Apple increasingly dependent on China


In the trade war that has been driving China-US relations for months, Apple is in a delicate position as its presence on Chinese territory increases. Here are the figures of his dependence on China.

Apple has close ties with China. No choice, since some products of the American technological giant, such as its connected watches and wireless headphones, are entirely "made in China". The factories of Hon Hai Precision Industry, Foxconn, Pegatron, Wistron and others employ several hundred thousand people in China to assemble the branded apple products. Such a presence on Chinese territory creates an addiction. And this dependence is increasing year by year, according to Apple's figures analyzed by Reuters.

As a reminder, the US president, Donald Trump, wants to apply a 15% tariff as of September 1st. The iPhone, the flagship product of Apple, may be taxed in turn on December 15. The Californian group is therefore particularly vulnerable to customs barriers that its home country raises.

Apple subcontractors have certainly installed in recent years assembly lines in India or Brazil, a way to avoid too much dependence on China. But these factories are smaller and serve only to meet local demand. Subcontractors have also established more new sites on Chinese soil than outside.. Foxconn, for example, has grown from 19 to 29 sites in China between 2015 and 2019 and Pegatron from 8 to 12 according to data from Apple. Beyond the assembly sites, we must take into account all suppliers of the Californian group, which sells chips, glass, aluminum housings, cables, motherboards and many other components.

On all sites of its suppliers, the share of those settled in China has increased from 44.9% in 2015 to 47.6% in 2019. The Reuters news agency analyzed data released by Apple on its supply chain over a five-year period. In total, they concern more than 750 different sites each year for the 200 main suppliers of the group in terms of costs for Apple (the group does not specify the amount it pays to each). Apple declined to comment on the analysis conducted by Reuters.

A solution to circumvent customs duties?

For electronic products, the "official" country of origin is sometimes the one where the motherboard is made, says George R. Tuttle III, a customs lawyer. Such a principle could allow US companies to manufacture their motherboards or other components out of China while continuing to assemble their products without paying customs duties. Apple has not yet submitted any project of this nature.

Hard to say no to China's strengths

The group would encounter difficulties if it wanted to reduce China's share in the manufacture of its products. The concentration of its suppliers in this country allows Apple to assemble its machines by hundreds of millions while limiting its stocks to a few days. This is a big asset for investors. And, it is difficult to find other countries providing such abundant labor. Even if the group manages to assemble products in India or Vietnam, the volumes will be insufficient to meet the demand.

There are few places in the world that have the infrastructure to produce 600,000 phones a day

Dave Evans

General Manager of Fictiv (Supply Chain Consulting Firm in San Francisco)

Apple has so far been spared by rising tariffs on its main products: Its CEO, Tim Cook, meets regularly with Donald Trump. The group pointed out to the Trump administration that in its eyes, tariffs would result in price increases paid by US consumers. Apple has not formally announced that sales prices would be raised.

Apple expands its circle of customers

Apple will now supply spare parts, diagnostic tools and instruction manuals to independent workshops who repair faulty iPhone, after having opposed for years to the American States that wanted to force him to do it. The Californian group said Thursday that its new program, which should help relieve strong demand in licensed stores and Apple stores, would be first launched in the United States before being deployed in other countries.

For Ben Bajarin, an analyst at Creative Strategies, Apple could increase sales of its services and accessories with this decision by encouraging iPhone owners to pass on their old phones to their loved ones. "This helps make the product more affordable for more customers and increases the customer base", did he declare. "All the data seem to indicate that when you enter Apple's ecosystem, you do not usually get out. "

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