Faced with difficulties in China, Apple is eager to leave

A few weeks ago, Apple began a new phase of its plan to move some of its manufacturing from China to India and Vietnam. The smartphone giant has been established in the Middle Kingdom for over 10 years, 80% of its iPhones are manufactured there. Cupertino has recently been rocked by Beijing’s Zero Covid policy and the unprecedented protests it has sparked at its main supplier, Foxconn.

Apple wants to get out of its Chinese dependency

In recent years Apple has not hidden its desire to leave, or at least to produce less in China. It recently asked its suppliers to speed up the relocation of the assembly of its products to other sites outside the Middle Kingdom. Tim Cook’s company aims to be less dependent on the world’s largest iPhone assembly site, located in Zhengzhou. The factory’s 300,000 employees produce more than 200 million phones a year. The Foxconn factory produces over 85% of the iPhone Pro line.

The company announced on Nov. 6 that it was slowing down production at its giant plant in central-eastern China. The Chinese government had implemented health restrictions. At the end of November, the problems piled up for the American giant. Violent protests erupted at the Zhengzhou site in reaction to the restrictions and behavior of Foxconn. The workers were not happy with the unpaid wages of $5 an hour. These events have reduced the production capacity of iPhone City, a nickname given to the giant, to just 20%.

According to experts, testify anonymously in the Wall Street Journal, Apple has wanted to outsource its production for several years. According to them, Tim Cook’s company, in order to succeed in his transfer, will have to help many subcontractors. Chinese firms such as Luxshare and Wingtech are said to be on track to land bigger contracts.

At the beginning of the year, Luxshare, a company specializing in the assembly of technological objects, launched an appeal to investors. Executives said major customers, not mentioning Apple, were concerned about supply chain difficulties in China. They added that customers had asked the company to help them get out of the country.

To take its production lines elsewhere, the Apple brand must hire other subcontractors. However, in a sluggish economic environment, the giant is reducing its costs and the number of companies involved. The Indian and Vietnamese factories then receive the necessary instructions for the employees to work on the new products. If production sites outside of China are to become major players in production, subcontractors will need to be more efficient.

Apple’s long-term goal is to ship 40-45% of iPhones from India, according to Ming-Chi Kuo, an analyst at TF International Securities. Currently, Vietnamese sites produce secondary products from Cupertino such as Airpods, Apple Watches or even MacBooks and soon its iPads.

Apple will have to review its strategy to establish itself in India and Vietnam

Apple’s manufacturing problems affect consumers. Not many customers will get their iPhone 14 Pro at Christmas. In fact, only 70 million smartphones out of the usual 85 million will be shipped in the fourth quarter. According to Ming Chi Kuo, the Apple brand will never compensate for lost iPhone sales. Between the holidays and the tough economic environment, buyers will want to steer to other options.

Despite this, the situation is improving for Apple. For the month of December, Foxconn has promised that production capacity will improve by 20%. However, this improvement only means a 40% crafting potential. The return to normal is expected in early January. To help rectify the situation, Foxconn offered $1,800 in bonuses to workers and $1,400 in compensation for quitters. The company hopes its efforts will avoid further disruptions.

A potential move away from Apple would be a real blow to the Chinese economy. In 2021, the Foxconn group claims to account for 3.9% of Chinese exports. The decline in production in Zhengzhou would also be difficult for the 300,000 employees employed. From near and far, Apple would account for more than one million jobs in China.

Vietnam and India have the opportunity to take advantage of the Chinese difficulties to attract the business of Apple and its subcontractors. For the first, on the border with China, the production sites at full capacity can reach 60,000 people. The manufacturing industry in the country is growing rapidly. In 2021, Vietnam’s electronic component assembly sector brought in over US$100 billion, including US$41 billion from mobile phone exports.

India, the second most populous country in the world, has the manpower needed for Apple. The problem is to successfully integrate into the country. Each state has its own laws to consider. Tim Cook’s company will have to adapt to every country it produces in, however experts point out that these new factories will not produce as much as China.