For years, Apple’s supply and production chain has been considered one of the most efficient in the world. Now the group is rethinking them. Above all, the focus on China is increasingly becoming a risk.
The fact that Tim Cook is leading the most valuable company in the world today is mainly due to his eye for detail. Before he took over the executive chair from Apple founder Steve Jobs in 2011, Cook had earned his trust with a mammoth project. Over years of work, he and his team had built a supply chain that was more robust and efficient than any of its competitors – and thus made Apple’s triumphal march possible. Now he has to rethink them.
Because Apple’s gigantic success was not only based on the visionary idea of the iPhone and its implementation. It was at least as important that the group was always able to deliver reliably, even through difficulties. And thanks to the enormous cost efficiency, it had huge profit margins. The most important pillar for this was the highly complex network of suppliers and production facilities in China built up by Cook. But that is exactly what has faltered in recent years.
Not an easy exit
Already at the beginning of the corona pandemic, Apple had started to look for alternatives in view of the first lockdowns in Chinese cities. And positioned itself much more broadly. The production of the popular but technically less complex Airpods was partly outsourced to Vietnam. Feelers were also carefully put out in India. In view of the increasing escalation of the infection process in the Middle Kingdom, the group is now stepping up a gear there. According to current reports, the group plans to have half of all iPhones manufactured in India by 2027.
There is a simple reason why the changeover is lengthy. Unlike many other Western companies, Apple didn’t simply outsource its manufacturing to China to save costs. Instead, the group had practically built a completely new business in a finely woven network of local companies, factories and specialized workers.
For years, top developers, designers and engineers from the company had been on site, sometimes for months, to adapt everything exactly to Apple’s needs and requirements, from the perfectly trained employees to machines designed exactly according to Apple’s ideas. It’s not that Apple has been drawn to local expertise, supply chain researcher Kevin O’Marah told the Financial Times. On the contrary: the technical competence is there “because Apple went there and built it up”.
Complex, robust and efficient
For years, that was a huge factor in the company’s success. When, as a result of the home office boom, a lack of chips caused delivery problems for many manufacturers – even two years after its release, Sony’s Playstation 5 is not always readily available – Apple was the only manufacturer who seemed to be completely unimpressed. 95 percent of all major Apple products are still made in China.
And although China’s smartphone manufacturers are nowhere else as successful as at home, the Chinese market with its sheer size is also indispensable for Apple: Apple makes almost a fifth of its income directly in China.
China becomes a problem
After years of benefiting from Apple’s close ties to China, it has increasingly become a burden – both financially and politically – in recent years. Probably also because many factories were idle due to the strict corona measures in China, sales fell significantly in the last Christmas quarter. Apple is said to have sold up to six million fewer iPhones in its most important quarter of the year. This corresponds to a decline of almost 7.7 percent.
At the same time, the pressure from home is growing. In the USA, China is increasingly perceived as the biggest global competitor, and the Chinese harshness towards its own people is almost seen as a counter-model to the self-proclaimed “Land of the Free”.
Above all, Apple’s role in the protests against the draconian corona measures caused headwind. When the protesters used Apple’s wireless technology AirDrop to send pictures at the demos, the company shortly afterwards restricted the ability to share files via it. Critics saw this as the company giving in to the Chinese government because of the timing.
search for alternatives
Making itself less dependent on China, however, should be extremely difficult for Apple. Hardly any other country offers the combination of a large population, some highly educated workers and the corresponding infrastructure. In Apple’s case, the high degree of specialization in the supply and production chains makes things even more difficult.
The first steps in India and Vietnam show how difficult this can be. As early as 2017, Apple began manufacturing its cheaper iPhone SE in South Asia. However, production is not as seamless as in China. “There are no suppliers there,” analyst Steven Tseng told the Financial Times. “You have to ship everything from China.” It will probably take Apple years to build up the appropriate infrastructure and know-how to be able to manufacture the high-end models there as well.
Apple is apparently hoping for a shortcut with a clever trick: you simply take your established partners with you to the new production countries. The Taiwanese manufacturing giant Foxconn also builds the US partner’s iPhones in India. Apple now seems to want to expand this strategy. According to reports from “Bloomberg”, under pressure from the group, India has allowed more than a dozen suppliers to expand their business to the South Asian state. Companies like Luxshare or Sonny Optical: They have their headquarters in China.
Quellen: Financial Times, Bloomberg, South Asia Morning Post