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Key Takeaways
- Apple has relied on China to manufacture all of its products, but due to the pandemic and ongoing trade tension between the U.S. and China, Apple is moving production out of the country.
- Apple has moved production of its iPhone to India and now will have MacBooks produced in Vietnam.
- While Vietnam offers many benefits to Apple, this country is not without its own issues.
After relying solely on China to manufacture its products, Apple has decided to diversify its production. With new factories in India and Vietnam, Apple is seeking to limit the disruptions it has recently experienced.
Here are the reasons Apple is moving production and what this transition means for the company moving forward.
MacBooks Made in Vietnam
Apple is moving production of its MacBooks from China into Vietnam with the assistance of its top supplier, Foxconn. The company is moving forward with its plan to eventually end its reliance on China to manufacture many of its products, including iPhones, AirPods, HomePods, and MacBooks. Instead, Apple is looking to manufacture its products in multiple countries to reduce the chances of supply chain interruptions.
Production of MacBooks in Vietnam is slated to begin as early as May 2023. Apple has already started its iPhone production in India and plans to triple its output in the next two years. Once the assembly lines start operations in Vietnam, Apple will have a second manufacturing base for its flagship products.
Apple initially tested the production of its Apple Watch in Vietnam earlier this year before deciding to move the manufacturing of its MacBook there as well. In addition to these two products, Apple will also begin to produce its HomePods in the Vietnam factory.
This shift is the culmination of two years’ worth of plans to move the production of Apple products to other countries.
Why Apple is Moving Production
Apple has numerous reasons to move its production out of China, with the most significant spur being the COVID-19 pandemic. For too long Apple has relied on China as the manufacturing site for its products, creating vulnerabilities in its ability to bring its products to consumers. COVID-19 shut down factories and impacted the available workforce, resulting in fewer people and supplies available to put Apple products together.
Additional forces are making it difficult for Apple to produce and deliver its products reliably and are far more impactful than the pandemic alone. There is ongoing trade tension between the U.S. and China, labor is becoming more expensive, and the workforce as a whole is aging. These have all combined to create problems for Apple.
Other issues include labor unrest, including a worker versus security personnel clash at Foxconn’s Zhengzhou plant in China. After a recent COVID-19 outbreak at the factory, employees fled the factory, which lost active workers as Foxconn isolated those that tested positive.
The general outlook for Apple, and western companies manufacturing in China, is not looking good in terms of returning to pre-pandemic levels of output and ease of production. It makes more sense for Apple to diversify its manufacturing base to hedge against adverse changes in China.
As things currently stand, analysts expect these troubles to impact the December quarter for Apple negatively. Morgan Stanley reduced their iPhone shipment forecast by 3 million units in December on top of its reduction of 6 million units shipped in November. Total shipments are expected to be 75.5 million units, down from 85 million.
The estimated reduction in shipped units is due to the loss of production capacity as demand for the iPhone range has remained steady. Apple’s stock is down 28% for the year, but this is due mostly to a weak stock market and fears of a recession in 2023 more than an issue with the company itself. However, ongoing supply disruptions for the iPhone supply chain can result in lower sales and reduced profits for Apple if they’re not addressed.
The Benefits of Manufacturing in Vietnam
Vietnam has moved forward from its days as a country torn up by war and has become a destination for western businesses seeking low-cost manufacturing. The country’s labor force is young, stable, well-educated, and sizable, making it an attractive alternative to manufacturing in China. Vietnam’s federal and local governments welcome foreign companies seeking to manufacture products that rely on technology.
It’s well-known that Vietnam won’t be able to replace China as a manufacturing powerhouse, but it can get its manufacturing facilities up and running with speed. Getting materials and parts from China to Vietnamese factories is also easy due to the countries’ proximity. Last but not least, if a factory is shut down in China, the Vietnamese factory is redundant for production. Apple can be assured that the output of its product line can continue and that supply chain disruptions will be minimal.
Regarding governance, Vietnam is a socialist republic open to the world. It encourages investment from other countries and is highly cooperative in working with western corporations. It’s relatively free from the government issues currently rolling through China and is likely to be politically stable for the foreseeable future.
Drawbacks of Manufacturing in Vietnam
While there are plenty of benefits to moving operations to Vietnam, the country has challenges. As with China, Vietnam does not enforce intellectual property rights, meaning counterfeit products and the theft of production secrets are commonplace. There is a weak legal system in Vietnam, which allows for corruption.
Finally, there are many labor regulations companies have to work around. While there are some issues, Vietnam is seen as a lesser of two evils when compared with China.
Bottom Line
Moving production to another country is a challenging decision for any company. But in Apple’s case, moving manufacturing out of China makes a lot of sense. Not only will they reduce the chances of disruption in their supply chain, but they may also be able to increase their profit margin if their labor cost is lower in Vietnam.
While there could be short-term issues as the new factory gets fully up to speed, the long-term benefits far outweigh these problems.
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Source: https://www.forbes.com/sites/qai/2023/01/01/apple-to-diversify-its-supply-chain-by-producing-macbooks-in-vietnam/