Tech

Tech companies slowly move production out of China


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

A tiny fraction of Apple’s latest iPhones will be made in India, and part of Google’s latest Pixel phone production will be done in Vietnam, people familiar with the matter said. they said.

The change is a response to growing concerns about geopolitical tensions and pandemic-induced supply chain disruptions involving China over the past few years. China has long been the world’s factory for high-tech electronics, unparalleled in its ability to secure a skilled workforce and manufacturing capacity to meet the next hot equipment demand.

But American companies are seeing more of a risk there – a scenario created during the Trump-era trade war, with tit-for-tat tariffs, and bolstered by post-Chinese vandalism. Speaker Nancy Pelosi’s visit to Taiwan last month. They fear that placing a supply chain primarily in China could push them into the midst of an escalating conflict with the United States over Taiwan.

China is by far the most dominant producer of consumer electronics. But it’s not just smartphone manufacturing that is moving out of the country. Apple is manufacturing iPads in the North of Vietnam. Microsoft shipped Xbox consoles this year from Ho Chi Minh City. Amazon manufactured the Fire TV device in Chennai, India. A few years ago, all of these products were made in China.

China announced on Wednesday that factory operations contracted for a second straight month in August, according to a close survey of the country’s purchasing managers.

“The manufacturing empire in China is shaking,” said Lior Susan, founder of Eclipse Venture Capital, which invests in hardware and manufacturing startups. “More and more capital will pull manufacturing out of China and find alternatives.”

“Everybody thinks about moving, even if they haven’t done it yet,” says Anna-Katrina Shedletsky, founder of Instrumental, a Bay Area company that oversees assembly lines for electronics companies remotely. motion.

When the first outbreak of Covid-19 closed factories in China in early 2020, the closures impacted the sales plans of many companies, including Apple, having to cut their sales forecasts. quarterly numbers because iPhones could not be produced.

The company’s operations team is starting to consider alternative production sites as a precaution against future shutdowns in China, three former employees who requested anonymity said because they were not authorized to talk about the work. theirs at the company.

Vietnam, where Apple has been preparing for AirPods production in 2020, has become a much-discussed option, one of them said. Since then, Apple has started manufacturing its watches in the country and moved some iPad manufacturing companies there. In the most recent list of top 200 Apple suppliers, there are 20 factories using in Vietnam. By comparison, 155 of the companies operate factories in China.

Apple plans to first assemble and package a small portion of the iPhone 14, the company’s flagship device, in India. While most of the initial and most important production for that device is taking place in China, Apple will move some of its overall iPhone production to India later – mostly as a way to market the product. evaluate future production possibilities there , two people familiar with the plan said .

Even as Apple pushes ahead with its plans, the company is careful not to offend 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 reminded its Taiwanese suppliers to label components destined for China as made in “Taiwan” North China” or “Taiwan, China” According to a report on Japan’s Nikkei newspapers.

Apple, Microsoft and Amazon declined to comment.

By far, the biggest beneficiary of wariness against China is Vietnam.



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Foxconn, Apple’s largest contract manufacturer, just signed According to state media, a $300 million deal to expand in northern Vietnam with a new factory will create 30,000 jobs. The latest spending is in addition to the $1.5 billion that the Vietnamese government says Foxconn has invested in the country.

In Northeastern Vietnam’s Bac Giang and Bac Ninh provinces, Foxconn and other contract manufacturers operate large factories in the beautiful countryside that was once rice paddies and farmland, surrounded by temples, banyan trees and ponds. Now, workers from all over the world flock to these facilities in search of work.

A billboard outside a Foxconn factory in Bac Ninh advertises that the company is urgently hiring 5,000 workers with a monthly salary of about $300 for an entry position. The monthly salary is less than half – 4,500 yuan, or about $650 – that Foxconn is offering to new employees at its assembly lines in Shenzhen, southeastern China.

The pay disparity highlights another reason why companies are looking for new production options. Over the past decade, manufacturing workers in China have tripled their annual earnings to more than $9,300, according to the country’s Bureau of Statistics.

Foxconn declined to comment for this article.

Tariffs also increase production costs in China. In 2019, President Donald J. Trump levied a 15% tax on technology products such as smart speakers, smartwatches, and wireless headphones.

As the tariff war intensified, Google looked at alternatives to China. This year, Google plans to move production from Foxconn’s facilities in southern China to Vietnam, where it will begin assembling its latest Pixel 7 model, two people familiar with the plan said. plan said.

The company expects Vietnam to supply up to half of next year’s premium Pixel phones, the people said.

But Google’s plans for phones next year show how difficult it will be for companies to move out of China entirely. Google is exploring a foldable phone for 2023, but manufacturing such a device, using newer display and hinge technology, will likely require production close to suppliers. main level in China, these people said.

Google declined to comment.

For more than two decades, the tech industry has established a vast collection of suppliers that make the wires, buttons, and essential machinery for assembling smartphones and computers. Concentration of suppliers reduces shipping costs and makes it easier to repair defective parts.

“We have a long way to go to diversify our entire supply chain outside of China,” said Mehdi Hosseini, a financial analyst at Susquehanna International Group who focuses on technology supply chains.

So, for alternatives to China, proximity matters. Interest from Foxconn and other companies has caused industrial property prices in Vietnam to spike by nearly a third since 2019 to $105/m2 (about $9.75/square foot), while Warehouse costs increased 20%, according to Cushman & Wakefield, a global commercial real estate company.

Five years ago, Trang Bui, General Director of Cushman in Vietnam, said that every other month, she showed customers industrial land once. Now, she travels daily with clients from the United States, Taiwan, Korea, Japan, Europe, and China to view real estate for factories.

“If you go to Vietnam, all you see is energy,” says Bui. “For an outsider who hasn’t visited the country yet, it might come as a bit of a shock.”

Vo Kieu Bao Uyen contribution report.



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