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From China to…where? Apple’s struggle to relocate iPhone manufacturing supply chain

By Mark Zetter

 

It is technically possible for Apple to shift iPhone production entirely out of China to another nation or combination of nations within a five-year timeframe, but it will be a highly complex and challenging process for a variety of reasons.

Apple’s iPhone production in China is deeply integrated into the country’s manufacturing ecosystem, which includes a vast network of suppliers, manufacturers, and logistics providers. Moving production out of China would require Apple to establish new partnerships, build new supply chains, and navigate a range of geopolitical and regulatory challenges.

Additionally, shifting production to a new location or combination of locations could result in increased costs for Apple, as it would need to invest in new infrastructure, train new employees, and navigate different labor laws and regulations and various contract and agreements. (Access various manufacturing contracts and agreements and service level term sheets and evaluations forms used in industry, here)

It could also take Apple several years to ramp up production in new locations and establish the same level of efficiency and scale as Apple’s existing operations in China, staffed with hundreds of thousands of workers capable of fine dexterity and fine-tuned manufacturing process instructions (MPI), which are held tightly and not transferred among competing contract electronics providers.

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All of the above aside, Apple has been in the news making efforts to diversify its manufacturing operations and reduce its dependence on China. Apple has already begun moving some production to other countries, such as India, and has reportedly been exploring options to shift more production to Vietnam, Thailand, and other Southeast Asian manufacturing countries.

Ultimately, the feasibility analysis and timeline for moving iPhone production, and production of other Apple products, out of China will depend on a range of factors, including Apple’s strategic priorities, availability of alternative manufacturing locations, and the ability to manage risks and costs associated with the transition.

Alternatives to China

Most can agree China’s technology supply chain ecosystem is highly advanced and integrated, making it challenging for any single nation in Southeast Asia to compete on the same level as China has for Apple. However, a combination sourcing strategy of three or more nations with complementary strengths could potentially challenge China’s position in the region.

Singapore is already a leading technology hub in Southeast Asia, with a highly skilled workforce and advanced infrastructure. It has a strong focus on research and development, and is known for its innovation in areas such as fintech and smart city solutions, connected devices, and the Internet-of-Things (IoT).

Next is Malaysia. Malaysia has a well-established manufacturing sector, with a particular focus on electronics and semiconductors. It also has a strong tech supply chain and logistics network, making it an ideal location for production and assembly.

Then there is Vietnam. Vietnam has a large and growing population of tech-savvy young people, as well as a growing economy. It has a strong focus on exports, particularly in the area of electronics and telecommunications, and is attracting increasing FDI investment from tech companies around the world. Even China increased Vietnam investments the past few years.

Together, these three nations could create a complementary ecosystem of innovation, production, and export that could challenge China’s dominance in the region? Or could they?

The Indian sub-continent is a prominent and significant nation in South Asia and the world. India has a rich history, diverse culture, and a rapidly growing economy, and it would be inaccurate to ignore its importance in any meaningful discussion or analysis.

I have written extensively on India’s manufacturing supply chain capabilities for years and challenges cited often by western manufacturing clients and executives with operations in India. Currently, India is not the single, best solution for Apple. At least not right now. In a few year’s time?

Perhaps.

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Read more of my comments about Apple and India in this article on FT.com.

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