Apple has made China the backbone of its iPhone assembly.  Getting away could take years |  CNN Business

Apple has made China the backbone of its iPhone assembly. Getting away could take years | CNN Business


In early November, weeks before the start of the peak holiday shopping season, Apple issued an unusual warning that customers should wait longer for new iPhone 14 Pro models. Indeed, one of its main assembly facilities in the Chinese city of Zhengzhou was “operating at significantly reduced capacity” due to Covid restrictions.

For years, Apple has relied on an extensive manufacturing network in China to mass-produce the iPhone, iPad and other popular products found in homes around the world. But its dependence on the country has been tested this year by China’s “zero-Covid” strategy and strict lockdowns, including recently at the so-called iPhone City production center in Zhengzhou.

Now the world’s most valuable tech company is reportedly seeking to accelerate plans to shift production out of the world’s most populous country – but reducing its heavy reliance on China could take years, if ever. it was happening. In an investor note earlier this week, a Wedbush Securities analyst estimated that it would take Apple at least 2025 or 2026 to shift the majority of its iPhone production to markets like India and Vietnam, but only if he “acts aggressively”.

Gad Allon, a professor at the Wharton School at the University of Pennsylvania whose research focuses on operations and supply chain management, seems to have an even more conservative assessment of the calendar. “I don’t think we can talk about meaningful change beyond a few percent until 2025,” Allon said.

To get an idea of ​​how crucial China is to Apple: before the Covid outbreak in October that caused shutdowns in Zhengzhou, this manufacturing plant produced 85% of iPhone Pros, according to an estimate by the company. Counterpoint market research, provided to CNN. .

“Apple wouldn’t be the company it is today without China as a manufacturing base,” said Eli Friedman, a Cornell University professor whose research focuses on working and developing in China. Even though Apple signals that it wants to move production out of China, Friedman said, “It won’t involve decoupling from China – there will be Apple products being made in China for a very long time.”

Ultimately, Apple is “in some ways as much a Chinese company as an American company,” Friedman said, “although, of course, it is headquartered in the United States.”

Apple did not respond to CNN’s request for comment.

There are a range of crucial factors that go into assembling and producing iPhones, for example, “that simply cannot be replicated in other countries,” he said. This includes the availability of materials and components from nearby suppliers; world-class infrastructure already in place at scale; access to a large engineering workforce as well as low labor costs; and the availability of the tracts of land needed to build the factory towns that can house hundreds of thousands of workers as well as the sprawling production facilities.

“Other countries might have one piece or another of that, but they don’t have it all,” Friedman said.

Apple CEO Tim Cook, who helped build the company’s global supply chain, acknowledged China’s unique manufacturing strengths in a 2015 interview. tools and dies in the United States and probably put them in a room that we’re currently sitting in,” he said. “In China, you should have several football fields.”

Steve Jobs, the late CEO of Apple, raised the labor issue during an October 2010 meeting with President Obama. He called the lackluster US education system an obstacle for Apple, which needed 30,000 industrial engineers to support its on-site factory workers at the time.

“You can’t find that many in America to hire,” Jobs told the president, according to his biographer, Walter Isaacson. “If you could educate these engineers, we could move more manufacturing plants here.”

Apple, for example, has been suggesting moving production to India for some time now. While India has a large workforce and many workers with the necessary technical skills (unlike the United States, which has long faced a shortage of engineers), the establishment of engineering centers Sprawling assembly for Apple in India runs into a lot more bureaucracy than in China. . “At least in India, access to land isn’t as easy,” Friedman said, noting that the Chinese Communist Party faces fewer obstacles to quickly expropriate land for causes it deems important. . China’s labor costs, while rising over the past decade, are also “artificially cheap due to political repression against labor organizers,” according to Friedman.

In Vietnam, another long-talked-about candidate for Apple to move production, “the government has a little more capacity, but there’s a lot less land,” according to Friedman. Vietnam also has a significantly smaller population (98 million) compared to China (1.4 billion) and India (almost 1.4 billion, according to World Bank data).

Another key part of why Apple “is really reluctant to rock the boat with China is that China is also a huge market for Apple,” according to Wharton’s Allon. Apple posted $74 billion in sales in the Greater China market in the 12 months to September, nearly 20% of its global sales for the year.

“If you look at other Americans [tech] companies, Google is not in China, Meta is not in China, Amazon is not in China,” Allon said, noting that Apple has really been the only one to successfully tap into this lucrative market. “So Apple is very reluctant and very careful to make sure that, definitely now that things are very, very sensitive, not to rock the boat – or at least rock the boat in a public way.”

The company may not be able to afford to be so dependent on the Chinese supply chain, but neither can it afford to leave the country behind.

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