On a dusty stretch of the deafening road from Chennai a Bengaluru there are three colossal and anonymous buildings. Inside, away from traffic noise, is a high-tech facility managed by Foxconn, a Taiwanese manufacturer. Short distance, Pegatronanother Taiwanese technology company, has set up its own factory. salcomp, a Finnish gadget maker, has installed one not far away. Further west is a 500-acre campus run by daddy, an Indian conglomerate. What these closely guarded facilities have in common is their customer: a demanding and secretive American company known locally as “the fruit company”.
The proliferation of factories in South India marks a new chapter for the largest technology company in the world. The extraordinary success of the last two decades of Manzana – revenues up 70-fold, stock price 600-fold, market value at $2.4 trillion – is partly the result of a big bet by China. Manzana bet on the factories of Chinawhich now produce more than 90% of its products, and courted Chinese consumers, who in some years contributed as much as a quarter of China’s income. Manzana. However, economic and geopolitical changes are forcing the company to initiate a hasty exit. His departure from China marks a big change for Manzanaand is emblematic of an even bigger one for the world economy.
The packing of Manzana proclaims “Designed by Apple in California”, but their gadgets are assembled along a supply chain that stretches from the Amazon until Zhejiang. In the center is Chinawhere 150 of the largest providers of Manzana They have production facilities. Tim Cookwho was chief operating officer of Manzana Before becoming CEO in 2011, he pioneered the company’s focus on contract manufacturing. regular visitor of ChinaMr. Cook has maintained good relations with the Chinese government, obeying its demands to remove applications and to keep Chinese user data locally, where it is available to the authorities.
Now a change is taking place. Mr. Cookwhich has not been seen in China since 2019, he is courting new partners. In May he entertained the prime minister of Vietnam, Pham Minh Chinhin the futuristic headquarters of Manzana in Cupertino. Next year it is expected that Manzana Open your first physical store in the India (whose prime minister, Narendra Modiis a fan of iPhone’s of gold).
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The two countries are the main beneficiaries of the strategic change in Manzana. In 2017, Manzana listed 18 major providers in India Y Vietnam; last year it was 37. In September, with much local fanfare, Manzana started making his new iPhone 14 on the India, where before it only manufactured older models. Last month it was reported that Manzana soon he would start manufacturing his laptops macbook in Vietnam. Some of the latest gadgets Manzana they show the path things are taking. Almost half of your headphones AirPods are manufactured in Vietnam and in 2025 two thirds will do so, according to the forecasts of JPMorgan Chase. The bank estimates that, while currently less than 5% of investment products Manzana are made out of Chinain 2025 the figure will be 25% (see figure 1).
As the production system Manzana changes, its suppliers also diversify outside of China. A crude measure of this is the proportion of long-term assets that Taiwanese technology and electronics companies have located in China. In 2017 the average figure was 43%. Last year it fell to 31%, according to our estimates using company data and Bloomberg.
The most pressing reason for the struggle is the need to spread operational risk. Two decades ago, the garment industry strengthened its operations outside of China after the epidemic SARS, which paralyzed supply chains. “SARS made it very clear to everyone operating in China that they needed a ‘China+1’ strategy.“, it states Dominic Scrivenof Dragon Capitalan investment firm based in Vietnam. The Covid-19 taught tech companies the same lesson. In the first half of this year, closures in Shanghai caused the temporary closure of a factory of the Taiwanese company how muchwhich was believed to manufacture most of the macbooks of Manzana. Customers had to wait months. Avoiding this kind of chaos is the “main driving force” of supply chain moves. Manzanaaccording to Gokul Hariharanof JPMorgan Chase.
Another reason is cost containment. Average wages in China have doubled in the last decade. In 2020, a Chinese manufacturing worker used to earn $530 a month, about twice as much as one in the India either Vietnamaccording to a study by Jethrus, a Japanese industrial body. The poor infrastructure of the India, with poor roads and an unreliable power grid, slowed it down. But it has improved, and the Indian government has sweetened the deal with grants. Vietnam it also offers tax breaks and vacations, as well as free trade agreements, including one recently signed with the European Union. The bureaucracy around visas and customs remains a nuisance. But the work ethic is similar to that of China: “Confucius still makes them get out of bed in the morning”, says a foreign executive in Vietnam.
Manzana also increasingly sees locals as potential customers, especially in the India, the world’s second largest smartphone market. The appliances of Manzana they are too expensive for most Indians, but that is changing. In July, Manzana reported that his income in the India had almost doubled in the last quarter, year over year, driven by the “engine” of sales of the iPhone.
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This is decreasing the relative importance of China as a consumer market. At its peak, in 2015, China represented 25% of the annual income of Manzanamore than all Europe. Since then, their share has been falling steadily, down to 19% so far this year (see Figure 2). By the looks of it, to Xi Jinpingthe president of China, would like it to fall even more. In an act of communist party held on October 16, urged to be “self-sufficient and strong in science and technology”, suggesting that foreign importers could face stiffer competition from Chinese domestic champions. He repeated the phrase five times.
This points to the last, but potentially most significant reason for the change in Manzana: the geopolitics. The growing tensions between China Y USA have made of China an increasingly uncomfortable place to do business. The heightened Chinese political sensitivity has added friction on many fronts. This summer, for example, Manzana had to ask Taiwanese manufacturers to label their products as “Made in Chinese Taipei” to appease the new and prickly Chinese customs officials (at the risk of angering the Taiwanese).
USA, meanwhile, has become more aggressive in its competition with China’s domestic tech industry. On October 7, USA announced the ban on “Americans” work for some Chinese chipmakers. That same day he added 30 Chinese companies to a list of “unverified” firms that his officials had failed to inspect. Apparently, Manzana was about to sign a deal to buy memory chips for the iPhone to one of those companies, YMTC, which is able to offer low prices thanks in part to a subsidy from the Chinese government. As a result of the export controls of USAthat agreement was frozen, according to the Japanese newspaper Nikkei.
The question is whether to move production physically out of China will be enough to avoid future repressive measures. Though Manzana manufactures more gadgets outside ChinaIt is no less dependent on Chinese companies to build them. Chinese manufacturers like luxshare, Goertek Y wingtech are taking on a growing share of the business of Manzana outside Chinese borders.
According to reports, luxshare Y Goertek they are making the AirPods in Vietnamaided by the fact that some Taiwanese rivals, such as Inventechave reduced their work to Manzana in recent years. Indian media reported in September that the Indian government may allow some Chinese companies to set up production facilities in the India. The share of Chinese companies in the production of electronic products for the iPhone will rise from 7% this year to 24% in 2025, according to JPMorgan Chasewhich predicts that in the next three years Chinese companies will increase their share of production across the entire product range of Manzana.
Could Chinese manufacturers out of China be the target of US sanctions? For now it is unlikely, believe Nana Liof impax, an asset manager. “They do not exist [proveedores] alternatives at hand with the same level of experience, efficiency and profitability”, so cutting them off would hurt US companies, he says. Over time, that could change. Countries like India Y Vietnam they are willing to create their own providers. Apparently, daddy is in talks with wistrona Taiwanese manufacturer, to manufacture iPhone’s on the India. Indian manufacturers report that “the fruit company” is quietly hunting for local suppliers.
Given the direction of the relationships between USA Y Chinasurely it is sensible that Manzana make some side bets, before the restrictions go further. Chinese companies outside China are safe for now, says a Western investor in Asia. But “the rope is tightening.”
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