Apple accelerates shift from China

Apple’s apparent frustration with its Chinese production base may be unsurprising but it is still important. Thomas Cullen, chief analyst, reports.

Over the past week various reports have leaked-out into the press of Apple’s alarm over the implications of events in China for the companies supply chain. The trigger for this concern has been the disturbances at the so called ‘iPhone City’ in Zhenzhou, which is run by the assembler, Foxconn. Riots broke-out at the facility several weeks ago in response to Chinese authorities attempting to quarantine the workforce. Obviously, this disrupted production at the site which is the single largest facility for the production of the iPhone. Press reports suggest that this has led to significant shortages of iPhones in the critical pre-Christmas period.

According to the Wall Street Journal this has amplified Apple’s desire to reduce it dependence on China as a production location. So much so that it is asking its suppliers to re-order their logistics operations to facilitate assembly outside of China. The problem is, Apple and its supply chain are struggling to find sufficient capacity outside China to fulfil production capacity that sites such as Zhenzhou offer. Vietnam and India are cited as alternative locations.

Apple has been moving assembly of certain products, such as the iPad, out of China for a couple of years. However, the California based giant has lagged behind its South Korean rivals in developing production and supply chain capacity in Vietnam. Now it’s struggling to adapt in an environment that is increasingly hostile to China based product output.

A great deal of this capacity is human resources, however a large part of South Korean manufacturers success in developing Vietnamese assembly operations is their investment in air freight facilities in Saigon. In other areas of consumer electronics, Thailand has proven to be a good location because it has well developed logistics infrastructure linking it to other areas of South East Asia as well as North Asia. Indeed, one of the weaknesses of India as an alternative production location is the weaker responsiveness of its logistics provision.

The electronics supply chain is continuing to change. Both the geography of final assembly and of component production is moving beyond China. This offers considerable opportunities for logistics service providers with the right skills and location.

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