Apple is moving some of its operations to India as it looks to diversify its supply chain after COVID-related disruptions, but a change in the company’s process is likely to have ripple effects.
- Apple has announced plans to shift around 25% of its iPhone production to India, with plans to move 40% of all production outside of China.
- By broadening its production options, Apple hopes to protect itself from any future supply chain disruptions.
- However, Apple is intricately tied into China’s manufacturing system, and leaving will be difficult and may come with some downsides.
Why it’s news
Apple has made its products in China since 2001, making any change from its current processes significant. Such a big shift in standard operating procedures will undoubtedly have some effect on the company, even if only temporarily.
Manufacturing in China is not just inexpensive—it is also convenient. Many components Apple needs to make its products are also made in the country, giving Apple quick and affordable access to supplies.
This convenience means it will be harder for Apple to fully extricate itself from Chinese production and may hinder some output in other countries. Around 20% of Apple’s total revenue comes from “Greater China”—which in addition to he mainland includes Taiwan and Hong Kong. The company has more than 40 stores in mainland China, Bloomberg reports.
Apple may incur extra costs this year as it looks for new suppliers and establishes new facilities. Moving to an entirely new country will also mean training new staff. Investors will likely be watching Apple’s progress carefully, and its stock price could be affected.
Consumers could see some disruption in product distribution as the company establishes new facilities. During the COVID-19 pandemic, iPhone sales were negatively affected by a lack of supply. However, any disruption will likely be minor as Apple trains its new employees.
Apple’s new location could save the company some money in production costs. While labor in China is relatively inexpensive, production in India could cost even less. China’s GDP per capita is around $12,556 compared to India’s GDP per capita of $2,256.
The company may also be able to avoid extra expenses from shipping products to and from China. Before Apple’s move to India, the company often shipped devices from China to India for assembly. This process costs the company extra money in tariffs and time.
Now, with manufacturing and assembly in India, Apple can reduce some costs. With these cost-saving benefits, consumers could see a potential drop in product prices.
Backing up a bit
Diversifying its supply chain is increasingly important for Apple to prevent a repeat of the disruptions it saw during COVID-19, but even more critical could be minimizing its reliance on Taiwan.
As tensions between China and Taiwan continue to grow, Apple is looking for alternative semiconductor chip suppliers. Apple has made a deal to produce a small number of chips in an Arizona facility, but that plant cannot produce the massive amount of chips Apple needs.
While relocating manufacturing is difficult, finding alternative chip producers is even harder as Apple’s current supplier, Taiwan Semiconductor Manufacturing Company, is one of the few facilities capable of producing the necessary technology.