Apple is considering a significant change in its production strategy, aiming to reduce its reliance on China. While such a move could mitigate the risks associated with being overdependent on China, it is expected to be a challenging and expensive process that may take several years. Moreover, there are significant political risks involved.
According to The Wall Street Journal, Apple has informed its suppliers to accelerate their plans for manufacturing products in other Asian countries, specifically India and Vietnam. The tech giant seems to have acknowledged the potential dangers of relying too heavily on Chinese production and government policies. The recent disruption caused by Covid-19 restrictions and worker protests at Foxconn’s Zhengzhou factory in China seems to have been a tipping point. This disruption is expected to result in a revenue loss of up to $8 billion for Apple this quarter, as well as delays in the shipment of around 15 million smartphones.
Apple has not responded to requests for comment regarding these developments.
If Apple takes decisive action to diversify its supply chain, analysts at Wedbush believe that by 2025-2026, India and Vietnam could account for over 50% of iPhone production, compared to the current single-digit percentage.
The Challenge of Apple’s Suppliers in Finding a Skilled Workforce
Bringing together a skilled workforce of the required size outside of China will be difficult for Apple’s suppliers. Reuters reported last month that Foxconn, also known as Hon Hai Precision Industry, plans to add 53,000 workers at its iPhone plant in the southern Indian state of Tamil Nadu over the next two years, bringing its total to around 70,000. However, this number still falls short of the more than 200,000 workers employed at Foxconn’s “iPhone City” site in Zhengzhou, China.
Exploring Alternative Production Locations
In an effort to diversify their production locations, Foxconn and fellow Apple suppliers Luxshare Precision Industry and Pegatron are considering expanding in Vietnam. Ming-chi Kuo, an analyst at TF International Securities, predicts that the proportion of Apple Watch 8 models shipping from Vietnam will reach 60%-70% after the wearable devices were produced outside of China for the first time this year.
Challenges in Transitioning Production
While migrating the production of wearable devices like the Apple Watch to new locations is a promising move, it is important to note that these devices are still less complex than high-end smartphones. Furthermore, China remains the world’s largest smartphone market, with Apple’s iPhone gaining increasing dominance in the country. Consequently, shifting production away from China may trigger a negative response from Chinese consumers, necessitating a cautious approach from Apple.