Apple Plans to Move Production Outside of China
December 09, 2022
The Wall Street Journal reports U.S. smartphone giant Apple Inc. is accelerating
plans to move some China-based production lines to other southeastern Asian
countries such as India and Vietnam.
That, analysts said, would represent a significant shift in the so-called de-Sinification
of global supply chains after manufacturers become aware of risks of
concentrating production in China.
China’s zero-COVID policy, which paralyzed some of its supply chains, and its
deteriorating business environment would be the major trigger behind the shift,
India: the world’s next factory?
“China’s anti-virus measures have forced many multinationals, including Apple,
to hedge against the risk of disrupted supply chains. Though China is set to
ease COVID restrictions, uncertainty remains because these multinationals have
had experienced much sudden change of policy there – reasons behind Apple’s
accelerated relocation of its production lines outward,” Darson Chiu, a research
fellow of the economic forecasting center under the Institute of Economic
Research (TIER) in Taipei, told VOA over the phone.
He said that many companies, including Apple, have seen the potential in India
in competing with China to be “the world’s next factory,” adding that cost of
labor and land is “at one-fifth of the level in China.”
“This highlights an evolving trend, where many companies, not just Apple, are
concerned about the environment in China, and not just because of COVID. When we
look at theft of intellectual property, that's of technology, cyber-attacks on
companies inside China, the onerous restrictions that apply from Chinese
government to data flows, there are a number of factors that are making China a
much less attractive environment for manufacturers to be,” Stephen Ezell,
director of global innovation policy at the Information Technology and
Innovation Foundation (ITIF) in Washington told VOA by video.
“And I think it's possible that Apple represents the tip of the spear for a much
greater share of global high-tech production moving outside of China,” he added.
A domino effect?
Ezell said more multinationals might follow suit if Apple succeeds in shipping
products from India, as it had produced a small percentage of iPhone 14s there.
Citing people involved in the discussion, The Wall Street Journal reported on
December 6 that Apple had asked its suppliers to plan more actively for
assembling its products elsewhere in Asia, “particularly India and Vietnam,” to
reduce dependence on China-based assemblers, led by Taiwan-headquartered
Foxconn’s Zhengzhou plant.
Turmoil over anti-virus measures and wage disputes last month among the plant’s
300,000 workers have made Apple uncomfortable having so much business tied up in
the plant, which made about 85% of the iPhone’s pro series, according to the
It added that Apple’s long-term goal is to ship 40% to 45% of iPhones from
India, compared with a current single-digit percentage, citing Ming-chi Kuo, an
analyst at TF International Securities in Hong Kong.
When asked by VOA, Foxconn refused to comment. But the company Thursday
announced on its WeChat account that it has lifted closed-loop Covid
restrictions at its Zhengzhou plant.
Paul Triolo, senior vice president for China, and technology policy lead at
Albright Stonebridge Group in Washington, told VOA that Apple has already done
some manufacturing with Foxconn in India, which plans to add 50,000 workers to
total at 70,000 there over the next two years.
He warned, though, that it will be hard for Foxconn to duplicate its highly
optimized China supply chain in India, where skilled workers and infrastructure
including airports, ports and high-speed rail, as well as an ecosystem of
component suppliers at a low cost, are lacking.
“India has some advantages … it does tend to crank out a lot of engineers but
you're talking about a sort of different cultural issues and expectations and
labor practices, and all these things. So it's not as easy as just picking up
something and dropping it into another country. You have to learn the local
situation. You have to work with local governments. That can be painful,” Triolo
told VOA by video.
He added that, even though companies like Foxconn are good at managing
production, the cost structures will be different in India.
Hence, he noted that some of Apple’s diversification of supply chains may happen
inside China, as Foxconn is reportedly looking to expand at its Taiyuan plant in
China’s northern Shanxi province.
The biggest challenge of all lies in India’s ability to strengthen its depth of
supplier base for Apple at an optimal cost, Ezell said.
“The production ecosystem, that's what's the key driver in decreasing the cost,
not just low labor costs. So, the challenge for India is going to be several
folds. One, building a localized base of suppliers that can support production
at lower cost. And then more broadly, ensuring that India does have the highly
skilled trained workforce and individuals that had experience and building what
are truly very complex electronics with iPads or phones,” Ezell said.
Negative impact on China’s jobless rate
Arthur Guo, a senior analyst at the market intelligence firm International Data
Corp in Beijing, said he would not be surprised to see Apple diversify the
production of its iPhone 15 next year after the lockdown at Foxconn’s Zhengzhou
plant has seriously affected the supply of the iPhone 14.
That will hurr China’s economic growth and unemployment rate, Guo said in a
written reply to VOA.
“However, this relocating process will last for a period and will not be
implemented immediately. In the future, we believe China still will be an
important production country for Apple and will find a better solution to this
problem,” Guo added.
Earlier estimates by TF’s Kuo showed that the total shipment of iPhone 14 pro
and pro max in the fourth quarter would be 15 million to 20 million units less
than expected due to labor protests at the Zhengzhou plant.