What’s happening and why?
- In the coming weeks, Apple and Google will unveil their latest generation of smartphones, jockeying to distinguish the new devices from previous models. But one of the most significant changes will go largely unnoticed by consumers: Some of these phones will not be made in China.
- A very small portion of Apple’s latest iphones will be made in India, and part of Google’s newest Pixel phone production will be done in Vietnam, people familiar with their plans said.
- The shift is in response to the growing concerns about the geopolitical tensions and pandemic induced supply chain disruptions that have involved China in last few years. China has long been the world’s factory floor for high-tech electronics, unrivaled in its ability to secure legions of high skilled workers and production capacity to handle demand for the next hot device.
- But American companies are seeing more risk there- a perspective forged during the Trump-era trade war, with its tit-for-tat tariffs and cemented by China’s saber-rattling after speaker Nancy Pelosi’s visit to Taiwan last month. They fear that basing a supply chain largely in China may thrust them into the middle of its escalating conflict with the United States over Taiwan.
Not just Smartphones –
- But it’s not just Smartphones production that is moving out the country. Apple is producing iPads in northern Vietnam. Microsoft has shipped Xbox game consoles this year from Ho Chi Minh City. Amazon has been making Fire TV devices in Chennai, India. Several years ago, all these were made in China.
Slowdown in China-
• Last week, China announced that factory activity contracted for a second straight month in August, according to the country’s closely watched survey of purchasing managers. The fracturing supply chain is rippling across Asia causing a spike in industrial land prices in Vietnam, a revival of manufacturing in Malaysia and a surge in demand for low wage workers in India. For China , it is siphoning away manufacturing activity when the country is reeling from its slowest economic growth in decades.
- When the first outbreak of Covid-19 shut down factories in China in early 2020, the closures roiled sales plans for many companies, including Apple, which had to cut its quarterly sales forecast because it couldn’t make iPhones. The company’s operations team started to look at alternative manufacturing locations to hedge against future shutdowns in China.
Shift to India –
- Apple plans to assemble and package a small fraction of this year’s iPhone 14, the company’s flagship device, in India for the first time.
- While most of the initial and most critical productions for that device is happening in China, Apple will move some of its overall iPhone production to India later- mainly as a way to assess the ability for future manufacturing there.
- Apple will also reportedly set up a manufacturing facility in India to meet 85% of the demand from the country under ‘Make in India’. The imports of the iphones are expected to fall to only 15% from 50%.
- Even as Apple pushed ahead with plans, the company was careful not to antagonize China’s ruling Communist Party since the cast majority of its products are still made there.
Vietnam – the biggest beneficiary
- So far, the biggest beneficiary of wariness over China has been Vietnam.
- Foxconn, Apple’s largest contract manufacturer, recently signed a $300 million deal to expand in northern Vietnam with a new factory that will generate 30,000 jobs, according to state media.
- The latest spending was in addition to $1.5 billion that the Vietnamese government had said Foxconn had said Foxconn had already invested in the country.
- This year, Google plans to move manufacturing from Foxconn facilities in southern China to Vietnam, where it will begin assembling it’s latest model, the Pixel7. The company expects Vietnam to provide as much as half of next year’s high end Pixel phones, the people said.
