2 min read.Updated: 27 Mar 2020, 04:20 PM ISTDebby Wu, Bloomberg
Many gadget makers are seeking alternatives to China-based production
But it unlikely that China will fully give up its place as the world’s electronics workshop anytime soon
Wistron Corp., one of Apple’s manufacturing partners, said this week half its capacity could reside outside China within a year. The declaration underscored how the Asian assemblers that keep the world supplied with iPhones and other gadgets are shifting to a higher gear after the coronavirus showed the folly of staking everything on one country.
The move in production out of China has been underway since the trade war between Washington and Beijing reached its zenith last year. Now, Covid-19 is expediting that. Decisions by companies like Wistron and other Apple Inc. partners including Hon Hai Precision Industry Co., Inventec Corp. and Pegatron Corp., could re-shape tech supply chains.
Taipei-listed Wistron is targeting India -- where it’s already making some iPhones -- along with Vietnam and Mexico, setting aside $1 billion to fund the expansion this year and next. “We understand from a lot of messages from our customers that they believe this is something we have to do," Chairman Simon Lin said on an earnings call. “They’re happy and appreciate that we can continue to make such a move and they will continue to work with us."
iPhone assembler Pegatron is also diversifying manufacturing sites. Chief Executive Officer Liao Syh-jang said Thursday the company hopes to kick-start manufacturing operations in Vietnam in 2021 after setting up a new plant in Indonesia last year, and it’s further looking at India as a location for new facilities. Apple’s main assembly partner for AirPods, Inventec, said Tuesday it’s preparing to establish a unit in Vietnam.
More than any other assembler, Hon Hai encapsulated how the coronavirus brought the world’s No. 2 economy to a standstill. Better known as Foxconn, it augurs a potential shift in a global production paradigm that’s governed the electronics industry well over three decades. The company also has facilities in India, where it began churning out iPhones last year, and Vietnam. “Trade, the virus, all these things will make the world very different in the next decade," Alex Yang, the company’s investors relations chief, told investors in a recent call.
It’s unlikely that China will fully give up its place as the world’s electronics workshop anytime soon. That’s because it’s difficult to replicate the intricate network of suppliers, competent workers, efficient distribution systems and large home market that the country offers. Large-scale relocation of manufacturing capabilities would also take time. Apple CEO Tim Cook said in late February that the company wasn’t looking to make any quick moves out of China in light of virus-related supply-chain interruptions. “We’re talking about adjusting some knobs, not some sort of wholesale, fundamental change," he said.
Still, the outward-bound trend is accelerating, especially among smaller-scale manufacturers. That extends to gadget makers serving customers other than Apple. Meiloon Industrial Co., which makes speakers and counts Harman International Industries Inc. and Xiaomi Corp. among its clients, said it’s seeking alternatives to China-based production and speeding up a move of capacity to places like Taiwan and Indonesia, spokesperson Eva Kuo said in a phone interview.
The singularly trying experience of dealing with the outbreak in China will reverberate well after Covid-19 subsides, raising questions about the globalized business model of modern corporations. “It’s a wake-up call," Joerg Wuttke, president of the European Union Chamber of Commerce in China, told Bloomberg Television last month. “China was a given, it was the perfect infrastructure for us to source and buy from there, and to sell. Now of course we have to reconsider scenarios, how to deal with China in the future.