As dangers increase, Apple supply chain data reveals decreasing exposure to China

According to data from the company's supply chain, Apple Inc.'s extensive exposure to Chinese manufacturing, which is renowned for both its low costs and rising risks, has decreased since the COVID-19 pandemic started.

According to statistics from the company’s supply chain, Apple Inc.’s (AAPL.O) extensive exposure to Chinese manufacturing, which is known for both its low costs and rising hazards, has decreased since the COVID-19 outbreak started.

Analysts anticipate the risks – and Apple’s withdrawal – to increase as the world’s largest iPhone manufacturing, run by Foxconn (2317.TW) in central China, struggles with production deficits and labor discontent, which are largely the result of Beijing’s strict virus containment rules.

China’s influence in Apple’s global manufacturing is waning, according to a Reuters analysis of the company’s supply chain data: China was the primary location of 44% to 47% of its suppliers’ production sites in the five years leading up to 2019, but that number dropped to 41% in 2020 and 36% in 2021.

The data demonstrates how Apple and its suppliers are reshaping the global supply structure through a diversification drive, with investments in India and Vietnam and increased procurement from Taiwan, the United States, and other countries. Analysts and academics predict that Apple will continue to be highly exposed to China for many years to come.

Eli Friedman, an associate professor at Cornell University who specializes in studying labor in China, asserted that “the China supply chain is not going to disappear suddenly.”

He claimed that decoupling was currently unattainable for these businesses, but he anticipated that diversification would quicken.

The concentration of suppliers in China, where Foxconn produces the majority of the world’s iPhones (70 percent), has been a key component for Apple, the most successful smartphone manufacturer in the world.

However, the strategy is changing due to rising geopolitical and trade tensions between Beijing and Washington, which pose potential long-term risks, as well as China’s COVID-related lockdowns and restrictions.

According to government officials with knowledge of the situation who spoke to Reuters earlier this month, Foxconn is speeding up its expansion in India and has plans to quadruple the workforce at its iPhone factory over the next two years.

In addition, J.P. Morgan predicts that by 2025, 25% of all Apple products, including Mac computers, iPads, Apple Watches, and AirPods, will be produced outside of China, up from 5% currently. This includes moving about 5% of iPhone 14 production to India starting in late this year and producing one in four iPhones there.

However, according to the Reuters analysis, there are currently no regions that stand out as significant gainers to match China’s decline in the Apple supplier data through 2021.

The largest growth was in the United States, which increased from 7.2% to 10.7% in 2021, followed by Taiwan, which increased from 6.7% to 9.5%. India increased from less than 1% to less than 1%, maintaining a negligible presence, whereas Vietnam increased from 2.2% to 3.7%.

“China is neither Vietnam or India. They are unable to create at that volume, with that level of quality, in that amount of time, and with an infrastructure that is reliable “Friedman from Cornell University remarked.

More than 600 locations among Apple’s top suppliers are covered by its annual data, which accounts for 98% of the company’s direct spending. It is unknown how much money Apple spends with each supplier, and the companies that make the cut from among the thousands of potential suppliers can change every year.

In addition to providers of chips, glass, aluminum casings, wires, circuit boards, and other parts, they also comprise contract manufacturers who assemble watches, wireless headphones, and iPhones, iPads, and other electronic devices.

Apple’s departure from China is becoming more obvious, as seen by its own supply chain statistics, but the hazards associated with this concentration of operations are just as apparent.

The demands of Beijing’s COVID containment policy, which mandates that workers be cut off from the outside world in closed-loop systems to maintain production lines, are largely to blame for the labor issues at Foxconn’s China facility.

Investors that are concerned with both production goals and human rights issues have become aware of the upheaval.

According to Pia Gisgard, head of sustainability and governance at Swedbank Robur, which held Apple shares valued at approximately $1.3 billion as of end-September according to Refinitiv data, “the important thing is that the company implements these orders in a way which respects people’s rights.”


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