Suppliers Are Setting Up Shop in "Friendlier" Countries

In order to diversify and increase manufacturing, Apple supplier Foxconn has inked a $300 million memorandum of understanding with Vietnamese developer Kinh Bac City. According to the Tuoi Tre newspaper, 30,000 local jobs will be created by the Taiwanese company's new facility, which will be located on 125 acres of land in Bac Giang province.

  • The action comes in response to a story this week claiming that Foxconn has begun testing the production of Apple watches in northern Vietnam
  • According to Tuoi Tre, Foxconn, which has been operating in Bac Giang for 15 years, has also shifted some of the production of its iPad and AirPods there

India Is Also Getting More Attention

Earlier this year, it was also reported that Apple had started to increase the size of its Indian production in an effort to lessen its reliance on China. As such, Foxconn is now producing the iPhone 13 in the town of Sriperumbudur in the southern Tamil Nadu state. The company also plans to assemble iPad tablets there.

  • Contract manufacturers who supply American brands are increasingly relying on Mexico, Vietnam, and other nations besides China as they try to diversify their production away from China

China's Internal Politics And Its Handling Of The Pandemic Are Not Helping

Analysts have warned that China's tight economic controls, which are impeding production and logistics, could speed up the manufacturing exodus from the nation, which has been accelerating over the past ten years. The COVID policy changes add to the strains brought on by rising labor costs in China and escalating trade disputes between the U.S. and China. Southeast Asia and India have emerged as the most well-liked investment destinations because of their low labor costs and rising domestic demand.

  • According to several industry insiders, the majority of the production that has so far left China is in lower-end processes and hasn't diminished China's position as the industry leader
  • However, they claimed that the pattern is compelling China to modernise its manufacturing in order to produce higher-value items, which presents both risks and opportunities for domestic producers

"But today, “every company that I speak to at the moment is engaged in rethinking their [China-focused] supply chains,” Tony Danker, the director-general of the Confederation of British Industry, told the Financial Times last week. “Because they anticipate that our politicians will inevitably accelerate towards a decoupled world from China.”

Part of this is pandemic pressure. China’s zero-COVID policy has snarled supply chains and left factory workers locked in their dorms—and shows no sign of ending anytime soon. China’s demographics have also meant a shrinking pool of potential workers, and as the country has climbed into the middle ranks of global income, labor has become more expensive. But Beijing’s growing aggressiveness toward the West and its insistence on maintaining ties with Moscow have also left executives nervous that they could be caught on the wrong side of global conflict. The Chinese Communist Party’s insistence on ideological purity doesn’t help, with party cells now mandatory in foreign companies." By , a columnist at Foreign Policy

Disclaimer

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