Apple’s dependency on China is no secret. Another thing that is public is China’s strict anti-Covid-19 policy that has resulted in mass shutdowns and forced lockdowns, affecting industry and people. As the world grapples with the threat of a recession, production delays and supply chain woes will add pressure to declining profit margins. Apple moving out of China is a strategic business decision as the country’s stringent policies have affected iPhone production.
Experts say that the tech giant has asked suppliers to look for greener pastures in Asia, preferably India or Vietnam. Apple wants to invest in a more stable economy where products can be assembled without too much interference.
Apple Moving Out of China
According to market-research firm Counterpoint Research, the Foxconn factory in Zhengzhou, China, employs close to 300,000 workers and at one point made nearly 85% of the iPhone Pro lineup. In late November, the factory found itself in the midst of mass protests as workers made their displeasure over Covid restrictions and poor wages known.
“In the past, people didn’t pay attention to concentration risks,” Alan Yeung, a former US executive for Foxconn, told the Wall Street Journal. “Free trade was the norm and things were very predictable. Now we’ve entered a new world.” An unstable geopolitical landscape and troubles arising due to Covid-19 have made China a very risky business decision.
In Vietnam, Apple has two main partners – Luxshare and Inventec. As Covid-19 upends life in China, tech firms have had to bear the brunt of the government’s policies. Apple products have been affected as unpredictable closures and worker protests have stalled production indefinitely at times.
China’s zero-tolerance lockdowns have brought iPhone factories to a standstill multiple times in the last two years. Each time, there is no clear indication of when the factories will be up and running. In the most recent case, images of protesting workers being beaten up were shared across social media.
However, moving Apple products out of China is a complicated and time-consuming process. Apple wants its suppliers to focus on building new products in other countries, before taking the final call on what to change.
Last month, Apple analyst Ming-Chi Ko mentioned that India might be responsible for 40-45% of iPhone production, up from the current 5%. Currently, iPhones assembled in India are for the local market. However, some analysts expressed concerns as each state in India has a different government, which makes rules and compliance different for each region.
Beijing’s Strained Connection
Apple moving out of China seems inevitable at this point as Washington’s relationship with Beijing has also been affected by US sanctions on computing technology. Early October, the current US administration prohibited the sale of semiconductor chips, on suspicions of misuse. It is believed that China could misuse artificial intelligence and advanced computing technology to advance defense technologies.
Economists are confident that the US and China will not stop trade completely, but there might be more sanctions in the semiconductor and aerospace sectors. Furthermore, China’s presence as a globally connected trade capital might deter the US from imposing hard sanctions, as they cannot work without the support of other Asian nations.
The US government has also struggled to reach an understanding over Taiwan with China. In early October, the current administration even issued a warning to the South Asian nation over its aggressive policies.
According to people in the know, manufacturing of Apple products will be spread out between India and Vietnam. India might be responsible for churning out iPhones while Vietnam will handle computers, watches and Airpods.
Although US sanctions on China might be put on hold for now, Apple moving out of China seems inevitable as the tech company prepares to secure its future.
