Why is Apple Moving Out its Production from China?

This content is being republished with the consent of Fisher International and ResourceWise. Read more about Apple’s future production plan at ResourceWise. Jan 17’23

  • Apple is shifting production due to recent economic chaos at China’s ‘iPhone City’ plant in Zhengzhou.
  • In China, a Foxconn factory in Zhengzhou employs up to 300,000 people to manufacture iPhones and other Apple products.
  • According to the market research firm, it once accounted for roughly 85 percent of the Pro lineup of iPhones.

Apple’s plans to relocate some of its manufacturing operations outside China have accelerated. According to the Journal, Apple has instructed suppliers to plan ahead for Apple product assembly in other parts of Asia, specifically India and Vietnam. They also want to reduce their reliance on Taiwanese assemblers, particularly Foxconn Technology Group, one of the company’s top suppliers, and operate China’s world’s largest iPhone factory.

This decision was influenced by various factors that prompted Apple to take action. Others include the reduced risk to the supply chain that comes with moving production, as demonstrated by Covid’s showing of the dangers of having too many factories in one location. Furthermore, wage increases in China have made it difficult for Foxconn to recruit employees. However, one of the major factors influencing Apple’s decision has been the significant rise in protests against the country’s strict zero-covid policies. The policies have seriously affected production, forcing Apple to accelerate its pivot.

In November 2022, the area known as “iPhone City” erupted in violent protests among employees over withheld pay and zero-Covid policies, resulting in a Zhengzhou lockdown. These protests have resulted in significant supply chain issues and Apple iPhone product shortages. The holiday season only made the situation worse. According to Forbes, the company will need more than 6 million iPhone Pros.

How has this impacted the paper and pulp industry?

  1. Impact on the P&P industry’s packaging materials supplies:
    Changes in demand for packaging materials will be one of the most significant effects of the move on the paper and pulp sector. Apple’s decision to move part of its production out of China is expected to decrease the market for packaging materials considering fewer products will be exported out of China. This might have repercussions across the supply chain, affecting not only paper and pulp manufacturers, but also firms who make other materials used in packaging, such as plastics and adhesives.
  2. Potential Opportunities for Paper and Pulp Manufacturers.
    However, the impact on the paper and pulp industry is not entirely negative. As Apple looks to expand its manufacturing operations in other countries, there may be new opportunities for paper and pulp manufacturers in these regions to fill the demand gap. For example, India and Vietnam are both rapidly growing markets, with increasing demand for packaging materials and other paper and pulp products. As a result, it is possible that the shift in production could actually lead to increased demand for these materials in certain regions.
  3. Possible Environmental Benefits of the Production Shift.
    There are also possible environmental advantages. China has long been recognised for its low environmental laws, and as a result, the Chinese paper and pulp sector has been chastised for its environmental effect. Apple may lessen the environmental effect of its manufacturing processes by shifting production to nations with tougher environmental restrictions, such as India and Vietnam. As firms seek to lessen their environmental footprint, this might lead to an increase in demand for sustainably sourced paper and pulp products.
  4. ResearchAndMarkets.com Study on Paper and Pulp Market Growth.
    In terms of facts and figures, a new study from ResearchAndMarkets.com predicts a 1.6% compound annual growth rate for the global paper and pulp market from 2020 to 2025. According to the survey, increased demand for packaging materials, which are utilized in a variety of industries including; food and beverage, healthcare, and consumer products, is driving this development. Nevertheless, the research also highlights that the sector is experiencing a number of problems, including rising competition from alternative packaging materials such as plastics and the environmental effect of paper and pulp manufacturing.
  5. GlobalData Analysis on Paper and Pulp Market Growth in India.
    According to another GlobalData analysis; the paper and pulp business in India is expected to develop considerably in the future years, owing to reasons such as; rising demand for packaging materials, a burgeoning e-commerce sector, and government attempts to promote the use of paper-based goods. The analysis states that India is now the world’s third-largest producer of paper and pulp, and with rising demand for these products, there may be potential for additional expansion in the business.

Why Is This Important?

Given Apple’s economic power and influence, this is a significant announcement. Apple sells approximately 250 million iPhones annually, and its new strategy to adapt to ‘China +,’ in which surrounding countries supplement China’s primary production, could have several consequences. The transfer of Apple’s supply chain to foreign companies will ultimately be determined by the benefit-to-cost ratio. Only when China’s production costs and efficiency are lower than those of neighboring countries will Western manufacturers shift their supply chain.

This could happen as China’s population ages and there is a severe labor shortage. Or it could come after India has established a mature and stable manufacturing environment comparable to China’s. In any case, these things will not happen anytime soon. Apple has begun to ask suppliers to build backup capacity in other countries. And converting companies like Yuto Packaging and Shenzhen MYS have already begun to build plans in Southeast Asia.

According to Ming-Chi Kuo, an Apple analyst with financial services firm TF International Securities, the move is part of a larger trend toward deglobalization or reducing interdependence between business units distributed worldwide. Over the next three to five years, at least 25% to 30% of global iPhone shipments for the US market can be supplied by assembly sites outside of China to mitigate the effects of political risks (such as US-China tariffs). Longer term, according to Kuo, China will likely be the primary assembly location for its own in-country Apple product sales but not for global product supplies.

“According to Apple’s plans, the Indian company Tata Group may collaborate with Pegatron or Wistron to develop the iPhone assembly business in the future,” Kuo said. In India, two Apple contract manufacturers are Pegatron and Wistron. According to Kuo, more than 80% of iPhones manufactured in India by Foxconn are only for domestic consumption.

According to a Journal report, Apple has been instructing its component suppliers to more actively plan for assembling Apple products elsewhere in Asia, particularly in India and Vietnam, to reduce its reliance on Taiwanese assemblers led by the Technology Group. Citizen protests in “iPhone City” in Zhengzhou resulted in easing lockdown restrictions. Still, the incident likely prompted Apple to move more operations out of the country.

Meanwhile, other Chinese suppliers have long dominated the company’s production and are reportedly interested in the company. Luxshare Precision Industry Co and Wingtech Technology Co are two Chinese companies striving for more Apple business, according to a report. As a result of the recent protests, Apple Inc. experienced significant supply chain issues and shortages. According to reports, the economic downturn and slow hiring make it difficult to outsource production and form new supplier partnerships.

Apple plans to source up to 45% of iPhone production from factories in India, where it currently produces in the single digits, and to increase production of products like computers, watches, and AirPods in Vietnam.

To summarize, while Apple’s plan to relocate some of its manufacturing out of China is expected to have a considerable impact on the paper and pulp sector, the actual nature of this impact is nuanced and multidimensional. While demand for packaging materials may be declining in certain locations, new possibilities for paper and pulp makers may emerge in others. Furthermore, the change may result in increasing demand for sustainably derived products and may aid in reducing the environmental effect of industrial activities. Overall, the paper and pulp sector is anticipated to continue to encounter difficulties and possibilities as it navigates the shifting environment of global manufacturing.

This recent development can have an impact on the latest pricing for your favourite iPhones and their other products. We at Coniferous are committed to bring you the latest and greatest from the industry to keep you on the forefront of the ever changing industrial landscape.

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