attempt by Apple to diversify where it has its products assembled.

Apple must diversify production from China

The pandemic forced Apple to put these plans on hold. With lockdowns taking place in Shanghai, the re-emergence of COVID has made it clear to Apple that it needs to diversify manufacturing geographically. Some Apple products are already made in India and Vietnam. Apple has manufactured older iPhone models in India to escape an import tax that could push prices for its handsets out of reach for consumers in this developing country (which is also the world’s second largest smartphone market).

Apple’s largest contract manufacturer is Foxconn with assembly lines in China, India, Vietnam and other countries

Operated by Foxconn in India, this production builds iPhone units for domestic sales in conjunction with Prime Minister Narendra Modi’s Make in India initiative, which aims to increase production of domestically produced products. Apple plans to open its first store in India in Mumbai on August 15 this year, with a second store planned for Delhi and a third for Bengaluru. That date, August 15, is also Independence Day in the country.

While cutting production in China would reduce Apple’s reliance on a country with so many geopolitical risks, the problem Apple has is that only China has the ability to fulfill Apple’s massive orders. In addition to finding a supply chain capable of supplying supplies in the quality and quantity demanded by Apple, other manufacturing hubs must also have experienced and cheap labor available.

Currently, 90% of Apple products are made in China, which is a risk that Apple will not always be able to survive. After all, the government is communist and there is concern about the struggle between China and the US. What Apple decides to do here will affect many other major western manufacturers who often get cues from Apple. Last month, Apple CEO Tim Cook said, “Our supply chain is truly global, so the products are made everywhere. We continue to look at optimization.”

Apple’s size and strength allows it to place certain demands on its supply chain

Because of its size, Apple is in a position to make demands on its supply chain and get what it wants. Apple tells its contractors exactly where they want them to build factories according to those in the know. TF International analyst Ming-Chi Kuo often talks about emerging hardware and software from Apple, but he does have something to say about Apple’s influence in supply chain discussions. Kuo states, “Only a company like Apple can push for such supply chain shifts.”

Still, it’s hard to see a country replace China at the top of Apple’s supply chain. The country has a workforce that is not only well-educated but also cheap labor compared to the US. It is also close to Apple’s network of parts suppliers. In addition, since sales in China account for as much as 20% of global sales for some of its products, keeping production in China is a major advantage for Apple.

At the beginning of the year, for example, Cook stated that Apple was responsible for the four best-selling phones in urban China. At the same time, an industry executive involved in Apple’s supply chain said: “Given the size of the domestic market and the established manufacturing ecosystem, China would continue to lead the way, taking on more value-added work. like Apple.” In other words, for all the talk, don’t expect changes at the top of Apple’s supply chain.