Apple has not yet found any suitable country as an alternative to China, even though it has tried to diversify the iPhone supply chain. China's skilled manpower, well -organized infrastructure and longtime experience in production have forced Apple to be dependent on the country. In such a reality, the Trump administration has recently released some electronic products, especially smartphones and computers. According to a US Customs and Border Protection, the products will be free from the tariffs of 5 percent of Trump's announcement and 120 percent imposed on China. As a result of this escape, Apple's pressure has dropped somewhat, but the need to find China's alternative in the long run.
Due to the fact that Apple is dependent on China
Unparalleled production system: China's industrial infrastructure is unparalleled. There are large factories (eg Foxconn's 'iPhone City') in cities like Shenzhen and Jhengzh, where hundreds of millions of devices can be produced every year. There are thousands of specialized suppliers in this system, who provide display, batteries, sensors, etc. and are all close to each other.
The time of launching the iPhone and the capacity to increase production depends on China's huge skilled workers and skilled logistic network. No other country can change with this skill and speed.
For example, only Foxcons hire millions of workers in China and hire more people in the busy season. Such skilled and dynamic labor force and organized production structure are a major challenge elsewhere.
Spend skills: Wages have increased in China. In 2021, an average of $ 1-5 per hour was to pay, which was $ 2-2 a decade ago. However, the cost of production is still lower than in India, Vietnam or Mexico. The reason is that the cost of production in China is low and Apple has made a good relationship with the suppliers for a long time. At the same time, the Chinese government provides various benefits. For example: tax deductions and cheap land.
A large amount of investment is needed to set up new factories for transfer of production, train employees and to rewrite the supply system. For example, the cost of setting up factories in India, irregular electricity supply and poor transport infrastructure increased.
Deeply connected network: Apple's supply chain contains more than 20 major suppliers (eg, BOE technology, luxury prison) in China. These suppliers are connected to each other, providing everything from small screws to advanced chips. If this network collapses, it will disrupt Apple's device production and will be formed through coordination for years.
Even if Apple removed some factories or production systems in other countries, important ingredients (eg, OLED display from BOE or TSMC chip in China) come from China, which keeps the supply chain with China.
Specialized skill
Due to the long experience, Chinese workers produce the product accurately, which is essential for apple's complex products. This experience helps them solve problems quickly and produce less defective products. However, there is some improvement in countries like India or Vietnam, but there is still lack of skills. For example, the number of errors in the first phase of the iPhone was high due to less experienced workers in 20 years, but it has improved now.
Geopolitical and Strategic Balance: Apple is seeking to bring diversity due to US-China trade tension, tariffs (eg, Trump's first term of tariff) and Covid-1 lockdown (eg, disruption in production in Shanghai in 2022). However, if China gets out of China quickly, relations with the Chinese government can be bad, which can damage Apple's huge market (20 percent or about $ 1 billion in worldwide sales in 2021).
So Apple's strategy is to bring diversity to the dust. India now produces 3-5 percent of the iPhone (which was 5 percent in 20) and Foxcon and Wistron are operating in Tamil Nadu. Airpod and some MacBooks are produced in Vietnam, and Thailand and Malaysia are producing small ingredients. However, China still controls about 5 percent of the iPhone production.
Time and investment barrier
Spending billions of dollars to transfer production and planning year after year. For example, Foxconn has invested $ 1 billion in India since 20 years, which has increased the production of iPhone somewhat. However, it is time for workers to train, ensure stable electricity supply and build a network of local suppliers.
Meanwhile, Apple's 'Just-in-Time' production model has been created for China. This is a method where the ingredients needed for production are brought only when it is needed. Through this, Apple enhances their inventory or storage efficiency and the production process is faster and the cost is reduced.
This model is specially created for China's infrastructure. Because China has a very advanced and well -organized supply chain, skilled workers and rapid coordination. However, if Apple wants to transfer production to another country, it may be difficult to implement the same model there. Because, there may be a lack of infrastructure, supply chain and skilled workers, which can cause delays in the production process or quality problems. Alternative zones bring delays or risk to quality problems to restructure this model.
Tim Cook that thinks about finding alternatives
Meanwhile, Apple CEO Tim Cook has repeatedly acknowledged China's important role and spoke of efforts to diversity. In an interview with Fortune on the 27th, Cook said, “There is an incredible system for production in China,” he said. It's not just the cost; Skill and the ability of a large number of people. It is a unique combination of tool, accuracy, professional skills. '
“We need advanced tools for our products,” he said in an interview with Bloomberg on the 21st. In addition to this tool, the materials we use are more accurate and sophisticated. This capacity is only in China in particular. '
“We always try to diversify our supply chain,” Cook said while publishing a financial report of 20222. So we have expanded production in India, Vietnam and other parts of Asia. It is not a matter of leaving China; It is the subject of creating elasticity and flexibility. '
At an event in India in 2021, Cook commented, 'India is a very exciting market and we are producing (iPhone) here and we will continue to expand it.
“We are an international company and we do not want to be additional dependent on one place,” Fox Business told Fox Business in 2021. However, the supply chain cannot be removed by pressing the switch – it is a long year journey. '
Cook's comments reflect a realistic view. China's production dominance is established not only because of cost, but also on the basis of skill. Although Apple is investing in the option, it is not realistic or immediately possible to transfer the production fully.
Current status of diversity: Apple has made progress to reduce China's dependence till 2021. However, its speed is slow.
India: Bhoomi5-7 percent of the iPhone production is produced. For example: iPhone 1, iPhone 4 model. In addition, Foxcon, Wistron and Pegatron operate the factory in Tamil Nadu. The Government of India 'Make in India' has helped incentive (subsidy of $ 9.5 billion). However, labor disputes and infrastructure deficiencies are creating a challenge for Apple.
Vietnam: Airpod, Apple Watch and some MacBook are added here. Supply companies such as Goertech and LuxShaya have expanded their activities here. However, the small population of Vietnam (1 million vs. China's 9.5 billion) creates a limit to increasing production.
Other regions: Other regions, such as Malaysia and Thailand, produce small material for Apple and are examining the possibility of rally in Mexico in the future. However, these are still initial efforts.
Despite these steps, China is the basis for Apple's production. For example, the iPhones added to India are also often used by China-built elements and the high-end models (eg iPhone Pro series) are still mainly made in China. Because their complications are very high.
The production system is required for complete relocation
Huge investment: It can cost $ 1-5 billion in a decade to build infrastructure like China.
Time: Millions of workers training and establishing local suppliers can take 3-5 years in every region.
Market Risk: Lost relations with China can damage Apple's sales, which gives the United States equal revenue.
Quality Control: The new regions need to maintain high standard and accuracy like China. For example, when the iPhone display is created in China, 5 percent is made accurately.
Apple did not find China's alternative because no single country was able to achieve the three main elements of production capacity – the efficiency, efficiency and speed together. Tim Cook has highlighted the importance of China's unique capacity and is trying to reduce the risk by carefully expanding in India, Vietnam and other regions. However, diversity is a slow and expensive process, and the dominance of Apple's developed in China will continue for years, despite the geopolitical pressure of Chain.
