Apple and Google will each introduce a new generation of smartphones in the coming weeks, competing to set them apart from earlier models. Consumers won’t see one of the biggest changes, though: Some of these phones won’t be produced in China.
According to persons familiar with the companies’ intentions, a very tiny amount of Apple’s most recent iPhones will be produced in India, and some of Google’s most recent Pixel phones will be assembled in Vietnam.
The change is a reaction to growing worries about the geopolitical sensitivities and supply chain disruptions brought on by pandemics that have implicated China in recent years. China has long served as the world’s primary producer of high-tech electronics due to its unmatched capacity to hire hordes of highly skilled workers and meet demand for the newest gadgets.
However, American businesses are seeing more danger there due to China’s saber-rattling following Speaker Nancy Pelosi’s travel to Taiwan last month. This perception was formed during the trade war under President Trump, which featured tit-for-tat penalties. They worry that locating a big portion of their supply chain in China could drag them into the intensifying conflict between China and the US over Taiwan.
According to the highly monitored survey of purchasing managers in China, manufacturing activity decreased for a second consecutive month in August, the country’s government reported on Wednesday.
Lior Susan, the founder of Eclipse Venture Capital, which invests in hardware and manufacturing start-ups, claimed that “the empire of manufacturing in China is being challenged.” “An alternative will be sought as more and more capital pulls production out of China.”
Asia is being affected by the fracturing supply chain, which has driven up industrial land costs in Vietnam, revived manufacturing in Malaysia, and increased demand for low-wage workers in India. As China struggles with its weakest economic growth in decades, it is draining away manufacturing activity.
According to Anna-Katrina Shedletsky, founder of Instrumental, a Bay Area business that remotely monitors assembly lines for electronics manufacturers, “everyone is thinking about moving, even if they’re not acting yet.”
Many businesses’ sales forecasts were upset after the first Covid-19 outbreak forced the shutdown of factories in China in early 2020. Apple had to lower its quarterly sales projection since it was unable to produce iPhones.
According to three former workers who asked not to be identified because they are not allowed to talk about their job at the company, the operations team of the company started looking at alternate manufacturing locations as a safety net against potential shutdowns in China.
According to one of the people, Vietnam—which Apple had already selected for AirPods production in 2020—became a hot topic. Since then, Apple has relocated some iPad production there and begun making its watch there. Twenty of Apple’s top 200 suppliers already use plants in Vietnam. 155 of the businesses, in contrast, have factories in China.
For the first time, Apple will construct and package a tiny portion of this year’s iPhone 14, the company’s flagship gadget, in India. Apple will move some of its overall iPhone production to India later, primarily to gauge the viability of future manufacturing there, according to two people familiar with the plans, even though the majority of the initial and most crucial production for that device is currently taking place in China.
Even as it moved forward with its ambitions, Apple took cautiously to avoid upsetting China’s Communist Party given the vast bulk of its products is still produced there. According to a source in Japan’s Nikkei newspaper, Apple advised its Taiwanese suppliers to mark components intended for China as created in “Chinese Taipei” or “Taiwan, China” while China conducted military drills surrounding Taiwan during Ms. Pelosi’s visit.
Microsoft, Amazon, and Apple all declined to comment.
Vietnam has so far benefited the most from the concern over China.
According to official media, Foxconn, Apple’s largest contract manufacturer, reportedly agreed to invest $300 million in a new factory in northern Vietnam that will create 30,000 new employees. The most recent investment was made in addition to the $1.5 billion the Vietnamese government claimed Foxconn had already made available for investment.
Foxconn and other contract manufacturers run enormous facilities in picturesque scenery that was previously farmland and rice fields, surrounded by temples, banyan trees, and ponds, in the provinces of Bac Giang and Bac Ninh in northeastern Vietnam. Nowadays, job seekers come to these facilities from all over the nation.
A sign outside a Foxconn factory in Bac Ninh announced that the business is seeking to hire 5,000 people “urgently” and offered an entry-level position with a monthly salary of about $300. Foxconn is paying new recruits less than half as much per month at its assembly lines in Shenzhen, southeast China – 4,500 yuan, or roughly $650.
Another reason why businesses are seeking for new production options is the salary gap. China’s Bureau of Statistics reports that during the previous ten years, the annual salary of manufacturing workers has tripled to more than $9,300.
Foxconn declined to respond to questions for this story.
Tariffs also increased the cost of manufacturing in China. A 15 percent tariff was imposed by President Donald J. Trump in 2019 on tech items like smart speakers, smartwatches, and wireless headphones.
Google looked to China’s rivals as the trade war heated up. Google is to relocate production this year from Foxconn facilities in southern China to Vietnam, where it will start producing its most recent model, the Pixel 7.
According to the people, the business anticipates that up to half of the top-tier Pixel phones for 2019 will come from Vietnam.
However, Google’s preparations for the upcoming year’s smartphones show how challenging a total exit from China will be for businesses. Google is looking into a foldable phone for 2023, but these sources indicated that in order to produce a device with updated screen and hinge technologies, it will likely be necessary to locate the factory close to important Chinese suppliers.
Google chose not to respond.
The electronics sector has built up a vast network of suppliers over the past two decades that produce the wires, buttons, and machinery necessary to assemble cellphones and computers. The concentration of suppliers lowers shipping costs and facilitates the repair of defective parts.
Mehdi Hosseini, a financial analyst at Susquehanna International Group who specializes in the IT supply chain, stated, “We have a long way to go to have the entire supply chain diversified outside of China.”
So proximity is important for China’s choices. According to Cushman & Wakefield, a global commercial real estate firm, demand from Foxconn and other companies has caused industrial real estate prices in Vietnam to jump by almost a third since 2019 to $105 per square meter (about $9.75 per square foot), while the price of warehouses has increased by 20%.
Trang Bui, the general manager of Cushman for Vietnam, claimed that five years ago, she only showed clients industrial land every two months. She now travels everyday to view factory real estate with clients from the United States, Taiwan, South Korea, Japan, Europe, and China.
Ms. Bui said, “If you go to Vietnam, all you see is energy. “They could be a little astonished for an outsider who hasn’t seen the country,” said the speaker.