Why Apple is leaving China

The Wall Street Journal has reported that Apple has told some of its contract manufacturers that it intends to increase production outside China, citing China’s strict anti-COVID-19 policy and other reasons for its decision.

The report noted that India and Vietnam, where Apple already has production facilities, are among the countries short-listed by the company as alternatives to China.

Due to COVID-19 lockdowns, which slowed production and demand in China last month, Apple anticipates that it will face continuing supply issues.

Apple has been largely dependent on different Chinese companies, such as Pegatron and Foxconn, contributing a large chunk towards their production. However, the trillion dollars company now plans to expand its manufacturing to countries like India.

The decision was largely influenced by Beijing’s stringent anti-Covid measures responsible for the overall production decline, as per the Wall Street Journal.

The two preferred potential hubs for manufacturing are Vietnam and India, which are already responsible for Apple production. Still, now the company is beginning to view it as an alternative to China. Apple has asked its manufacturing partners to execute more New Product Introduction (NPI).

The Report:

According to the report, the initial phase of mass production work allows the suppliers to interpret the prototype and product blueprints of the brand into accurate manufacturing plants outside of China.

Apple has been planning to make the change for quite some time now. The pandemic had posed a new hurdle following the latest development in Shanghai that led to stricter lockdowns and intensified the company’s decision.

Another major reason could be the constantly increasing tensions between China and USA relations and the travel limitations between the countries. Furthermore, Beijing’s indirect support to Russia for the invasion of Ukraine can be an influencing factor.

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The two main alternatives considered by the company for mass supply are India and Vietnam. Although, the two countries are already responsible for a small portion of Apple’s global manufacturing.

Foxconn, one of Apple’s partners has already established a facility in India to manufacture iPhones, notably for the Indian market. Apple is now in contact with other contractors to set up manufacturing centers for India’s export centers.

China remains one of the main manufacturing units for Apple due to multiple factors, including a well-trained and better expertise workforce, lower costs compared to the US, and a deep parts supplier network which is difficult to recreate anywhere else without a lot of effort.

However, suppose Apple does make the shift in the future since it maintains the tag of being the largest company in the United States by market capitalization.

In that case, it will also influence the thinking of several other western companies which plan on reducing their dependency on China for key materials or manufacturing.

Shifting to the alternative manufacturers will be slow, and they will likely serve as hubs for a new product category that mainly includes AR headsets, etc. The next few months will determine Apple’s policies regarding the diversifications and their final stance.