Tech giant Apple could shift 15-30% of its production capacity out of China. Could this initiate a domino effect of manufacturers leaving the country?
Apple has asked its major suppliers to evaluate the cost impacts of shifting 15% to 30% of its production capacity from China to Southeast Asia, a local news service has reported.
The tech firm is one of the world’s most valuable and iconic companies, it has built its global success by relying heavily on Chinese facilities to manufacture and assemble its smartphones, a relationship which has lasted for several decades.
The great withdrawal
According to Nikkei, the request was raised because of ongoing trade disputes, with President Trump initiating what many perceived as a technology tariff fight between Washington and Beijing. However, multiple sources indicate that even if these issues are resolved there will be no turning back for Apple.
Other factors influencing the strategic move include higher labour costs and the risks associated with heavily depending on just one country for much of your manufacturing requirements.
China has been able to provide millions of workers to cater for Apple’s growing order demands, and it has given the company access to an extensive ecosystem of components, logistics and talent. If the move goes ahead, it will be a “painful and difficult” process, one supplier quoted by Nikkei said.
At least 90% of Apple production still occurs in China, and any shift away from the country would cause the tech giant major economic disruption. It has not set a deadline for the suppliers to finalise business proposals.
More companies to follow?
We have already seen wages and production prices pushed up in China, which could mean the country isn’t as attractive as it once was for firms to relocate.
Manufacturers often offshore for cost reasons, so without the temptation of such large savings, the case for relocating is less appealing. In addition, domestic production can shorten lead times and quality control can be more rigorous.