The most important change of the iPhone 14 will not be its screen, or its camera, or its battery, or a new function added by Apple. The main message that the manufacturer sends with the new model that it has presented this Wednesday is that it no longer trusts China as its only manufacturing base, which is a milestone in high-tech production. For the first time, an Apple phone will be made outside the Asian giant, consolidating the trend of large US technology companies leaving the country.
Companies like Google, Microsoft or Amazon follow the same strategy as the one founded by Steve Jobs. They don’t go very far, as Asia continues to offer them the lowest wages. After the repeated rises in the minimum wage in China, which has tripled in the last decade according to data from its official statistics institute, a Chinese worker can cost more than twice as much as an employee in a factory in India or Vietnam.
“Of course the issue of wages is the deepest reason, the world is moved by money. But it is not the only one,” says Claudio Feijoo, professor and expert in technology diplomacy with extensive experience in China.
“China is going through what in economics is called the middle income trap, which has happened to many other countries. You grow because you are cheap: why is China the world’s factory? Because it manufactures with lower costs than others. The problem is that as you succeed in that process, you stop being cheap precisely because it succeeds,” continues Feijoo, an engineer and economist.
“The salary is the visible part, but there are also all the associated costs. For example, China did not respect any environmental issue. Now it is not that it is the most respectful country, but it is beginning to have a series of laws and it is no longer worth doing anything Before there was also some corruption that has also become more controlled, which implies higher costs,” he says.
What happened with Apple and its suppliers is an example of this evolution. Until now, the trend of relocating industry to cheaper countries had not affected high technology, where China has been the undisputed leader due to its ability to make a large number of highly qualified workers available to companies. Now Apple, which for 15 years has built one of the most complex supply chains in the world in the territory of the Asian giant with the help of its authorities, changes the step and takes a part of the production to India, where costs are lower.
Foxconn moves with her, a company to which she derives part of the production of her smart watch, the iPad or the Airpods. This has just signed a new agreement with Vietnam to build a new factory of 50 hectares for its projects with Apple. It will involve the creation of some 30,000 jobs, local media have reported. According to New York Times, Foxconn has already published some 5,000 “urgent” job offers for the province of Bac Giang where the facility will be built. It offers a salary of 300 dollars a month, less than half of what it pays at its facilities in Shenzhen, southern China.
The same report from the aforementioned medium reveals that Google will also take part of the production of its new Pixel phone to Vietnam, just like Microsoft with its Xbox consoles. In early 2021, Amazon relocated the manufacturing of its Fire TV device to Chennai, the same Indian province where Apple will be based. Contacted by elDiario.es, both Apple and Google and Amazon have refused to comment on these movements. Microsoft has not responded to the closure of this information.
Unofficial Apple sources have leaked to several US media outlets that the relocation is due to India’s large domestic market as well as Beijing’s zero-tolerance policy on the coronavirus. The 2021 factory and port closures in the country complicated the distribution of the iPhone 13 and made it earn less money than expected.
All in all, the world’s most valuable company generated total net sales of $365.82 billion during fiscal 2021. The company has quadrupled its annual revenue over the past decade, according to Statista. “I have the impression that [los problemas derivados de la política china de tolerancia cero con el coronavirus] It is more of an excuse than a reality. The process of leaving China has already happened before,” says Feijoo.
The Asian giant has been preparing for several years to face this exit from factories, the expert points out. With the example of its neighbors Japan or South Korea, it is working to refocus towards the parts of the production chain with more added value than manufacturing, such as the design and conceptualization of these devices.
The coronavirus is just one more reason in the risk analysis that invites them to do so, in which the possible restrictions that derive from an increase in tension with the US also appear. The conflict for the independence of Taiwan and the role of the island in the production of chips, which leads the world, has been placed at the center of that struggle. Although China accelerates to be able to supply itself, losing access to the main supplier of this basic component for technology factories could be a fatal blow.
“Companies like Apple are seeing the move and understand that if their market depends too much on China they may find themselves with restrictions because the scenario with the US is complicated. It is a geostrategic analysis that Chinese companies that depend on US suppliers are also doing, which for them it is a maximum risk. In a second level they place Europe, Japan and South Korea. In a more limited risk, “neutral” countries, while the areas under Chinese influence are the ones they consider safer, “he details. Feijoo.
“Right now, if you’re a supply chain manager, you can’t look the other way,” he concludes.
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