Apple may never be able to quit manufacturing in China

Posted:
in General Discussion
A new report says Apple has trying to move operations away from China for a decade, and if it can ever accomplish it, the move will take another 20 years.

Tim Cook visits Luxshare factory in 2017. Source: Apple
Tim Cook visits Luxshare factory in 2017. Source: Apple


Apple and all major technology firms have been working to reduce their dependency on China, because of increased tensions between the country and the US, plus the impact of COVID measures. However, the Financial Times reports that Apple is by far the most reliant on China, and so much so that it may never be able to completely move away.

Reportedly, Microsoft's revenues from hardware are only 6% of its total. Samsung closed its plants in China in 2019, although that was less because of wanting to move, and more because its local market share had fallen from 20% to under 1%.

The Financial Times says that in comparison, Apple directly employs 14,000 people in China, and most of its 1.5 million workers in the global supply chain are in the country.

Apple, and its main iPhone supplier Foxconn, have taken high-profile steps to move manufacturing to India, and Vietnam However, a former Microsoft executive told the publication that Vietnam, for example, is "years and years" away from being truly competitive.

"It was incredibly challenging [for us] in terms of ramp up, set up, and getting that working the way it was working in China," the unnamed executive said. "The infrastructure was either very new and hadn't been proven -- or it didn't exist."

"We had challenges with sourcing components, because all of our tier-two, tier-three sourcing was still all in China," he or she continued. "So we ended up shipping a lot of semi-finished goods from China to Vietnam for final assembly."

The executive may have been describing the situation when Microsoft bought Nokia in 2013, and moved production to Vietnam. According to the Financial Times, Nokia also then faced problems with the weather, inadequate transportation -- and even organized crime.

It all comes back to China

The issue of sending parts from China to be just assembled in countries such as India is reportedly routine enough that there is a term for the assembly companies. These suppliers are known as Final Assembly, Test and Pack (FATP).

Currently it's estimated that the number of workers in Chinese factories is greater than the total population of Vietnam. China's own statistics say 293 million people worked in factories in 2021, where 100 million people live in Vietnam.

Even if Apple, or other firms, were able to establish an equivalent supply chain in India, Vietnam, or anywhere else, there would still be the fact that China is a smelting source. So at the very least, raw metal would still come from there.

Share of global manufacturing value added (%). Source: Financial Times/World Bank
Share of global manufacturing value added (%). Source: Financial Times/World Bank

Apple's commitment to China

Apple has been criticised for its apparent willingness to repeatedly bow to pressure from the Chinese government. But it has also directly spoken about staying in the country, or at least Tim Cook has.

According to the Financial Times, during his 2017 visit to Luxshare, workers asked if Apple was going to move.

"We're not doing that," Cook reportedly replied. "Manufacturing our products requires deep engineering skills, flexible supply chain management, and exceptional quality standards."

"We won't be shifting production for the sake of lowering costs," he continued.

He was reassuring the workers, and he was speaking in 2017 before the Trump administration began putting tariffs on US buyers of goods from China.

Nonetheless, Apple is not going to be making lower quality iPhones or using less capable suppliers, just to cut its dependency on China.

"Apple can't diversify," an unnamed former Apple engineer told the Financial Times. "China is going to dominate labour and tech production for another 20 years."

Read on AppleInsider

Comments

  • Reply 1 of 17
    lkrupplkrupp Posts: 10,315member
    That’s because no other country has the manpower and complete automation will never happen. Unless, of course, the U.S. becomes China by letting in millions upon millions of immigrants and gutting labor laws. Anyone think that will ever happen?
    FileMakerFeller
  • Reply 2 of 17
    KTRKTR Posts: 259member
    lkrupp said:
    That’s because no other country has the manpower and complete automation will never happen. Unless, of course, the U.S. becomes China by letting in millions upon millions of immigrants and gutting labor laws. Anyone think that will ever happen?
    I doubt it.  Americans not have the skills needed.  Most home brew aren’t interested in that stuff.  On my interested in music and sports.  Not much brain power there imo. 

  • Reply 3 of 17
    This is quite evident in Apples supplier report.Over 180 of Apples 200 suppliers have some form of presence in China
  • Reply 4 of 17
    No kidding. China is headed towards being the dominant power on Earth in a few decades. The new House majority is an indicator where America is headed.
    danox
  • Reply 5 of 17
    KTR said:
    lkrupp said:
    That’s because no other country has the manpower and complete automation will never happen. Unless, of course, the U.S. becomes China by letting in millions upon millions of immigrants and gutting labor laws. Anyone think that will ever happen?
    I doubt it.  Americans not have the skills needed.  Most home brew aren’t interested in that stuff.  On my interested in music and sports.  Not much brain power there imo. 

    It's not a skills issue.  The vast majority of Chinese workers are unskilled and coming from the rural farms.  The United States forces jobs oversees.  Rules and regulations make it too expensive to do things in the US.  You can argue whether those rules and regs are good or bad but that's the reason.  EPA rules and regs, OSHA rules and regs, health insurance, unemployment insurance, social security, etc, etc etc. All of those things add to the cost of a salary or a manufacturing plant and are mostly non-existent in China.  
  • Reply 6 of 17
    dewmedewme Posts: 4,633member
    They may not be able to quit, but they could still get fired. Of course that would be the equivalent of a murder-suicide scenario and inflict grievous damage on both companies and both economies. But hey, dumber things have happened, some quite recently. I hope someone, and I'm not talking just Apple, is working on a Plan B. 
    FileMakerFeller
  • Reply 7 of 17
    badmonkbadmonk Posts: 1,135member
    The FT article is in two parts and ia recommended reading for anyone who wants to understand the complexity of Apple & China’s relationship.  It really is the best article I have read about this issue in sometime.

    And it really is an even more complicated marriage because really it is a manage-a-trois if TSMC in Taiwan is included in the equation.

    Regardless of what America-First proponents say we live in a global economy and it is tough to roll this clock back.

    I think we need to bring some essential manufacturing back into this country…but 1/4 billion hand assembled iPhones per annum is never coming back.
    muthuk_vanalingamdewme
  • Reply 8 of 17
    blastdoorblastdoor Posts: 2,908member
    Wow, that straw man never stood a chance!

    To 100% remove China -- or any other major country -- from the supply chain of a company the size of Apple is clearly unrealistic. If nothing else, there will be production in China to meet demand in China. 

    But it is realistic, meaningful, and feasible to substantially reduce dependence on China. That's going to happen, not just for Apple but for many other companies, too. 


    FileMakerFeller
  • Reply 9 of 17
    avon b7avon b7 Posts: 6,500member
    blastdoor said:
    Wow, that straw man never stood a chance!

    To 100% remove China -- or any other major country -- from the supply chain of a company the size of Apple is clearly unrealistic. If nothing else, there will be production in China to meet demand in China. 

    But it is realistic, meaningful, and feasible to substantially reduce dependence on China. That's going to happen, not just for Apple but for many other companies, too. 


    Exactly. Reducing dependencies is something every company, nation etc should do. 

    However, reducing dependency is not the same as quitting a country. 

    The EU started its EU processor initiative to reduce dependencies on US and other foreign technology. It was a stated strategic goal. 
    muthuk_vanalingamblastdoorFileMakerFeller
  • Reply 10 of 17
    No kidding. China is headed towards being the dominant power on Earth in a few decades. The new House majority is an indicator where America is headed.
    And the Zimbabués on MARS   :#

  • Reply 11 of 17
    danoxdanox Posts: 1,494member
    crofford said:
    KTR said:
    lkrupp said:
    That’s because no other country has the manpower and complete automation will never happen. Unless, of course, the U.S. becomes China by letting in millions upon millions of immigrants and gutting labor laws. Anyone think that will ever happen?
    I doubt it.  Americans not have the skills needed.  Most home brew aren’t interested in that stuff.  On my interested in music and sports.  Not much brain power there imo. 

    It's not a skills issue.  The vast majority of Chinese workers are unskilled and coming from the rural farms.  The United States forces jobs oversees.  Rules and regulations make it too expensive to do things in the US.  You can argue whether those rules and regs are good or bad but that's the reason.  EPA rules and regs, OSHA rules and regs, health insurance, unemployment insurance, social security, etc, etc etc. All of those things add to the cost of a salary or a manufacturing plant and are mostly non-existent in China.  
    How does Germany and Japan do it? America seems to be at the same level in many ways to the UK blame the production workers or a union for bad management decisions.
    FileMakerFeller
  • Reply 12 of 17
    danoxdanox Posts: 1,494member
    avon b7 said:
    blastdoor said:
    Wow, that straw man never stood a chance!

    To 100% remove China -- or any other major country -- from the supply chain of a company the size of Apple is clearly unrealistic. If nothing else, there will be production in China to meet demand in China. 

    But it is realistic, meaningful, and feasible to substantially reduce dependence on China. That's going to happen, not just for Apple but for many other companies, too. 


    Exactly. Reducing dependencies is something every company, nation etc should do. 

    However, reducing dependency is not the same as quitting a country. 

    The EU started its EU processor initiative to reduce dependencies on US and other foreign technology. It was a stated strategic goal. 
    The UK and the EU are too late Arm Holdings has been sold out of Europe, and in America Intel said no to Steve Jobs, when Apple came a calling about a new CPU for the iPhone, Motorola the pride of the Midwest is dead, and IBM, which has sold, just about everything of value is sinking into the sunset. The turnaround, if there is one is many years away. Fifteen years? Twenty? Giving away money to Intel, AMD, Nvidia is a losing proposition they have been disrupted in the market.
    edited January 18
  • Reply 13 of 17
    Samsung  makes their phones mainly in Vietnam where it operates their own factory. They also have factories in India and other places. They left China in 2019. 
  • Reply 14 of 17
    Xavalon said:
    Samsung  makes their phones mainly in Vietnam where it operates their own factory. They also have factories in India and other places. They left China in 2019. 
    Because, according to the article, their sales dropped in China to a level where it didn't make sense to have a local manufacturing presence and they already had manufacturing in other locations that could provide the required capacity.

    Apple might, in time, be able to obtain manufacturing capacity that is co-located with Samsung's suppliers - Apple still uses several components that Samsung provides - but it's not something that can happen quickly.
  • Reply 15 of 17
    As a result of the geopolitics tension, people tend to have negative views on anything China. China already transitioned from cheap labor, low skills to highly efficient manufacturing powerhouse. The efficiently integrated supply chains and national transportation,  supportive business environment, (Pandemic zero Covid did interrupt the business a great deal due to CCP policy), its global dominance on raw material mines, refining capacities,  ports help as well.  Making consumer products for Apple, it has a big annual cycle and huge output.  In R&D period, it needs a very quick prototype turn around. Once the design is finalized, it needs very quick retooling of huge manufacturing facilities to efficiently assemble large quantity of its products. These require a few things that other countries can't meet in near future:  large number mid level engineers (STEM majors) readily available to retool the factories in short span of time, relative cheap and willing labors to assemble them in 24 hours 3 shifts to produce 10s millions in a couple months, highly integrated supply chains nearby (mainly in Asia countries: China, Japan, Taiwan and Korea for most chips and key parts) and all the transportation networks to move the parts in Just-In-Time way, put them together and ship them around the world. The fact that Tesla Shanghai Gigafactory can output more Tesla than all other Gigafactory show its advantage. 

    With that said, highly relying on China is very problematic as Pandemic and Geopolitics conflicts show. Divestifying from China is important for global company like Apple.
    edited January 18
  • Reply 16 of 17
    avon b7avon b7 Posts: 6,500member
    danox said:
    avon b7 said:
    blastdoor said:
    Wow, that straw man never stood a chance!

    To 100% remove China -- or any other major country -- from the supply chain of a company the size of Apple is clearly unrealistic. If nothing else, there will be production in China to meet demand in China. 

    But it is realistic, meaningful, and feasible to substantially reduce dependence on China. That's going to happen, not just for Apple but for many other companies, too. 


    Exactly. Reducing dependencies is something every company, nation etc should do. 

    However, reducing dependency is not the same as quitting a country. 

    The EU started its EU processor initiative to reduce dependencies on US and other foreign technology. It was a stated strategic goal. 
    The UK and the EU are too late Arm Holdings has been sold out of Europe, and in America Intel said no to Steve Jobs, when Apple came a calling about a new CPU for the iPhone, Motorola the pride of the Midwest is dead, and IBM, which has sold, just about everything of value is sinking into the sunset. The turnaround, if there is one is many years away. Fifteen years? Twenty? Giving away money to Intel, AMD, Nvidia is a losing proposition they have been disrupted in the market.
    Timeframes are not an issue here. There is no pressing need to release a product immediately. 

    The EPI microprocessors will use some ARM IP. The accelerators will be based on RISC-V.

    The goal is EU technological sovereignty. The current setup draws on over 10 years of research. The EPI was formally established in 2018. The first chip was successfully taped out in late 2021. 30 European countries are involved. 

  • Reply 17 of 17
    hexclockhexclock Posts: 1,085member
    Appleish said:
    No kidding. China is headed towards being the dominant power on Earth in a few decades. The new House majority is an indicator where America is headed.
    The wokesters want to get rid of grades, merit, and hard work in America, because…racism. So yeah, we have no chance. 
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