India and Vietnam, which are already sites for a small portion of Apple’s global production, are among the countries closely watching the company as an alternative to China, the people said.
According to analysts, more than 90% of Apple products such as iPhones, iPads and MacBook laptops are manufactured in China by external contractors. Analysts have said Apple’s heavy reliance on the country is a potential risk due to Beijing’s authoritarian communist government and its skirmishes with the US.
Any move by Apple, the largest US company by market capitalization, to push production outside China could affect the thinking of other Western companies that are considering how to rely on China for manufacturing or key materials. be reduced. Such views have risen after Beijing this year refrained from criticizing Russia for its invasion of Ukraine and imposed lockdowns in some cities to fight Covid-19.
An Apple spokesperson declined to comment. When asked generally about Apple’s supply chain in April, chief executive Tim Cook said, “Our supply chain is truly global, and so products are made everywhere.” He also said, “We continue to look at adaptation.”
Apple was trying to diversify away from China before the spread of COVID-19 around the world in early 2020, but those plans were complicated by the pandemic. Now the Cupertino, Calif., company is pushing again and telling contractors where they should build new manufacturing capacity, said people involved in the discussion.
Lockdowns in Shanghai and other cities as part of China’s anti-Covid policy have created supply-chain bottlenecks for many Western companies. Apple warned in April that the resurgence of Kovid-19 was at risk of disrupting sales of up to $8 billion in the current quarter.
China’s travel restrictions mean Apple has barred sending executives and engineers to the country over the past two years, making it harder to personally check production sites. Last year’s power cuts also dented China’s reputation for reliability.
While many Western companies face similar issues in China, Apple’s size gives it bargaining power with contractors, said Ming-Chi Kuo, supply-chain analyst at TF International Securities. “Only a company like Apple can push for such supply-chain changes,” Mr. Kuo said.
Still, industry people said Apple has long retained China as its manufacturing hub for several reasons: a well-trained workforce, low costs relative to the US, and a deep network of parts suppliers that It’s hard to recreate without somewhere else. years of effort.
With the exception of India, the pool of qualified workers in China exceeds the entire population of many alternative countries in Asia. Local governments in China have worked closely with Apple to ensure its contractors have enough land, labor and supplies to assemble iPhones and other electronics in giant factories.
Chinese Premier Li Keqiang said on Thursday that Beijing wants to be a hot spot for foreign investment and will work closely with foreign companies to ensure that its rules are predictable.
Another advantage is that Apple can sell many of its China-made phones and computers in a single country, with China often accounting for about a fifth of Apple’s global sales. Apple’s Mr Cook said in January that the company had the top four best-selling phones in urban China.
“Given the size of the domestic market and the well-established ecosystem for manufacturing, China will remain at the top of the pack and handle more value-added work for companies like Apple,” said an industry executive involved in the Apple supply chain.
Those who have spoken with Apple about its manufacturing plans said that the company sees India as the closest thing to the next China due to its large population and low cost.
Taiwan-based assemblers Foxconn Technology Group and Wistron Corp. have set up factories in India to produce iPhones primarily for the domestic market of the country where Apple’s sales are booming. In April, Apple said it had started production of the latest generation of iPhones, the iPhone 13 series, in India.
The people said Apple is now in talks with some existing suppliers to expand into India, including potential production for export.
Analysts and suppliers said one problem with India is that China-based assemblers find it difficult to set up shop there because of the cold ties between New Delhi and Beijing. The armies of the two countries fought a deadly conflict over their disputed border in 2020, and recently there has been a diplomatic dispute over Indian regulators’ treatment of Chinese smartphone maker Xiaomi Corp.
For that reason, China-based manufacturing contractors who do business with Apple are looking more toward Vietnam and other Southeast Asian countries, according to people familiar with the matter.
Vietnam borders China and is already a smartphone manufacturing hub for Apple’s major global rival, Samsung Electronics Co. South Korea-based Samsung has generally limited its exposure to manufacturing in China.
According to research firm Counterpoint, India produced 3.1 per cent of the world’s iPhones last year and the proportion is projected to grow from 6% to 7% this year. China accounts for almost everyone else.
Luxshare Precision Industry Co., a China-based manufacturing contractor, is making AirPods earbuds for Apple in Vietnam.
On a recent call with investors, Luxshare executives said some customers were concerned about problems with power supplies and pandemic restrictions – a reference to China’s challenges. The officials did not reveal the names of the customers.
LuxShare said these customers were asking manufacturing partners to look outside of China while they do important preparatory work for mass production, a phase known as new product introduction, or NPI. In this phase, contractors translate a brand’s product blueprint and prototype into a detailed construction plan.
Apple has told its manufacturing partners it wants them to do more NPIs outside of China, people familiar with the discussions said. If this happens, non-Chinese sites would be more likely to be developed as full-scale production centers rather than copying plans developed in China.
Such moves require considerable investment by suppliers, analysts and suppliers, which makes them uncomfortable at a time when the global economic outlook is filled with high commodity prices, the war in Ukraine and stock market volatility. .
Cash is important in uncertain times, said one contractor executive, but suppliers need to go where Apple goes if they want to keep business.