Apple looks set to ramp up production outside of China

India and Vietnam, which are already manufacturing locations for a small portion of Apple’s global output, are among the countries that are taking a closer look at the company as alternatives to China. this person said.

According to analysts, more than 90% of Apple products such as iPhones, iPads and MacBook laptops are made in China by outside contractors. Apple’s overreliance on the country is a potential risk because of Beijing’s authoritarian Communist government and its conflicts with the US, analysts say .

Any move by Apple, the largest US company by market capitalization, to emphasize its manufacturing operations outside of China could influence the thinking of other Western companies watching. Consider how to reduce dependence on China for key manufacturing or raw materials. Such scrutiny was intensified this year after Beijing refrained from criticizing Russia for its invasion of Ukraine and implemented lockdowns in several cities to combat Covid-19.

An Apple spokesperson declined to comment. When asked about Apple’s supply chain in general in April, CEO Tim Cook said: “Our supply chain is truly global, and so products are made everywhere. ” “We continue to look at optimization,” he also said.

Apple is looking to diversify away from China before Covid-19 spreads globally in early 2020, but those plans are complicated by the pandemic. Now, the Cupertino, Calif., company is pushing again and telling contractors where they should look to build new production capacity, participants in the discussion said.

Lockdowns in Shanghai and other cities as part of China’s anti-Covid policy have caused supply chain bottlenecks for many Western companies. Apple warned in April that a Covid-19 resurgence threatened to hamper sales by as much as $8 billion in the current quarter.

China’s travel restrictions mean that Apple has restricted sending executives and engineers to the country for the past two years, making it difficult to inspect manufacturing sites. Last year’s blackout also damaged China’s reputation for reliability.

Ming-chi Kuo, supply chain analyst at TF International Securities, said that while many Western companies face similar problems in China, Apple’s size gives them bargaining power. with contractors. “Only a company like Apple can drive such a change in the supply chain,” said Kuo.

However, industry insiders say there are many reasons why Apple has long kept China as its manufacturing hub: a well-trained workforce, low costs compared to the US, and a network of suppliers. Extensive components are hard to replicate elsewhere without years of effort.

With the exception of India, the qualified workforce in China exceeds the entire population of many alternative countries in Asia. Local governments in China have worked closely with Apple to ensure their contractors have enough land, labor, and supplies to assemble iPhones and other electronic devices in giant factories giant.

Chinese Premier Li Keqiang said on Thursday that Beijing wants to become a hotspot for foreign investment and will work closely with foreign companies to ensure their rules are predictable. Okay.

Another advantage is that Apple can sell many phones and computers made in China in the same country, with China typically accounting for about a fifth of Apple’s global sales. Apple’s Mr. Cook said in January that the company has four best-selling phones in Chinese cities.

“Given the size of the domestic market and the well-established ecosystem for manufacturing, China will be in the lead and handle more value-added work for companies like Apple,” said one executive. industry manager related to Apple’s supply chain said.

People who spoke to Apple about its production plans said the company sees India as the next closest country to China, due to its large population and low costs.

Taiwan-based assemblers Foxconn Technology Group and Wistron Corp. has set up factories in India to produce iPhones mainly for that country’s domestic market, where Apple’s sales are growing rapidly. In April, Apple said it had begun production of the latest generation of iPhones, the iPhone 13 series, in India.

Apple is currently talking with a number of existing suppliers about an expansion in India, including the possibility of manufacturing for export, the people said.

One problem with India, analysts and suppliers say, is that it is difficult for China-based assemblers to set up shop there because of the frigid relationship between New Delhi and North Terrible. The militaries of the two countries engaged in a deadly clash along their disputed border in 2020, and there was recently a diplomatic dispute over the treatment of the phone maker by Indian regulators. Smart China Xiaomi Corp.

For that reason, China-based manufacturing contractors that do business with Apple are turning more towards Vietnam and other Southeast Asian countries, according to people familiar with the matter.

Vietnam borders China and is already a smartphone production hub for Apple’s top global rival, Samsung Electronics Co., South Korea-based Samsung, which has generally had limited exposure to the sector. production of China.

According to research firm Counterpoint, India produced 3.1% of the world’s iPhones last year, and the share is forecast to grow to 6% to 7% this year. China accounts for almost all the rest.

A China-based manufacturing contractor, Luxshare Precision Industry Co., has been manufacturing AirPods for Apple in Vietnam.

In recent calls with investors, Luxshare executives said some customers were worried about power supply issues and pandemic restrictions – in relation to the challenges of China. The executives did not name the clients.

Luxshare says these customers are asking manufacturing partners to look outside of China as they perform significant preliminary work for mass production, the so-called new product introduction, or NPI, phase . In this phase, contractors translate a brand’s product designs and prototypes into a detailed production plan.

Apple has told its manufacturing partners that it wants them to do more NPI outside of China, people familiar with the discussions said. If that happens, non-Chinese locations will be more likely to develop into large-scale manufacturing hubs rather than simply copy plans already developed in China.

Such moves require significant investment by suppliers, analysts and suppliers say, which makes them uneasy at a time when the global economic outlook is clouded by prices. high commodities, the war in Ukraine and the volatility of the stock market.

Cash is important in uncertain times, said one contractor executive, but suppliers need to get where Apple is if they want to stay in business.

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