Apple, others look to move production away from China; not an easy task

Apple, Google and Microsoft have looked to move some hardware production from China to other countries, including Vietnam and Thailand. Product assembly for smartphones could feasibly be moved quickly, experts say, but moving component manufacturing outside of China will also be difficult.

Arjun Kharpal for CNBC:

China production. Image: coronavirusLast year, Apple was reportedly looking to start a trial for the production of its AirPods in Vietnam and asked suppliers to look into moving 15% to 30% of production from China to other parts of South East Asia.

P.S. Subramaniam, partner in the strategic operations practice of Kearney, explains there are electronic components like displays and memory, modules such as cameras, and the assembly of the finished goods.

Around 40% of finished goods come from China globally today and there is capacity in other areas of the world, Subramaniam said. So it’s “easier (to) diversify away from China in the short term (3-6 months) for most companies which have well developed product and assembly process documentation,” he added. Meanwhile, around 60% of modules are made in China. That’s harder to move away “but still feasible”, Subramaniam said.

The components part is a bigger issue. “This is a singular choke point as components are a necessary ingredient in modules and finished goods assemblies. This is very hard to move as it requires entire ecosystems, Subramaniam told CNBC.

MacDailyNews Take: Move what you can and work on spreading out the rest of the risk over time. It’s not just coronavirus or future outbreaks that are the issue, as China’s government and its authoritarian actions over many decades plainly attest. It’s usually the most difficult tasks that are the most rewarding.

24 Comments

    1. You might want to add a few dozen more variables to your business model.

      For example: does the long term cost of IP theft and nondemocratic regime meddling outweigh the short term labor cost advantages? What is the cost of the overhead of extended shipping logistics, language barriers, and new tariff games? Some Western businesses have lost their shirts moving their factories to China.

      Or consider the pre-senile Henry Ford axioms: If I pay my workers enough that they can afford the product they make, then they will happily buy the product too. If the wage I offer is higher than the prevailing wage, then I can pick and select only the best workers. I can train the best workers to achieve higher efficiency that closes the cost gap. If the competition pays less, they will have to make due with a less efficient workforce.

      It should be noted that many high-end brands (is Apple high end this week?) are deeply reliant on China as well, but many are not. It would be interesting to compare how for example the most profitable car brands in the world (Porsche) offers top quality AND sustains a well-trained, well-compensated workforce that respects stringent labor, business, and environmental laws. Is there some reason Apple couldn’t accomplish the same?

      It appears that Cook decided that high volume manufacturing can only be done in Asia. Those assumptions should be challenged. They have only resulted in a self-fulfilling prophesy, and the hangover is painful. Outsourcing so much manufacturing to China has only resulted in an empowered communist power that has, and will continue to, challenge democratic principles all over the globe. The western corporations knew this all along, but they didn’t care. Their only interest was to line their pockets, to hell with national health. The working class in western nations has been screwed repeatedly for the last 2 generations thanks to reckless outsourcing.

      1. As cook has said again in recent Interviews it is not the cost of labour alone in China as labour cost is just one component and there are many places with labour cheaper than China.

        It’s the eco system.

        There’s a good article by In AppleInsider

        https://appleinsider.com/articles/20/03/04/editorial-no-wsj-apple-isnt-stuck-in-china

        If there are so many advantages of NOT building in China as people keep arguing then why hasn’t some other big tech company not moved elsewhere as like I said wages in some other countries are way cheaper. If there were so many advantages elsewhere and Cook is so stupid as many here at MDN have argued then surely this other tech firm would have killed Apple. — but instead Apple is one of the richest most successful companies in the world.

  1. There are good reasons for Apple to distribute production better, but coronavirus isn’t one of them. Because it is a dictatorship, China is handling the outbreak as well as any Western country is likely to. The same is true of future disease outbreaks, which are no more likely to start in China than anyplace else. The 1918 flu pandemic likely started in the United States, as did the H1N1 “swine flu.” MERS began in Saudi Arabia.

    1. “Because it is a dictatorship, China is handling the outbreak as well as any Western country is likely to.”

      As clueless a statement as I’ve ever heard you say.
      BECAUSE they are a dictatorship is why it was suppressed for so long.

      “The same is true of future disease outbreaks, which are no more likely to start in China than anyplace else.”
      BECAUSE it is China where diet is horrendous as with pollution, waste, overcrowding and a poor medical system they are likely to have more.

      Actually it doesn’t matter WHERE it starts, it is more likely to worsen whenever it hits China.

      Surely you misspoke….

      1. No I didn’t misspeak. I said exactly what I meant. After the obvious initial bobble, China—because it is a dictatorship—was able to impose quarantine and travel restrictions more quickly and effectively than any democracy. It was able to throw enormous resources at the problem without waiting for a legislative process. They built entire hospitals within a week. They drafted doctors and other health professionals and put them in harm’s way without worrying about issues like consent. They could bypass informed consent for patients, too, and force treatments on them. A good deal of this was going on before the world was informed of it.

        I cannot answer your assertion that novel diseases are more likely to originate in China than anyplace else, other than to point out that most diseases have in fact begun somewhere else. Yes, once they reach China they are likely to worsen, because only India has comparable population numbers and density. However, you can’t locate a huge factory (Foxconn has 12 with over 100,000 workers) someplace with a sparse population.

        I very much wish that Apple could move all of its operations out of every totalitarian state, but it isn’t easy for a company that size to find an alternative.

    2. “Because it is a dictatorship, China is handling the outbreak as well as any Western country is likely to.”

      You are comparing a Communist regime that most likely executed the creator of the virus in a positive light comparative to free CIVILIZED western nations?!?!?!?!🤪🤔🙄

      As TowerTone dutifully called you out, that is your most irresponsible statement to date!😡

      Not a surprise, you are defending your woke SJW hero Cook.

      1. Better than defending somebody who suggested that people with a mild case of Covid-19 can go to work so they can spread it. Also better than defending the conspiracy theory that a virus with an obviously natural genome was artificially created. Both of those morons are as bad as somebody who cannot comprehend that pointing out the effectiveness of draconian dictatorial measures is not the same as defending or advocating them.

        1. I don’t think you know what “deflection” means. It is not a term for answers you don’t like, any more than “fake news” refers to truths you don’t like.

  2. Olympus took a hit moving major manufacturing plants from China to Vietnam, but things have now leveled off. They are now reaping the benefits of the decision in more ways than one.

    1. Olympus had a Vietnam factory for more than 10 years already. They closed their China operations because smartphones had impacted the digital camera business and they couldn’t maintain several sites and they chose the cheaper factory to maintain due their shrinking profits.

      It’s not success for them but retreat.

      This is the official Olympus press release on the decision to move in 2018:

      “1. Reason for shutdown
      In December 1991, we established OSZ in Shenzhen, China and manufacture digital camera business related products
      came. However, with the spread of smartphones, the digital camera market has shrunk sharply,
      Occupancy rate of OSZ remarkably declined, and 26 years passed since the establishment, equipment became more aged, maintaining the competitiveness of OSZ
      It is extremely difficult to hold”

      ()
      In 2019 Olympus continued to lose huge amounts of money. And rumours are that it might exit the camera market altogether.

      1. Petapixel.com

        Nov 2019

        “Speaking with Bloomberg, Olympus CEO Yasuo Takeuchi said that the company is preparing for job cuts “in due course” in order to “improve performance” and meet its business goals. The article mostly restates what we already know from previous reports—that the company is planning to focus on the medical business—but it did contain one dynamite piece of new information:

        Takeuchi also backtracked on some of his comments in the past that the camera business was not for sale, saying that may not be the case anymore.”

    2. The problem that many people seem unable to appreciate is scale.

      Olympus sells maybe a million units per year. Apple sells 217 million iPhones (plus all its other digital devices). The two situations are hardly comparable.

      Foxconn has 12 factories in China, each with over 100,000 workers. Vietnam only has six cities with over a million population.

      1. TxUser: You should recheck your logic here. Apple has very few SKUs, so of course the volume of production for any one product appears enormous. Competitors like Samsung build > three times as many widgets in total but that is broken into a greater number of models. If anything, the logistics managed by those companies are more difficult than what Apple (er, HonHai) pulls off. Apple doesn’t do logistics. Apple outsourced logistics long ago. That’s the real reason that Apple is now tied to China. Cookie never was a supply chain genius. He’s just another corporate outsourcer like any other.

        1. Having more models means that Samsung can rely on more middle-sized factories rather than on fewer giant factories. To repeat, it is the scale of the Apple operations that makes it hard to relocate. Splitting up production into multiple plants would be much less efficient.

        2. “Cookie never was a supply chain genius. He’s just another corporate outsourcer like any other.”

          I will add one word: corporate BEANCOUNTER outsourcer.

          Well said…

  3. OTHER REASONS WHY BUILDING OUT OF CHINA IS SO HARD

    Article from the Information as related by PED30.com

    INDIA:
    “Finding suppliers that could produce components locally proved difficult. One major issue was compliance with Apple’s supplier standards for health, safety and the environment, which are among the toughest in the consumer electronics business. Many Indian companies were unable to or unwilling to fix problems Apple’s auditors uncovered, according to people familiar with the matter.

    For example, one Indian supplier Apple approached in 2018 was Superpacks, which operated a packaging factory in Bangalore. Apple sent auditors to assess whether its supplier responsibility practices were up to Apple’s standards. The audits revealed dozens of violations. The site had no safety measures for storing chemicals, lacked monitoring for noise and wastewater, and didn’t have several environmental and construction permits. It didn’t properly test drinking water for workers and the site lacked a fire hydrant system, according to a person close to Apple.

    Apple spent months pushing Superpacks to fix the violations. However, the Indian company stopped giving updates and missed deadlines for fixes. Apple ultimately didn’t give it a business contract. Superpacks didn’t respond to a request for comment.
    .

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