Apple, Microsoft, Google look to move production away from China. That’s not going to be easy

Health, Fitness & Food

Customers look at the Apple’s new iPhone 11 series smartphones in an Apple retail store on East Nanjing Road in Shanghai.

Alex Ta | SOPA Images | LightRocket | Getty Images

With the U.S.-China trade war last year and the outbreak of the new coronavirus, American technology firms Apple, Microsoft and Google have reportedly looked to move more production of their hardware products out of the world’s second-largest economy. 

But reducing reliance on China won’t be easy. 

“China manufacturing is far more embedded into American supply chains than ever before,” Sean Maharaj, managing director at AArete, a global  management consultancy.

Eyes on Vietnam, Thailand

Google and Microsoft are accelerating their efforts to shift production of hardware to other parts of Asia, the Nikkei Asian Review reported last week. 

The problem for all these countries is that moving supply chains quickly will be a tough task and China will still have to play a major role. That might mean mitigating risk is a lot harder. 

The Nikkei, citing people with direct knowledge of the matter, said Google is set to begin production of an upcoming low-cost smartphone, rumored to be called the Pixel 4a, in Vietnam as soon as April. The upcoming flagship smartphone will also be manufactured there in the second half of the year, according to the report.

Google has also asked a manufacturing partner in Thailand to prepare production lines for its so-called smart home products, such as voice assistant-enabled speakers, Nikkei said. Meanwhile, Microsoft is hoping to start production in Vietnam in the second quarter for its Surface line of notebooks and desktop PCs, it added.  

Both of these companies’ hardware has been mainly produced in China until now. Microsoft declined to comment while Google did not respond to two requests for information when contacted by CNBC.

Last year, Apple was reportedly looking to start a trial for the production of its AirPods in Vietnam and asked suppliers to look into moving 15% to 30% of production from China to other parts of South East Asia

Apple did not respond to a request for comment when contacted by CNBC. 

Components ‘choke point’

To understand why, it’s important to break down the manufacturing process. P.S. Subramaniam, partner in the strategic operations practice of Kearney, explains there are electronic components like displays and memory, modules such as cameras, and the assembly of the finished goods. 

Around 40% of finished goods come from China globally today and there is capacity in other areas of the world, Subramaniam said. So it’s “easier (to) diversify away from China in the short term (3-6 months) for most companies which have well developed product and assembly process documentation,” he added.

Meanwhile, around 60% of modules are made in China. That’s harder to move away “but still feasible”, Subramaniam said.

Shifting manufacturing locations helps diversify risk but isn’t a cure-all, and in fact could become a game of whack-a-mole.

Bryan Ma

VP of devices research at IDC

The components part is a bigger issue. 

“This is a singular choke point as components are a necessary ingredient in modules and finished goods assemblies. This is very hard to move as it requires entire ecosystems, Subramaniam told CNBC. 

Moving component manufacturing outside of China will also be difficult given how entrenched it is and how long it would take to build capacity in another country.

“Some assembly could be moved elsewhere, but these production lines take time to set up, and moreover no other country has the supply of labor as China,” John Harmon, senior analyst at Coresight Research, told CNBC.

On top of that, suppliers for components that companies rely on will have their manufacturing in China. That could make any move for an American technology firm to diversify a much longer process.

“Other suppliers Chinese, Taiwanese, Japanese or Korean which have set up facilities around these manufacturing plants in China will have to also diversify, which would make this switch a little bit less quick,” Neil Shah, a partner at Counterpoint Research, told CNBC. 

‘Turning an aircraft around slowly’

AArete’s Maharaj said that diversifying supply chains away from China can happen, though it will be slow.

“This is like turning an aircraft around slowly,” he told CNBC. ”I think many companies have been seriously exploring supply chain risk mitigation strategies.”

“When corporations want to move quickly and make investments, they can. And, they work closely with local governments and businesses to make it happen,” Maharaj said. “Given the above momentum — i.e. South Korea, Taiwan, Vietnam etc. — this could all play out more quickly than we had initially expected.” 

Ultimately though, moving some production out of China may not be something that reduces risk for companies significantly.

“Shifting manufacturing locations helps diversify risk but isn’t a cure-all, and in fact could become a game of whack-a-mole,” Bryan Ma, vice president of devices research at IDC, told CNBC. “The coronavirus has already spread to other countries, while trade war tariffs similarly could’ve targeted other countries over time.”

Products You May Like

Articles You May Like

Bill Gates says it’s ‘outrageous’ that Americans still can’t get coronavirus test results in 24 hours
Trump says U.S. will manufacture enough coronavirus vaccine doses for every American by April
CDC reverses controversial coronavirus guidance that said people without symptoms may not need a test
Trump says U.S. will remain open as UK imposes coronavirus restrictions: ‘We’re not going to be doing that’
Sweden’s high coronavirus death toll could be linked to mild flu seasons, chief scientist says

Leave a Reply

Your email address will not be published. Required fields are marked *