Battered by Beijing's strict anti-COVID measures, Apple Inc has told some of its contract manufacturers that it wants to increase the production outside China, the Wall Street Journal reported, citing people familiar with the matter. India and Vietnam, which are already sites of Apple production, are among the countries being seen as an alternative option to China, the report added.
This move by Apple, being the largest US company by market capitalization, will influence the thinking of other Western companies which have been considering to reduce their dependency on China for manufacturing or key materials in the wake of Beijing's indirect support to Russia for its invasion in Ukraine and lockdowns in some cities to fight COVID-19.
According to analysts, over 90 per cent of Apple products including iPhones, iPads and MacBook laptops are manufactured in China by outside contractors. Responding to Apple's supply chain challenges in April, Chief Executive Officer Tim Cook said, "Our supply chain is truly global, and so the products are made everywhere. We continue to look at optimizing." The lockdowns imposed in Shanghai and other cities as part of China's anti-Covid policy have disrupted supply-chain for many Western companies. In April, Apple warned that the resurgence of COVID-19 will hinder the sales by as much as USD 8 billion in the current quarter. China's strict anti-Covid rules have stopped Apple from sending its executives and engineers into the country over the past two years, which means that it becomes hard for them to check the production sites in person.
The power outages last year also dented China's reputation for reliability. Except India, China was the one which have the pool of qualified workers that exceeds the entire population of many alternative countries in Asia. Apple sees India as the closest thing to the next China, as both of them are similar in population and both offers low cost, Wall Street Journal reported citing people who are familiar with the matter. Apple is in conversation with some existing suppliers about expanding in India, including production for export, people familiar with the matter said. India made 3.1 per cent of the world's iPhones last year, and the proportion is forecast to increase to 6 per cent to 7 per cent this year, according to research firm Counterpoint.
According to some analyst and suppliers, there will be the difficulty for the China-based assemblers in setting up the shop as the relation between New Delhi and Beijing have deteriorated since the two countries' militaries fought a deadly clash in 2020. This was the reason that China-based manufacturing contractors who are in business with Apple is seeking for Vietnam and other Southeast Asian nations, according to people familiar with the matter. Vietnam, on other hand is already a smartphone manufacturing hub for Apple's rival, Samsung Electronics Company. South Korea-based Samsung, which has limited its exposure to China manufacturing. Luxshare Precision Industry Co., a China-based manufacturing contractor is already making the AirPods earbuds for Apple in Vietnam.
Even the Luxshare's clients are worried about the problems with the power supply and China's zero-covid policy. Luxshare said these clients were asking manufacturing partners to look outside the China when they carry out key preliminary work for mass production, a stage known as new product introduction, or NPI. Taiwan-based assemblers Foxconn Technology Group and Wistron Corp. is a step ahead and has already set up factories in India to produce the iPhones mainly for that country's domestic market, where Apple sales are growing rapidly.
In April, Apple said that it has begun producing the latest generation of iPhones and iPhone 13 series in India. Such steps require considerable investment by suppliers, analysts and suppliers said, which makes them uneasy at a time when the global economic outlook is clouded by high commodity prices, the war in Ukraine and stock-market gyrations. Cash is important in uncertain times, a contractor executive said, but suppliers need to go where Apple goes if they want to keep the business.