Apple's reliance on China continues to grow despite expansions in Brazil and India
With Apple products due to face fallout from new tariffs imposed on China by President Donald Trump, including pending sanctions set to impact iPhone and iPad in December, a report on Wednesday shows the tech giant's reliance on Chinese manufacturing has not waned.
Source: Apple
Apple, like many companies in the U.S., depend on Chinese contract suppliers to pump out massive quantities of product. For the iPhone maker, "Assembled in China" items range from flagship devices like iPhone, iPad, Apple Watch and MacBook to accessories and peripherals.
As Trump's tariffs loom, Apple's dependence on Chinese production lands the company in an economically uncomfortable situation. Tariffs on AirPods, Apple Watch and HomePod are set to take effect on Sept. 1, while a levy on iPhone and iPad is slated for Dec. 15. That leaves Apple precious few options from which to consider.
The company could, as some analysts predict, leverage its substantial market position and holdings to absorb the cost of Trump's tariffs. Alternatively, it could pass those costs along to the consumer or, as per rumors over the past few months, work with suppliers to shift manufacturing out of China and into established bases of operation in Brazil, India and Vietnam.
According to an evaluation of publicly available supplier data (PDF link) compiled and collated by Reuters, it appears Apple does not intend to deviate from its current strategy.
According to annual supplier reports, Foxconn, Pegatron and Wistron have over the past five years expanded within China to serve Apple's growing needs. As noted by Reuters, Foxconn grew its operation from an already impressive 19 locations in 2015 to 29 facilities in 2019, while Pegatron expanded from eight locations to 12 over a similar period.
Further, Chinese suppliers account for a larger slice of smaller essential items and raw material like aluminum casings, cables, chips, circuit boards, glass and more, the report says. The country's share of said items grew from 44.9% in 2015 to 47.6% in 2019.
The reports analyzed five years of Apple data on locations operated by the company's top 200 suppliers by spend.
Apple manufacturing partners are, however, investing in the buildout of production facilities outside of China. Foxconn was the first to open a major device assembly plant in Brazil in 2011, a move followed more recently by a start to operations in India. Wistron also produces an assortment of iPhone models in India.
As Reuters points out, plants in Brazil and India are significantly smaller than their Chinese counterparts and, more importantly, do not serve international demand. Both Brazil and India impose high taxes and trade restrictions on certain goods in a bid to goose domestic output.
Whispers that Apple -- or more specifically its contract manufacturers -- plans to exit China in favor of Brazil, India and even Vietnam to avoid knock-on effects of Trump's tariffs have floated since the U.S.-China trade war began. CEO Tim Cook attempted to put those rumors to bed in July.
"There's been a lot of speculation around the topic of different moves, but I wouldn't put a lot of stock in that if I were you," Cook said during Apple's third quarter earnings conference call. "The way that I view this is that the vast majority of our products are kind of made everywhere. There's a significant level of content from the United States, and a lot from Japan to Korea to China, and the European Union also contributes a fair amount. That's the nature of a global business and I think that largely that will carry the day, and in the future as well."
Cook is also on good terms with Trump as one of the few tech industry generals willing to interface directly with the president and his administration. The pair recently discussed tariffs and other topical issues over dinner earlier this month, a meeting that has become something of a yearly tradition.
Trump later said Cook made a "good case" that it would be difficult for Apple to bear the upcoming tariffs while competing with companies like Samsung, which will not face the same obstacles. Whether the powwow will result in an exclusion for Apple remains to be seen.
Beyond the supposed economic incentives of doing business in China is the country's intense development of manufacturing technology. Indeed, producing Apple's increasingly complex devices may not be tenable with another workforce. Cook addressed the issue two years ago.
"The popular conception is that companies come to China because of low labor costs. I'm not sure what part of China they go to, but the truth is China stopped being the low labor cost country years ago," Cook said in a 2017 interview at the Fortune Global Forum. "That is not the reason to come to China from a supply point of view, the reason is because of the skill."
Source: Apple
Apple, like many companies in the U.S., depend on Chinese contract suppliers to pump out massive quantities of product. For the iPhone maker, "Assembled in China" items range from flagship devices like iPhone, iPad, Apple Watch and MacBook to accessories and peripherals.
As Trump's tariffs loom, Apple's dependence on Chinese production lands the company in an economically uncomfortable situation. Tariffs on AirPods, Apple Watch and HomePod are set to take effect on Sept. 1, while a levy on iPhone and iPad is slated for Dec. 15. That leaves Apple precious few options from which to consider.
The company could, as some analysts predict, leverage its substantial market position and holdings to absorb the cost of Trump's tariffs. Alternatively, it could pass those costs along to the consumer or, as per rumors over the past few months, work with suppliers to shift manufacturing out of China and into established bases of operation in Brazil, India and Vietnam.
According to an evaluation of publicly available supplier data (PDF link) compiled and collated by Reuters, it appears Apple does not intend to deviate from its current strategy.
According to annual supplier reports, Foxconn, Pegatron and Wistron have over the past five years expanded within China to serve Apple's growing needs. As noted by Reuters, Foxconn grew its operation from an already impressive 19 locations in 2015 to 29 facilities in 2019, while Pegatron expanded from eight locations to 12 over a similar period.
Further, Chinese suppliers account for a larger slice of smaller essential items and raw material like aluminum casings, cables, chips, circuit boards, glass and more, the report says. The country's share of said items grew from 44.9% in 2015 to 47.6% in 2019.
The reports analyzed five years of Apple data on locations operated by the company's top 200 suppliers by spend.
Apple manufacturing partners are, however, investing in the buildout of production facilities outside of China. Foxconn was the first to open a major device assembly plant in Brazil in 2011, a move followed more recently by a start to operations in India. Wistron also produces an assortment of iPhone models in India.
As Reuters points out, plants in Brazil and India are significantly smaller than their Chinese counterparts and, more importantly, do not serve international demand. Both Brazil and India impose high taxes and trade restrictions on certain goods in a bid to goose domestic output.
Whispers that Apple -- or more specifically its contract manufacturers -- plans to exit China in favor of Brazil, India and even Vietnam to avoid knock-on effects of Trump's tariffs have floated since the U.S.-China trade war began. CEO Tim Cook attempted to put those rumors to bed in July.
"There's been a lot of speculation around the topic of different moves, but I wouldn't put a lot of stock in that if I were you," Cook said during Apple's third quarter earnings conference call. "The way that I view this is that the vast majority of our products are kind of made everywhere. There's a significant level of content from the United States, and a lot from Japan to Korea to China, and the European Union also contributes a fair amount. That's the nature of a global business and I think that largely that will carry the day, and in the future as well."
Cook is also on good terms with Trump as one of the few tech industry generals willing to interface directly with the president and his administration. The pair recently discussed tariffs and other topical issues over dinner earlier this month, a meeting that has become something of a yearly tradition.
Trump later said Cook made a "good case" that it would be difficult for Apple to bear the upcoming tariffs while competing with companies like Samsung, which will not face the same obstacles. Whether the powwow will result in an exclusion for Apple remains to be seen.
Beyond the supposed economic incentives of doing business in China is the country's intense development of manufacturing technology. Indeed, producing Apple's increasingly complex devices may not be tenable with another workforce. Cook addressed the issue two years ago.
"The popular conception is that companies come to China because of low labor costs. I'm not sure what part of China they go to, but the truth is China stopped being the low labor cost country years ago," Cook said in a 2017 interview at the Fortune Global Forum. "That is not the reason to come to China from a supply point of view, the reason is because of the skill."
Comments
It really comes down to good management and, most importantly, placing stake-holder's rights above shareholder's rights.
That is to say, a corporation's responsibility is to it's stakeholders, which includes; workers, customers, the environment/(read: Our dear and fragile planet!), citizens, and, yes, shareholders.
How did we get to assembling iPhones/Mac's in China and flying them in a fleet of 747's belching burnt fuel into the atmosphere?
Hmmmm...
Question (APPLE MANAGEMENT): How do we get iPhones into the hands of overweight Americans?
Answer: (APPLE MANAGEMENT): I know, let's use dead dinosaurs and pollute the planet at the same time....
Me: Whaaaaaat?????
Me: Just saying.
P.S. I applaud Apple for their dedication to exquisite design and environmental/Recycling efforts, but....Huh?
Any thoughts?
How about assembling the electronics in 777's, MRI machines, F-35's, drones, nuclear subs, etc., etc.
The real issue is that while Chinese wages have increased over the years, it's still cheaper than the U.S., there are no labor unions to contend with and workers work 6 day weeks and 10 hours a day. So I think Apple is being disingenuous.
I also think the "lack of skill" argument is bogus because of the above, because of the examples that Christopher126 gives and because manufacturing output in the U.S. actually peaked two summers ago, but it didn't result in a lot of job growth because so much was automated.
I have always felt that manufacturing should take place near where the products are sold so that the communities where the products are purchased get the benefit of the jobs.
And if Apple really cared about the environment, they wouldn't create products that can't be repaired by third parties and where end users can't replace/upgrade battery, memory and storage.
I also think Apple is holding out to see if Trump isn't re-elected with the expectation that if he isn't and especially if the Senate flips, all of the tariffs will disappear with the next administration. Or that Trump will change his mind again as he often does or that they'll actually be an agreement with China.
Sure we we can build 777’s, MRI machines, fighter jets, submarines, etc... but we don’t sell hundreds of millions of those things every year, and each unit does not sell for millions/billions of dollars and we don’t really have to compete with Asian competitors that can sell the same product at substantially lower prices.
Plus there are so many factories that it’s easy to accelerate manufacturing from plans to a finished product faster than we could because of the decline of factories in this country.
If this trade war doesn’t end, the next casualty will be the American farmer. That’s the last of our heritage in making things with our hands.
Just wait till you have to buy Chinese produce.
Where do you think a lot of those factories dump their waste? Farmlands.
- The Prius, while technologically advanced, largely relies on workforce knowledge already available in the USA.
- The Prius' more complex components (electronics) are lightweight and not made in the USA. I.E. Merely assembly.
- The heavier components of the Prius are all geographically advantageous to be made in the USA. Which is also why Toyota produces their highest volume sellers in the market which they will be sold.
- In 2018, the Toyota family of Prius vehicles sold ~7,300 per month on average, on average Apple sells this volume of iPhone in the USA per hour.
- The USA would require a, backwards, multi-generational change in education and training in order to produce the iPhone in the USA.
- Other asian-sourced components of the iPhone would still need to be moved to the USA, so the argument that moving production to the USA would safe fossil fuels is false, since much more freight will be required to move the individual components into the USA.
- Apple already did a taste test with the MacPro and it led to significant bottlenecks in a product that sells in very low volumes.
Let's just ruminate on that 5th point for a moment: Multi-generational change in education and training. What does this mean exactly for the USA. Well, right now a child in the USA goes to school, and if presented the right opportunities the child will go onto further education in a university and then onto a tertiary level field of employment. Resulting in an individual who earns a significantly higher level of income for their time versus a factory worker in China. This also results in the significant USA GDP.The USA is built around this earning potential, it's reflected in the day to day costs that US residents experience as well as the range and quality of products available in the US market. It drives the US approach to labour as well as ecological advancement.
To change the USA into a workforce capable of producing the iPhone is a SIGNIFICANT STEP BACKWARDS. Whereby the workers would not be able to live above the poverty line or the cost of the iPhone would not be competitive in the market, and thus significant shedding of jobs and product advancement would be the result.
It is not a coincidence that Brazil and India have been selected as countries for new factories. These share the large population, low living costs and lack of widespread tertiary education required to implement manufacturing economies. The USA actually already exists in the sweet spot: IP generated largely inside the USA by USA workers on a high salary, the minimal cost outlaid for the manufacture of the device, all while maximum profit is extracted from the sale of the device in the USA and abroad. Moving manufacturing to the USA ruins this advantage. Why would the USA want to lose so much money in exchange for nothing more than seeing the word "China" replaced by "USA". That is literally insanity.
#Sad
And no, China does not have a legal system anywhere close to what we in the U.S. or any other Western country has, so your note about "China has employment laws with minimum wage, age and working conditions" doesn't actually exist outside of what the CCP allows. and they can be very fickle, and very corrupt.
Apple knows that.
China knows that.
Trump is still trying to figure it out, but it appears he's starting to gain a glimmer of that reality as it becomes increasingly apparent that he, like Bush before him, entered into a fact-free, unwinnable war with no defined goals or end-points.
Further, Trump is not winning. Over the past year, the S&P has not moved an inch (well 6 points) while the Shanghai is up 4.4%. Rhetoric, even TrumpRhetoric, doesn't change realtiy.
Apple and others are in China for one reason and one reason only: China does it better, faster and cheaper than anybody else. Nothing Trump can do will change that -- particularly a TrumpTax on the American people.
You do realize the States use to manufacture circuit boards, in large numbers, back when it was considerably more difficult and labor intensive than it is now?
They may have those things on paper, but go to the factories. I have. You don’t like the wages/hours you work? See ya. Next man/woman up.
We perhaps shouldn't be throwing so many stones.
Until Trump fixes this, he won't get another 4 years. He knows that.