Apple intends to reduce its reliance on suppliers operating in China while seriously considering India and Vietnam as potential alternatives. Beijing’s tough policies on the coronavirus topped the list of reasons to look elsewhere.
And the Wall Street Journal reported that the company, which has been in trouble due to Xi Jinping’s policy to fight the Corona virus, has told some of its contract manufacturers that it wants to expand production outside China.
The company’s supply chain in China has to deal with regular coronavirus shutdowns. These policies impose strict rules that can affect the workforce of their contracting partners.
Apple hopes that partners in other parts of the world will be able to weather the recession as the problems caused by the shutdowns in China persist.
More than 90% of Apple products such as the iPhone, iPad and MacBook laptops are manufactured in China by third-party contractors.
The company is in talks with some manufacturers to search for alternatives, as it faces manufacturing obstacles due to China’s policy against the Corona virus.
The shutdowns in Shanghai and Kunshan forced the US company to halt production at three suppliers. And that move could have a much bigger impact, especially the shutdown of Pegatron, which makes 30% of all iPhones.
Pegatron said in April it had halted operations at its Shanghai and Kunshan production sites to comply with government regulations.
Similarly, MacBook maker Quanta and iPad maker Compal are the other two suppliers that have suspended work to comply with coronavirus guidelines.
Shanghai has 31 companies that operate production facilities that supply products to Apple. Moreover, the Shanghai shutdown caused a significant drop in Apple’s revenue for the April-June quarter, as the company reported a loss of up to $8 billion in sales.
Apple wants to manufacture more in India and Southeast Asia
Aside from the shutdowns, handicaps include strict travel restrictions that have affected Apple’s ability to send engineers to its suppliers, forcing it to pursue alternative work practices.
The authoritarian nature of China’s government, including its strained relationship with the United States, is also a potential problem for Apple.
And future trade wars could cause the company problems to depend on the state for much of its production.
“We estimate the restrictions to be in the range of $4 to $8 billion and these restrictions are primarily centered around the Shanghai Corridor,” Apple CEO Tim Tok said.
Luca Maestri, the company’s chief financial officer, added: “The disruptions related to the coronavirus are also affecting customer demand in China.
Foxconn, Apple’s largest supplier, has so far maintained production at its largest iPhone assembly plant in Zhengzhou, China.
Apple has operations in India and Vietnam for a small portion of its total production. But each country is being considered for further expansion to abolish the supply chain centered in China.
Of the two, the company leans towards India as the closest thing to China, due to the size of the population and relatively low costs.
However, the cold relations between China and India means that Chinese companies may have problems setting up in India. Meanwhile, the current smartphone manufacturing center in Vietnam is seen as more attractive to suppliers.