Tech companies slowly move production away from China

In the coming weeks, Apple and Google will unveil their latest generation of smartphones, jockeying to set the new devices apart from previous models. But consumers won’t notice one of the most important changes: Some of these phones won’t made in China.

A very small portion of Apple’s latest iPhones will be made in India, and Google’s latest Pixel phones will be produced in Vietnam, people familiar with their plans said.

The change is a response to geopolitical tensions and growing concerns about supply chain disruptions induced by the pandemic that has involved China in the past few years. China has long been the world’s factory floor for high-tech electronics, unmatched in its ability to secure legions of highly skilled workers and the production capacity to handle demand for the next hot device.

But American companies are seeing greater risk there — a perspective forged during the Trump-era trade war, with its tit-for-tat tariffs, and cemented by China’s saber-rattling after Speaker Nancy Pelosi’s visit to Taiwan last month. Happened. They fear that a massive supply chain base in China could put them in the middle of their escalating conflict with the United States over Taiwan.

China is still, by far, the most prominent consumer electronics manufacturer. But it is not just smartphone production that is going out of the country. Apple is producing iPads in North Vietnam. Microsoft shipped the Xbox game console from Ho Chi Minh City this year. Amazon is making Fire TV devices in Chennai, India. Many years ago, all these products were made in China.

On Wednesday, China announced that factory activity contracted for the second straight month in August, according to the country’s closely watched survey of purchasing managers.

“The empire of manufacturing in China is shaking,” said Lior Susan, founder of Eclipse Venture Capital, which invests in hardware and manufacturing start-ups. “More and more capital is going to take manufacturing out of China and find an alternative.”

“Everyone is thinking about moving forward, even if they’re not acting yet,” said Anna-Katrina Shedletsky, founder of Instrumental, a Bay Area company that remotely monitors assembly lines for electronics companies. does.

When the first outbreak of COVID-19 in early 2020 shut down factories in China, shutting down sales plans of several companies, including Apple, which had to cut its quarterly sales forecast because it couldn’t make iPhones.

The company’s operations team began looking at alternative manufacturing locations in China to guard against future shutdowns, said three former employees, who asked not to be identified because they were not allowed to speak about their work at the company. Is.

Vietnam, which Apple has already earmarked for production of AirPods in 2020, has become a much talked about option, said one of the people. Since then, Apple has started producing its watch in the country and has shifted some iPad manufacturing there. In Apple’s most recent list of its top 200 suppliers, 20 use factories in Vietnam. By comparison, 155 companies operate factories in China.

Apple plans to assemble and package this year’s iPhone 14, a small part of the company’s flagship device, in India for the first time. While most of the initial and most significant production for that device is taking place in China, Apple will move some of its overall iPhone production to India later – mainly as a way of assessing future manufacturing potential, from the plans. said two acquaintances.

Even as Apple pushed through the plans, the company was careful not to oppose China’s ruling Communist Party because most of its products are still made there. As China conducted military exercises around Taiwan during Ms Pelosi’s visit, Apple asked its Taiwanese suppliers to label components made in “Chinese Taipei” or “Taiwan, China”, according to a report in Japan’s Nikkei newspaper. reminded to.

By far the biggest beneficiary of the war on China has been Vietnam.

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