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| Apple wants to increase production outside China |
Apple intends to reduce its reliance on suppliers operating in China, while seriously considering India and Vietnam as potential alternatives. Beijing's tough coronavirus policy tops the list of reasons to look elsewhere.
The Wall Street Journal reported that the company, which has struggled with the policies of Xi Jinping's response to the coronavirus, has told some of its contract manufacturers that it wants to expand production outside China.
The company's supply chain in China faces regular shutdowns due to the coronavirus. These policies impose strict rules that can affect the work of our contractors.
Apple hopes its partners in the rest of the world can weather the recession as concerns about the shutdown in China persist.
More than 90% of Apple products such as iPhone, iPad and MacBook devices are manufactured in China by third parties.
The company is in talks with some manufacturers to find alternatives as it faces manufacturing hurdles due to China's coronavirus policy.
Closures in Shanghai and Kunshan forced the US company to halt production at three suppliers. This decision could have bigger repercussions, most notably the shutdown of Pegatron, which accounts for 30% of all iPhones.
Pegatron said in April it had halted operations at its manufacturing sites in Shanghai and Kunshan in compliance with government regulations.
Similarly, MacBook maker Quanta and iPad maker Compal are two other vendors that have suspended work to comply with coronavirus guidelines.
31 companies in Shanghai operate manufacturing facilities that supply Apple. In addition, the shutdown in Shanghai led to a sharp decline in Apple's revenue in the April-June quarter as the company reported revenue losses of up to $8 billion.
Apple wants to manufacture more products in India and Southeast Asia
In addition to the shutdown, obstacles include strict travel restrictions, which have hampered Apple's ability to send engineers to suppliers and forced the company to look for alternative ways of operating.
The authoritarian nature of the Chinese government, including tensions with the United States, is also a potential problem for Apple.
A future trade war could pose problems for companies that depend on countries for a large part of their production.
“We estimate that these limits are between $4 billion and $8 billion, mostly centered around the Shanghai Corridor,” said Apple CEO Tim Tucker.
The company's chief financial officer, Luca Maestri, added: "The disruptions related to the coronavirus have also affected customer demand in China.
Foxconn, Apple's largest supplier, has maintained production so far at its largest iPhone assembly plant in Zhengzhou, China.
Apple's operations in India and Vietnam represent only a small portion of the total production. But every country is seeking further expansion to dismantle supply chains centered in China.
Among the two, the company prefers India as the country closest to China due to its relatively small population and cost.
However, the lukewarm Sino-Indian relations mean that Chinese companies may find it difficult to establish themselves in India. Meanwhile, the current smartphone manufacturing center in Vietnam is seen as more attractive to sellers.
Apple is asking its suppliers to work more on new product manufacturing projects outside of China. Currently limited production in India and Vietnam could become major manufacturing hubs if manufacturing partners agree to operate outside of China.