At the end of last month, videos started circulating on the Internet that show thousands of people carrying suitcases through the streets and highways of Zhengzhou, China.
They were workers from Foxconn Technology Group, the world’s largest electronics maker, fleeing the company compound. Some barbed wire fences scaled to escape; others walked 25 miles to get home.
Days after the mass exodus, China locked down the industrial park where Foxconn’s facilities in Zhengzhou, known as “iPhone City”, are located. This further isolated the facility’s 200,000 workers, who were previously asked to work in a ‘closed-loop’ system due to a COVID outbreak, in which they sleep, live and work in a designated area isolated from the outside world. . The closed-loop system left Foxconn workers exposed to the virus and without basic necessities, causing them to flee.
This is not the first lockdown at a Foxconn factory. Foxconn facilities across China have suffered production losses several times this year due to government-mandated shutdowns and closed-loop systems. Following recent disruptions in Zhengzhou, including both the lockdown itself and earlier worker escapes, production at Apple’s favorite iPhone factory has fallen to “significantly reduced capacity”, it said. acknowledged the Cupertino-based company in a note last week.
For nearly three years, companies like Apple have operated with the uncertainty of not knowing when and where the next lockdown will hit – and for how long – due to Beijing’s strict zero COVID playbook, underscoring the risks of too dependent on Chinese factories.
These lockdown uncertainties, combined with growing trade tensions between China and the United States, have led Apple to accelerate its search for new manufacturing hubs. And India has emerged as the clear winner, with some analysts betting that the world’s third-largest economy is poised to become one of Apple’s preferred suppliers.
Beijing’s relentless pursuit of zero COVID has locked people in malls and office buildings, factories and even Disneyland. China’s virus containment measures, among the toughest in the world, have fueled anxiety, depression and psychological trauma.
For global companies operating in China, the government’s virus containment strategy has resulted in major disruptions to production and sales.
The grueling 60-day spring lockdown in Shanghai caused Starbucks China sales to drop 40% this quarter; Tesla delivered 18% fewer cars during the same period, compared to the previous quarter. Over the spring and summer, Apple lost $4 billion in advance sales of iPads and Macs alone. Following China’s virus containment measures – which show no end in sight – the business climate has collapsed. Only 55% of companies surveyed by the American Chamber of Commerce in Shanghai in October said they were optimistic about their five-year business prospects in China. It was the lowest reading in the survey’s 23-year history.
China’s embrace of zero-COVID, alongside growing trade tensions between China and the United States, has made it increasingly difficult for companies to “rely solely on Chinese suppliers for their products”, he said. Patrick Penfield, professor of supply chain practice at Syracuse University. Fortune.
“Many multinationals in China are struggling to maintain production, supply and meet demand,” he said.
The mass escape by Foxconn workers and subsequent lockdown in Zhengzhou only reinforces the “toughness” of China’s virus containment strategy, said Edith Terry, chief executive of consultancy Cotton Tree Advisors, who focuses on business and public affairs in East Asia. Fortune.
The consequences of China’s zero-COVID policy are an “absolute blow to Apple in its most important holiday quarter”, Dan Ives, managing director of investment firm Wedbush Securities, tweeted Last week. “We estimate this negatively impacts approximately 3% of iPhone sales this quarter based on…production in China [and] supply issues. The albatross continues in China,” he said.
Zhengzhou is a crucial site for Apple’s iPhone production, especially its newer models. iPhone production could slow by up to 30% due to recent events, bad news for the electronics giant ahead of the holiday season. Apple said Sunday it would make fewer iPhones and shipments would be delayed. The unpredictability of Chinese supply chains has created glaring uncertainties for companies like Apple that “rely on a stable supply of goods from China,” said Chris Tang, Distinguished Professor of Business Administration at the UCLA. Fortune.
“For this reason, Apple no longer has a choice [but] diversify its supply base.
And that base, he added, is shifting to emerging markets like India and Southeast Asian countries.
The opportunity of a lifetime
In recent years, India has courted multinational corporations in a bid to become the world’s premier electronics and smartphone manufacturing hub. In June 2020, he announced a $6.6 billion incentive program to entice global companies to produce their electronics in India.
The Modi government has recognized the current moment as a “unique opportunity” to influence global businesses as China’s zero COVID strategy shakes up their supply chains, Akshobh Giridharadas, adviser to business advocacy group US-India Strategic Partnership Forum, Narrated Fortune. “India has a limited time – and [Narendra Modi] realizes it. The government is accelerating policies that will give India an advantage as companies increasingly diversify their supply chains,” he said.
India’s strong state support for smartphone manufacturing, coupled with its large workforce of young, skilled professionals, is driving the world’s mobile phone makers to ramp up production in the country, said Tarun Pathak, director research at smartphone consultancy Counterpoint Research. Fortune. And a key selling point that differentiates India from other emerging markets is its vast market size.
“Foxconn is moving production to India from China, it’s also getting closer to a high-growth market, rather than, say, following US policy signaling to contain China,” Terry said. Apple also wants to dominate India’s fast-growing high-end smartphone market, which is expected to grow 10% next year from 7%, Pathak said.
Today, according to experts, India is fast becoming a favored factory hub for Apple at the expense of China.
In September this year, Apple began manufacturing iPhone 14s at a factory outside the city of Chennai – the first time the Cupertino-based company has based production of its new smartphones in India, marking a shift major in its manufacturing strategy.
After Zhengzhou’s latest lockdown, Apple has asked a second vendor – Pegatron from Taiwan – to start launching its latest iPhone model in Tamil Nadu, according to a Bloomberg report. Foxconn now plans to quadruple its Indian workforce over the next two years to 70,000, according to a Reuters report.
Analysts now expect a larger and faster-than-expected shift in iPhone production to India. In September, JPMorgan analysts predicted that India could produce 5% of Apple’s iPhone 14 stock and 25% in three years. Ming-Chi Kuo, technology analyst specializing in Apple at TF International Securities, based in Hong Kong, said last week that the Zhengzhou lockdown prompted Foxconn and Apple to ramp up iPhone production in India. Kuo waits Indian-made iPhones, again by Foxconn, are expected to grow by at least 150% next year.
“Foxconn’s medium to long term target is to ship 40% to 45% of iPhones from India, up from 2% to 4% currently, meaning that Foxconn’s iPhone production capacity in India will increase rapidly over the next few years,” suggests Kuo. .
Pathak thinks Apple “can scale in India” with iPhone production in the country likely to double next year. But he argues that India, which contributes half of all iPhone assembly globally, is an “ambitious” target because of China’s still outsized role in iPhone’s supply chain. iPhone and fierce competition from other emerging markets.
Apple is not alone in diversifying its production in India. Rivals like Samsung, Xiaomi and Google (which makes the Pixel smartphone) are also moving production to India. From 2021 to 2022, Indian smartphone production jumped 126%, making the country the world’s second-largest smartphone maker behind China.
Companies like “Apple, Abbott, Boeing-Tata, Flex, Pratt & Whitney…are just the start of this wave” of multinationals looking to India, said Gunjan Bagla, Indian managing director of the consultancy Amritt business and commerce professor at Arizona State University. Fortune.
Yet India needs to develop the infrastructure and talent these companies need. China still offers efficient, high-value manufacturing networks that Apple – and other multinationals – will struggle to replace in India, said Paul Hong, a distinguished professor of global supply chain management at the University of Toledo. Fortune. India imports the bulk of iPhone components from China. “For Apple, the complete decoupling of China [is] not realistic in the short term,” Hong said. Instead, the companies are now pursuing a “China plus one” strategy that sees them keep operations in China but diversify supply chains to India and competing economies like Vietnam and Mexico, Bagla said. .
Chinese authorities have now lifted the lockdown in Zhengzhou, but the Foxconn complex remains under a strict closed-loop system, with company and government officials providing no indication of when it will end.
And India will continue its mission to leverage China’s zero-COVID pain, Giridharadas says.
“India is just getting started.”
This story was originally featured on Fortune.com
The U.S. housing market will see the second biggest correction of the post-war period – when to expect a bottom in house prices
Sam Bankman-Fried’s Failed Crypto Empire ‘Was Run By A Bunch Of Kids In The Bahamas’ Who All Dated Each Other
COVID cases are on the rise again this fall. Here are the symptoms to watch out for
I had to be gifted to escape homelessness and land a six-figure tech job. Here’s what I think of silent shutdown.