China has always been the core of Apple's supply chain for a long time, and about 80% of the company's manufacturing partners have branches in China.

As Apple begins to shift its supply chain, India and Vietnam have become the biggest beneficiaries. However, as new companies join every year, the number of Chinese manufacturers in Apple's supply chain has hardly been greatly affected.

A potential disruption to Apple’s global supply chain could drive up purchasing costs for Apple’s massive consumer base, as manufacturers, shippers and brands grapple with the challenges of manufacturing products in less mature regions and managing multiple entry and exit points. question.

Industry celebrities such as Terry Gou and Zhang Zhongmou have warned that the global technology supply chain is at risk of breaking, and that replicating a huge supply chain spanning dozens of countries, thousands of companies, and millions of workers is not feasible in the short term.

Every year, Apple lists its top suppliers that make parts for its iPhones, MacBooks and other devices. By 2022, the number of companies on this list has reached 188.

As the list shows, China has long been at the heart of Apple's revered supply chain: about 80% of the company's manufacturing partners have branches in China. However, as the international situation changes, the transfer of production bases is changing the way Apple devices are produced. The components required for Apple's current devices are produced in multiple locations, then shipped to several locations for assembly, and finally shipped to customers around the world.

India and Vietnam have emerged as the most popular new production hubs in the nearly decade since Apple began releasing supplier lists. The number of suppliers in both countries continues to increase. Their common features are: strengthening ties with the United States and cheap labor.

However, China remains the most critical business center in Apple's supply chain. While more Apple production centers have popped up across Asia since 2012, the overall number of Chinese manufacturers in Apple's supply chain has barely changed over the past decade, with few new Chinese companies joining the ranks each year.

US media has collected data on more than 370 Apple suppliers and their factory locations, which reveals which of Apple's manufacturing partners are building new production capacity and where new factories will be built. The results show that the Cupertino, California-based company's producer network is increasingly expanding into developing countries.

In this expansion process, Vietnam and India are the biggest beneficiaries. Smaller production sites are also emerging in other parts of Asia. Producers from the United States and Japan have reduced their footprint in China, although Chinese companies are quickly adding to the list of suppliers. Most of Apple's device manufacturing plants are still located in China, and China will remain an integral part of Apple's supply chain. But there is no denying that the shift to more decentralized production networks is accelerating.

This can be seen from the busy scene on Vietnam's Highway 17. Countless trucks and buses come and go here every day starting at dawn. The highway is seen as a key artery to the world's latest electronics hubs. Just a few kilometers away, a group of very tired-looking workers had just finished their night shift and walked out of an electronic equipment factory. A recruiter held a megaphone and shouted orders to a crowd outside another factory, mostly recent high school graduates hoping to find jobs at Foxconn, Apple's largest supplier.

Another recruiter said: "There are about 150 to 200 people applying here today, and almost all of them can find a job."

Vietnam's Bac Ninh province is one of the beneficiaries of the upheaval in the global electronics industry, especially as Apple's $300 million empire is reshaping its supply chain and asking suppliers to move production facilities to other parts of Asia.

However, as Apple reshapes its global supply chain, its equipment supply is likely to be disrupted, which will also push up the purchase costs of Apple's huge consumer base. High-end equipment is likely to become more expensive to manufacture as manufacturers, shippers and brands grapple with the issues of manufacturing products in less mature regions and managing multiple entry and exit points.

Chris Miller, author of "Chip Wars: The Battle for the World's Most Critical Technology," said: "Apple is the leader, one of the world's largest assemblers of electronics and the most profitable. company. So Apple has unparalleled influence when it comes to what it demands from its suppliers and how they operate."

01 Historic Change

The tariff war triggered by Donald Trump's presidency has greatly affected Apple's supply chain plans. But in fact, Apple had already set the tone for supply chain diversification long before that.

When China's rapid economic growth began to push up workers' wages, many companies began looking for new manufacturing locations. Governments in India, Vietnam and elsewhere have taken steps to attract Apple's business, such as providing investment subsidies and improving infrastructure.

Apple and companies like it are now pouring billions of dollars of investment into these countries. In 2012, there were no Apple-related suppliers in India, but now the number has increased to 14. The new iPhone 15 will be the first Apple model to ship directly from India, having only started shipping from factories in China just a few weeks ago.

The number of companies assembling Apple products in Vietnam has quadrupled in the past decade. The United States will have fewer Apple suppliers in 2022 than a decade ago, but they have also received many major investment projects. For example, chipmaker TSMC has committed to investing US$40 billion to build two advanced manufacturing plants in Arizona, the first of which is expected to be put into production in 2025.

This historic shift is expected to create millions of jobs outside China. In Vietnam, data in June 2022 show that the number of employees in the electronics industry reached 1.3 million, which is four times the number in 2013. The Indian Mobile Phones and Electronics Association estimates that the industry has created as many as 1 million direct and indirect jobs in India since 2018.

Outlining the overall industry situation, Jeffrey Jaensubhakij, chief investment officer of Singapore's sovereign wealth fund GIC Pte, said: "Apple's supply chain restructuring does provide significant opportunities for the companies involved, but also for various regions. opportunity."

However, spreading production across several countries increases the risk of shipping delays and rising costs. Not to mention that some of these countries lag far behind China in terms of infrastructure, labor availability and general supply chain expertise.

"As Apple reshapes its supply chain, the already efficient supply chain will be disrupted and fragmented, which will increase costs," Zhansuhaki explained.

However, Apple's new manufacturing center still accounts for a relatively small proportion of overall production, and it is unclear what impact its product prices will have. A company spokesman declined to comment.

Bloomberg Intelligence analyst Steven Tseng said: "The price of Apple products may indeed rise to cover the potential costs of supply chain shifts. That is, when the rising costs are eventually amortized to the products When prices are neutral, this could hurt market demand."

Although China has advantages that India cannot match in the short term, Veena Jha, CEO of consulting firm IKDHVAJ Advisers, does not expect Apple's supply chain shift to have much impact on the retail price of iPhones.

She said: "We may see that Apple's high-end devices may become more expensive early in the supply chain shift process due to the complexity of the design and manufacturing of components. But in the long term, these devices will eventually become the same Chinese production costs are comparable."

02 Supply chain diversification benefits Vietnam

Assemblers in Taiwan still dominate Apple's supply chain. Most of their production still takes place on the mainland, but they are also investing heavily in expanding production capacity overseas. Vietnam was an early beneficiary of their attempts to diversify, and now Foxconn and Pegatron are planning major investments in India.

In the rice fields of Bac Giang, a US$1 billion Foxconn complex is rising, covering an area equivalent to 93 American football fields, and is expected to eventually be used to mass-produce MacBook computers. Such a large investment had an economic chain reaction: According to the official in charge of the Bac Giang industrial park, 25 of Apple's suppliers in China were stationed in the industrial park, but this ultimately brought more than 300 subcontractors in Bac Giang alone. Businessmen opened factories.

Picture: Foxconn and Luxshare Precision’s factories in Bac Giang Province, Vietnam

Chinese companies such as AirPods maker Goertek and BYD, which operates an iPad assembly plant, are also expanding in northern Vietnam. Vietnam is attracting technology manufacturers through measures such as tax cuts and land lease fee exemptions. Officials in the province are also paying close attention to Apple's movements. They even provide services to Apple employees at night to avoid the impact of jet lag, and are willing to provide land for the construction of dormitories for factory workers.

All these efforts have achieved the desired results. The electronics industry accounted for 32% of Vietnam's exports last year, about twice as much as a decade ago. "Economically speaking, this is a potential growth driver that no country can ignore. It's a once-in-a-lifetime opportunity," said Sonal Varma, an economist at Nomura Holdings.

03 Is the supply chain shift just begin?

India is trying to catch up with China and sees Apple as an important enabler to become the next manufacturing powerhouse with a huge domestic market.

Earlier this year, Apple CEO Tim Cook reiterated his commitment to investing more in the country during a meeting with Indian Prime Minister Narendra Modi. India's prime minister is doing everything he can to build a closer relationship with Apple, including offering financial incentives to suppliers and imposing high import duties on companies that don't produce locally.

Currently, India produces about 7% of global iPhone production, three times the amount produced in the previous fiscal year. Overall, Indian electronics exports have quadrupled since 2018, reaching $24 billion last year.

Picture: Apple CEO Tim Cook attends the opening ceremony of India's first Apple retail store

All signs point to this being just the beginning. India's largest conglomerate, Tata Group, is acquiring an iPhone factory from Taiwan's Wistron in what could be the first step in the industrial company's efforts to become a true electronics giant. In August this year, Foxconn announced plans to build a factory in the southern Indian state of Karnataka to produce iPhone parts. It is also preparing to build a larger factory that will eventually assemble top-of-the-line Apple devices. This overall ambition brings Foxconn's new investment in India to more than $1.2 billion and could create tens of thousands of jobs.

However, the implementation of these projects is unlikely to be smooth sailing. In India and Vietnam, basic services such as water and electricity are less reliable than in China, and Apple's own supply chain ecosystem is less mature. Manufacturers often want to bring in experienced Chinese managers to build new factories, but inefficiencies in local visa approvals can limit the speed of expansion.

Still, many observers remain optimistic. Bank of America analysts led by Amish Shah wrote in June: "India is now working to resolve all remaining bottlenecks related to industrial factors of production while also focusing on improving the business environment."

04 No one can shake China's status in the short term

China will not lose its status as a major global equipment production center anytime soon.

Looking at the general trend, suppliers are definitely trying to reduce their business in China. U.S. and Japanese companies such as Dell, HP and Sony have borne the brunt. Even Chinese companies like Luxshare Precision, which is considered the most qualified emerging company to assemble iPhones, are now building factories abroad.

But at the same time, more Chinese companies that produce everything from displays to casings to circuit boards and batteries have joined Apple’s supplier list.

Figure: Number of Apple suppliers operating in mainland China, Hong Kong, and Taiwan, divided by headquarters location

For years, industry figures ranging from Foxconn Chairman Terry Gou to TSMC founder Chang Chang have warned that the global technology supply chain was at risk of fragmenting. Replicating a manufacturing giant that spans thousands of companies, millions of workers, and connects people around the world is not feasible in the short term.

Massive factories like Foxconn iPhone City are able to operate on such an astonishing scale thanks in large part to generous incentives and tireless support from China's local governments. Replacing these city-sized facilities will be a huge challenge, said Miller, author of "Chip Wars" and a historian at Tufts University's Fletcher School of Law and Diplomacy.