China has long dominated the supply chain of Apple, the world’s most valuable company. But in the wake of the turmoil in China, Apple executives want this to change. Currently, Apple is heavily reliant on Taiwanese iPhone assemblers led by electronics contracting company Foxconn.
Almost all of Apple’s manufacturing in China is located in a place called iPhone City, a giant city-within-a-city in Zhengzhou in central China. This factory city at its peak can have as many as 300,000 Foxconn workers making iPhones and other Apple products. At one point, iPhone City alone made about 85 percent of the Pro lineup of iPhones.
Following unrest at iPhone City sparked by workers upset about low and unpaid wages and Wuhan coronavirus (COVID-19) restrictions in China, Apple executives are now worried about China’s status as a stable manufacturing center. Furthermore, Apple executives no longer feel comfortable having so much of its supply chain tied up in one place. (Related: Chaos in China: Workers at Foxconn iPhone plant in Zhenzhou riot, fight with police over COVID lockdowns.)
“In the past, people didn’t pay attention to concentration risks,” said Alan Yeung, a former executive for Foxconn. “Free trade was the norm and things were very predictable. Now we’ve entered a new world.”
Apple has already started redistributing some of the company’s supply chain. A lot of Apple’s business will remain in China, but the company’s reliance on Foxconn will be diminished. Two Chinese companies – Luxshare Precision Industry Co. and Wingtech Technology Co. – have already been lined up to get a bigger share of Apple’s business in the communist nation.
More Apple manufacturing to shift to India, Vietnam
Outside of China, Apple is investing in producing more of its goods in India and Vietnam. The company hopes to move up to 30 percent of its current manufacturing needs outside of China, with a long-term goal of shipping 40 to 45 percent of iPhone production in India.
Gene Munster of Loop Ventures estimated that less than 10 percent of iPhones are currently produced in India. But he added that up to 35 percent of iPhones could be made out of the country in five years. He noted that Apple will likely pour more investments into building up manufacturing in Vietnam, Malaysia and possibly even the United States.
As more iPhone production will be shifted to India, Apple is shifting production of other Apple products like MacBooks and Apple smartwatches to Vietnam.
Dan Ives, a tech analyst for Wedbush, noted that India and Vietnam are set to be the biggest winners of this fallout between Apple and the Chinese Communist Party. By 2025, 50 percent of all iPhone production could come out of South and Southeast Asia.
In a research note, Ives wrote that Apple’s shift to focus on other parts of Asia for its production needs will require “painful logistical moves.”
“The shift out of China will not be easy and will come with clear logistical, engineering and infrastructure hurdles,” Ives added.
Dan Panzica, a former Foxconn executive and an expert on supply chain issues, noted that India and Vietnam have their own issues.
In Vietnam, manufacturing is growing quickly but it is short of workers. Vietnam has around 98 million people, less than a 10th of China’s population. Its largest manufacturing sites have up to 60,000 workers, or just a fifth of the size of iPhone City.
“They’re not doing high-end phones in India and Vietnam,” said Panzica. “No other places can do them.”
While India’s population is nearly the size of China’s, the former does not have the same level of governmental coordination. Apple executives have found it hard to do business in India because each state is run differently, and state- and federal-level government entities saddle the company with obligations before letting it build manufacturing plants.
“India is the Wild West in terms of consistent rules and getting stuff in and out,” said Panzica, adding that these two main concerns present with India and China will likely force Apple to spread out its manufacturing needs to other countries.
“Apple is going to have to find multiple places to replace iPhone City,” he said. “They’re going to have to spread it around and make more villages instead of big cities.”
Learn more about what Big Tech companies like Apple are up to at BigTech.news.
Watch this short clip discussing how China’s zero-COVID measures crippled Apple’s largest iPhone factory in Zhengzhou.
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