By a dusty stretch of the deafening road from Chennai to Bengaluru lie three colossal, anonymous buildings. Inside, away from the din of traffic, is a high-tech facility operated by Foxconn, a Taiwanese manufacturer. A short drive away Pegatron, another Taiwanese tech firm, has erected a vast new factory of its own. Salcomp, a Finnish gadget-maker, has set one up not far away. Farther west is a 500-acre campus run by Tata, an Indian conglomerate. What these closely guarded facilities have in common is their client: a demanding and secretive American firm known locally as the fruit company. The mushrooming of factories in southern India marks a new chapter for the worlds biggest technology company. Apples extraordinarily successful past two decadesrevenue up 70-fold, share price up 600-fold, a market value of $2.4trnis partly the result of a big bet on China. Apple banked on China-based factories, which now churn out more than 90% of its products, and wooed Chinese consumers, who in some years contributed up to a quarter of its revenue. Yet economic and geopolitical shifts are forcing the company to begin a hurried decoupling. Its turn away from China marks a big shift for Apple, and is emblematic of an even bigger one for the world economy. Apples packaging proclaims Designed by Apple in California, but its gadgets are assembled along a supply chain that stretches from Amazonas to Zhejiang. At the centre is China, where 150 of Apples biggest suppliers operate production facilities. Tim Cook, who was Apples head of operations before he became chief executive in 2011, pioneered the firms approach to contract manufacturing. A regular visitor to China, Mr Cook has maintained good relations with the Chinese government, obeying its requirements to remove apps and to hold Chinese users data locally, where it is available to the authorities. Now a change is under way. Big tech is showing strains. On October 25th Alphabet and Microsoft presented disappointing quarterly results. Meta, which lost another fifth of its value after reporting the second straight quarter of declining sales, is a shadow of its former self. Apples latest earnings, due out after The Economist went to press on October 27th, may be dented by creaky Chinese supply chains and softening demand from Chinese consumers. So Mr Cook, who has not been seen in China since 2019, is wooing new partners. In May he entertained Vietnams prime minister, Pham Minh Chinh, at Apples futuristic headquarters. Next year Apple is expected to open its first physical store in India (whose prime minister, Narendra Modi, is a fan of gold iPhones). The two countries are the main beneficiaries of Apples strategic shift. In 2017 Apple listed 18 large suppliers in India and Vietnam; last year it had 37. In September, to much local fanfare, Apple started making its new iPhone 14 in India, where it had previously made only older models. The previous month it was reported that Apple would soon start making its Ma.

1. By a dusty stretch of the deafening road from Chennai to Bengaluru lie three colossal, anonymous
buildings. Inside, away from the din of traffic, is a high-tech facility operated by Foxconn, a
Taiwanese manufacturer. A short drive away Pegatron, another Taiwanese tech firm, has erected
a vast new factory of its own. Salcomp, a Finnish gadget-maker, has set one up not far away.
Farther west is a 500-acre campus run by Tata, an Indian conglomerate. What these closely
guarded facilities have in common is their client: a demanding and secretive American firm known
locally as the fruit company.
The mushrooming of factories in southern India marks a new chapter for the worlds biggest
technology company. Apples extraordinarily successful past two decadesrevenue up 70-fold,
share price up 600-fold, a market value of $2.4trnis partly the result of a big bet on China. Apple
banked on China-based factories, which now churn out more than 90% of its products, and wooed
Chinese consumers, who in some years contributed up to a quarter of its revenue. Yet economic
and geopolitical shifts are forcing the company to begin a hurried decoupling. Its turn away from
China marks a big shift for Apple, and is emblematic of an even bigger one for the world economy.
Apples packaging proclaims Designed by Apple in California, but its gadgets are assembled along
a supply chain that stretches from Amazonas to Zhejiang. At the centre is China, where 150 of
Apples biggest suppliers operate production facilities. Tim Cook, who was Apples head of
operations before he became chief executive in 2011, pioneered the firms approach to contract
manufacturing. A regular visitor to China, Mr Cook has maintained good relations with the Chinese
government, obeying its requirements to remove apps and to hold Chinese users data locally,
where it is available to the authorities.
Now a change is under way. Big tech is showing strains. On October 25th Alphabet and Microsoft
presented disappointing quarterly results. Meta, which lost another fifth of its value after reporting
the second straight quarter of declining sales, is a shadow of its former self. Apples latest
earnings, due out after The Economist went to press on October 27th, may be dented by creaky
Chinese supply chains and softening demand from Chinese consumers. So Mr Cook, who has not
been seen in China since 2019, is wooing new partners. In May he entertained Vietnams prime
minister, Pham Minh Chinh, at Apples futuristic headquarters. Next year Apple is expected to open
its first physical store in India (whose prime minister, Narendra Modi, is a fan of gold iPhones).
The two countries are the main beneficiaries of Apples strategic shift. In 2017 Apple listed 18 large
suppliers in India and Vietnam; last year it had 37. In September, to much local fanfare, Apple
started making its new iPhone 14 in India, where it had previously made only older models. The
previous month it was reported that Apple would soon start making its MacBook laptops in
Vietnam. Some of Apples newer gadgets show the way things are going. Almost half its AirPod
earphones are made in Vietnam and by 2025 two-thirds will be, forecasts JPMorgan Chase. The
bank reckons that, whereas today less than 5% of Apples products are made outside China, by
2025 the figure will be 25% (see chart 1).
As Apples production system is shifting, its suppliers are diversifying away from China, too. One
crude measure of this is the share of long-term assets that Taiwanese tech-hardware and
electronics firms have located in China. In 2017 the average figure was 43%. Last year that had
fallen to 31%, according to our estimates using company and Bloomberg data.
The most urgent reason for the scramble is the need to spread operational risk. Two decades ago

2. the garment industry beefed up its operations outside China after the sars epidemic paralysed
supply chains. sars made it very clear to everyone operating in China that you needed a China+1
strategy, observes Dominic Scriven of Dragon Capital, an investment firm in Vietnam. Covid
taught tech firms the same lesson. Lockdowns in Shanghai in the spring temporarily shut a factory
run by Quanta, a Taiwanese firm, believed to be making most of Apples MacBooks. Avoiding this
kind of chaos is the primary driving force for Apples supply-chain moves, says Gokul Hariharan of
JPMorgan Chase.
Another motive is containing costs. Average wages in China have doubled in the past decade. By
2020 a Chinese manufacturing worker typically earned $530 a month, about twice as much as one
in India or Vietnam, according to a survey by JETRO, a Japanese industry body. Indias ropey
infrastructure, with bad roads and an unreliable electrical grid, held the country back. But it has
improved, and the Indian government has sweetened the deal with subsidies. Vietnam offers tax
rebates and holidays, too, as well as free-trade deals, including one recently signed with the eu.
Bureaucracy around visas and customs remains a pain. But the work ethic is similar to that in
China: Confucius still gets them out of bed in the morning, says one foreign executive in Vietnam.
Apple also increasingly sees locals as potential customers, particularly in India, the worlds second-
largest smartphone market. Though iGadgets are too pricey for most Indians, that is changing.
Apple said in July that its revenues in India had nearly doubled in the past quarter, year on year,
driven by the engine of iPhone sales.
This is diminishing Chinas relative importance as a consumer market. At its high point in 2015,
China accounted for 25% of Apples annual sales, more than Europe. Since then its share has
steadily shrunk, to 19% so far this financial year (see chart 2). By the sounds of it Xi Jinping,
Chinas president, would like it to fall further. At a Communist Party shindig on October 16th he
urged self-reliance and strength in science and technology, suggesting that foreign importers may
face stiffer competition from Chinese national champions. He repeated the phrase five times.
An iWire act
This points to perhaps the biggest reason for Apples shift: geopolitics. Rising Sino-American
tensions are making China an awkward place to do business. Heightened Chinese sensitivity is
adding friction. This summer Apple reportedly had to ask Taiwanese manufacturers to label their
products Made in Chinese Taipei to appease newly finicky Chinese customs officials (at the risk of
angering Taiwanese ones).
America, for its part, has become more aggressive in its competition with Chinas domestic tech
industry. On October 7th America announced a ban on us persons working for some Chinese
chipmakers. On the same day it added 30 Chinese companies to a list of unverified firms its
officials had been unable to inspect. Apple had reportedly been about to sign a deal to buy iPhone
memory chips from one such company, ymtc, which can offer low prices thanks in part to Chinese
government subsidies. Following Americas export controls that deal was put on ice, according to
Nikkei, a Japanese newspaper.
The question is whether shifting production out of China will be enough to avoid future
crackdowns. Even as Apple makes more of its gadgets outside China, it is no less reliant on
Chinese-owned companies to build them. Chinese manufacturers such as Luxshare, Goertek and
Wingtech are taking an increasing share of Apples business beyond Chinas borders.

3. Luxshare and Goertek are reported to be making AirPods in Vietnam, helped by the fact that some
Taiwanese rivals, like Inventec, have scaled back their work for Apple in recent years. In
September press reports hinted that the Indian government might let some Chinese companies
set up production facilities in India. Chinese companies share of iPhone electronics production will
rise from 7% this year to 24% by 2025, believes JPMorgan Chase, which predicts that in the next
three years Chinese companies will increase their share of production across Apples range of
products.
Could Chinese manufacturers outside China be targeted by American sanctions? For now this is
unlikely, believes Nana Li of Impax, an asset manager. There are no handy alternative [suppliers]
available with the same level of experience, efficiency and cost-effectiveness, so cutting them off
would hurt American firms, she notes. In time, that may change. Countries like India and Vietnam
are keen to cultivate their own suppliers. Tata is reportedly in talks with Wistron, a Taiwanese
manufacturer, about making iPhones in India. Indian firms report that the fruit company is
discreetly on the hunt for local suppliers.
Given the growing rift between America and China, it is sensible for Apple to place some side-
bets, before restrictions go any further. Chinese firms outside China are safe for now, says one
Western investor in Asia. But the noose is tightening.
Question
Over the next 10 years, how would you redesign Apples global supply chain so it is less reliant on
having final assembly suppliers based in China?
Consider the sourcing split between your final assembly suppliers and where you would instruct
these suppliers to locate their facilities in the future.
Consider onshoring/nearshoring and offshoring approaches
Consider centralized, regionalized and localized sources of production and supply
Consider whether to pursue vertical integration and/or continued outsourcing as part of your
overall strategy
How does your proposed 10 year supply chain redesign strategy reduce the risk of supply chain
disruptions and improve supply chain resilience?
What recommendations would you make to the Board of Directors of Apple to implement your 10
year supply chain redesign strategy? Please outline the advantages, disadvantages and trade-offs
of your recommendations and include a timeline for implementation.