Inside Apple’s and Samsung’s Supply Chain Shift Away From China | WSJ

- In 2008, Samsung's smartphone manufacturing facilities were scattered throughout mainland China. Just 15 years later, those factories have disappeared and almost all have moved to Southeast Asia. - It may have given Samsung a competitive advantage to go to Vietnam first. - But Apple was on its heels. In recent years, the tech giant began taking similar steps to diversify its operations. Here's a closer look at how Samsung and Apple's manufacturing moves from China are reshaping their businesses, and what the strategies reveal about the rapidly changing global

supply

chain

. In 2008, Samsung set up a plant in the Bac Ninh region of Vietnam to reduce its dependence on China.

Tech industry analysts say it was a forward-thinking move for the South Korean company. - They benefited in many ways. They benefit from cheaper labor in some of these countries they move to. They benefit from being insulated from some of the geopolitical tensions that come with operating in China and continuing to expand in China. They also benefit from being insulated from the types of

supply

chain

shocks we saw during the COVID lockdowns in China and the supply chain disruptions that resulted from that. - Over the next decade, rising labor and operating costs in China made it difficult for Samsung to produce its phones cheaply.

That, along with intensifying competition from domestic smartphone rivals, caused Samsung's market share in China to plummet. Meanwhile, the company was slowly moving its smartphone operations out of the country. Since 2013, the number of Samsung employees in China has fallen by 70%. Samsung still maintained major manufacturing centers in China, including for its expansive memory chip business. (hiss) - Samsung Semiconductor. - But moving its smartphone operations into the company was protected from many of the Trump-era tariffs on products made in China. - Those tariffs, along with the geopolitical tensions developing between the Western world and China, led many companies to reconsider where they make things. - By 2019, there was... - It closed its last phone factory in the world's largest smartphone market. - A year later, the pandemic hit and prompted technology companies like Apple to take similar measures outside China. - China had a very strict COVID policy that caused a lot of disruption for many of these companies and seriously pushed them to consider manufacturing elsewhere where those kinds of disruptions wouldn't be a thorn in their side. - Apple's plans gained even more momentum in late 2022 after violent protests rocked the company's largest iPhone manufacturing plant in Guangzhou, China. (rioter speaking in Chinese) Demonstrations broke out when workers who had been under strict COVIDS lockdown for weeks learned that bonus payments would be delayed.

At the time, Apple said it was working with facilities to ensure employee concerns were addressed. According to analysts and people in the company's supply chain, Apple is no longer comfortable having much of its business concentrated in one place. While different developments first pushed Samsung and Apple out of China, their new supply chain strategies focus on the same places: India and Vietnam. - These countries, some of them, have offered tax exemptions to companies to locate their manufacturing facilities. In some cases, there have been subsidies and other incentives that these companies find difficult to pass up. - Samsung pays approximately 10% corporate income tax in Vietnam, compared to the standard rate of 25% in China.

It currently produces half of its smartphones there. Apple also has operations in Vietnam. The company began producing its watches in the country and also moved some of its iPad manufacturing there. In Apple's most recent list of its top 200 suppliers, 25 were in Vietnam. That's 25% more than four years ago. Then there is India. According to Morgan Stanley, between 20 and 30% of all Samsung smartphones are currently manufactured there, and the company continues to expand. In 2022, it opened the world's largest mobile phone factory near New Delhi. These moves helped the company become a dominant force in India's rapidly growing smartphone market.

The second largest in the world behind China. - Stunning Galaxy A14 5G. Now for only 44 rupees per day. - In 2022, Samsung accounted for around 20% of the country's total market share, while Apple had less than 4%. Apple is working to change that. In a recent earnings call, CEO Tim Cook said. - India is an incredibly interesting market. It is an important focus for us. - So this year Apple has said that it plans to manufacture a portion of its iPhone 14 models in India for the first time, which is an important step. You know, the company is basically saying we want to diversify. - Technology analysts say manufacturing iPhones in India and then selling them in the surrounding Southeast Asian market ensures a smooth and more resilient supply chain.

Apple's long-term goal is to ship 40 to 45% of iPhones from India, according to supply chain analysts. In 2022, that number was in the single digits for the company. More recently, the company began moving manufacturing even closer to home. A multibillion-dollar deal with U.S. chipmaker Broadcom will allow Apple to source critical chip components from manufacturing centers across the United States. But even as Apple and Samsung spend billions to move

away

from China, manufacturers may still rely on suppliers from that country. During the height of the 2020 COVID19 outbreak in China, Samsung found itself struggling to source Chinese components that were suddenly in short supply. - There is also a political challenge because these companies, many of them still need to manufacture in China to some extent, and they have to be delicate in managing the diversification of their supply chains. - Although a

shift

in the supply chain will not happen overnight, Samsung and Apple's manufacturing strategies reveal a broader trend of risk reduction that is transforming global markets. - It's like diversifying a portfolio, so to speak.

Like the United States and China, that relationship is becoming increasingly contentious, with many Western companies seeing China as riskier. And that is why they are thinking about doing less in China. They are thinking about reducing risks from a policy perspective in this situation. (soft and happy music)