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Apple plans to reduce its reliance on suppliers working in China, a report claims, with the iPhone maker telling some contract manufacturers it wants to expand production outside the country.
Apple’s supply chain in China faces regular COVID-19 lockdowns, which impose strict regulations that could affect the workforce at its contract partners. With lingering issues brought on by the lockdowns, Apple is now hoping supply partners in other parts of the world can pick up the slack.
The company has reportedly told some suppliers it wants to increase production outside of China, sources from the Wall Street Journal† People involved in the discussions said Beijing’s strict policies regarding COVID-19 were high on a list of reasons to look elsewhere.
Aside from lockdowns, this also includes strict travel restrictions that impacted Apple’s ability to send technicians to its suppliers, forcing it to adopt alternative work methods.
Apple also believes the impact of COVID disruptions and delivery restrictions will decrease. In its April quarterly results, the company forecast revenue increase from $4 billion to $8 billion for the third quarter due to the issues.
The nature of China’s authoritarian government, including its difficult relationship with the United States, is also a potential problem for Apple. Future trade wars could cause problems for Apple’s ability to rely on land for so much of its production.
Apple has apparently considered moving its production out of China for some time now, with COVID making the topic a more pressing issue for the company.
Apple already has operations in India and Vietnam for a small portion of its total production, but each country is being considered for further expansion to negate a China-focused supply chain. Of the two, those with knowledge of Apple’s production plans say the company leans toward India as the closest to China, due to its population size and relatively low cost.
However, the icy relations between China and India mean that Chinese companies will struggle to establish themselves in India, analysts and suppliers told the report. Meanwhile, the existing smartphone manufacturing hub in Vietnam is seen as a more attractive proposition for the suppliers.
Apple is already telling its suppliers to work more on plans for new products outside of China. Sources say that if manufacturing partners agree to non-China work, existing limited production in India and Vietnam could develop into full manufacturing hubs, although this could require significant investment to realize.