Think that new iPhone you just got was made in China? Perhaps, but it also may have been made in Vietnam or India. That’s right, Apple, like many other companies, is reevaluating its commitments in China, and some, including Apple, are changing course. Apple has long been committed to outsourcing its iPhone production to Foxconn in China, capitalizing on the country’s relatively low cost, skilled workforce, and strong support industries. Now, though, geopolitical issues are factoring into strategic decision making as is China’s increasingly higher standard of living. Tensions between the United States and China are high, and both Beijing and Washington are keeping the threat of tariffs or other trade barriers on the table. That, coupled with the higher wage rates associated with China’s rising standard of living have many companies looking to at least reduce their dependency on China if not move away altogether.
China’s rise to become the world’s factory floor is unmatched. For years, companies have flocked to China hoping that the cost advantages of producing there would give them an edge over their competition. Today though, many feel that the risks associated with relying on China are just too high. Vietnam and India, with their relatively low wage rates, have become popular alternatives. Samsung, maker of popular Android phones among other things, is leading the way for cell phone makers in Vietnam. Samsung built a plant in Vietnam in 2008 and since then, has relocated all of its cell phone production away from China. In fact, the company now operates the world’s largest smartphone manufacturing facility in India. For Samsung, the decision to move was based in part on the lower risk associated with manufacturing in countries outside the geopolitics surrounding China. Lower manufacturing costs in Vietnam and India were also a factor in Samsing’s decision to move. More recently, disruptions in China’s supply chain during the pandemic encouraged Samsung to relocate even more production, reducing its Chinese workforce by some 70 percent since 2013. While Apple’s production relocation remains far behind Samsung at the moment, protests at Foxconn in 2022 highlighted the risks of relying too heavily on a single production location. Even so, one has to wonder how moving production away from the biggest market in the world, China, might affect future sales.
Discussion Questions:
1. Discuss geopolitics as a factor in production decisions. How have tensions between the United States and China encouraged companies to reduce their reliance on the ‘world’s factory floor’ and instead diversify production activities? What are the implications of this trend for China? What does it mean for countries like Vietnam and India?
2. How do you think companies like Apple and Samsung define the cost of production? What risks do you see for companies as they move production to countries like Vietnam and India?
3. China is the world’s largest smartphone market. How do you think decisions by Samsung and Apple will affect sales in China?
Sources| WSJ: https://www.wsj.com/video/series/wsj-explains/inside-samsungs-and-apples-manufacturing-moves-outside-of-china/78B6EA35-DE7A-472A-8BEF-480CE9982A48, https://www.wsj.com/articles/apple-china-factory-protests-foxconn-manufacturing-production-supply-chain-11670023099; NY Times: https://www.nytimes.com/2022/09/01/business/tech-companies-china.html, https://www.nytimes.com/2022/07/28/business/economy/china-foreign-business-economy-covid.html?action=click&module=RelatedLinks&pgtype=Article; Unsplash: Photo by Abdullah Omar on Unsplash