Apple mulls shifting 15%-30% of output from China amid trade war

Tech giant asks suppliers to review costs in Southeast Asia and Mexico

Jul 19, 2019 — Apple has asked its major suppliers to evaluate the cost implications of shifting 15% to 30% of their production capacity from China to Southeast Asia as it prepares for a fundamental restructuring of its supply chain, Nikkei Asian Review has learned.

The California-based tech giant’s request was triggered by the protracted trade tensions between Washington and Beijing, but multiple sources say that even if the spat is resolved there will be no turning back. Apple has decided the risks of relying so heavily on manufacturing in China, as it has done for decades, are too great and even rising, several people told Nikkei.

“A lower birthrate, higher labor costs and the risk of overly centralizing its production in one country. These adverse factors are not going anywhere,” said one executive with knowledge of the situation. “With or without the final round of the $300 billion tariff, Apple is following the big trend ,” giving itself more flexibility, the person added.

Suppliers admit that replicating this network elsewhere will take time, and China is likely to remain Apple’s most important manufacturing base for the foreseeable future. “It’s really a long-term effort and might see some results two or three years from now,” said one supplier. “It’s painful and difficult, but that’s something we have to deal with.”

The countries being considered for diversification include Mexico, India, Vietnam, Indonesia and Malaysia. India and Vietnam are among the favorites for smartphone diversification, the people said, who asked for anonymity as the discussions are private.

In April 2019, a imaginary “Open Letter from Steve jobs to Tim Cook” presaged the current planning.

“Diversify our supply chain out of Asia. Tim, Tim, Tim…  I love Asia, but you’ve bet our entire company on the belief that there will never be another war (shooting or trade) there. Meanwhile, China has become more aggressive and there’s a madman with nuclear weapons perched a few miles from our main supplier for iPhone parts. Wake up! We need to sourcing our parts in geographical areas where war is less likely.”

Sources:

https://asia.nikkei.com/Economy/Trade-war/Apple-mulls-shifting-15-30-of-output-from-China-amid-trade-war

https://www.inc.com/geoffrey-james/an-open-letter-from-steve-jobs-to-tim-cook.html 

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