top of page
  • Writer's pictureJerome Lau

Apple and China: Why it worked and why it doesn't now

by Jerome Lau on 30/01/23

Apple’s reliance on China might have paved the way for its success, but now the repercussions of its overreliance start to show.

Apple’s current net worth stands at $2246.53B as of the 26th of January, 2023, but having fallen from a $3 trillion valuation last year. However, trends show that its revenue has continued to grow steadily but has slowed in recent years.

Apple does not own the factories where its iPhones are made, where instead, under their contract with them, the Foxconn Technology Group, a Taiwanese company which produces roughly 70% of all iPhones, in their city-sized factory known as ‘iPhone city’ in Zheng Zhou, China with more than 250,000 workers.

Its success and efficiency largely comes from Apple having spent two decades building a supply chain with a heavy reliance on China that allowed them access to a huge ready-made supply-chain network, and the ability to scale up production almost overnight kept production costs low while producing high-quality products.

Aside from being cost-effective, a key aspect of Apple’s integration into China has to do with New Product Introduction. This is where new products that Apple or other manufacturing company releases into the market requires modifications to be made to pre-existing production lines to ramp up the production of new products.

China exists as one of the few countries which can smoothly carry out the process thanks to policies and encouragement from its government to introduce foreign manufacturing in China while simultaneously having a large, cheap and accessible labour pool to support production on such a large scale.

It is for these reasons that Apple has been able to efficiently pump out millions of iPhones each year, with China’s geographical advantage being its location to Hong Kong, a global distribution port.

However, Apple faces growing pressure from its investors and US politicians to reduce such reliance on China and to move their manufacturing to other countries. The irony lies where what was a key strategy to propel Apple to the peak of its success has turned into a weakness for it instead.

These rising pressures can be attributed to a multitude of factors, the first being China’s strict 0-COVID strategy, where entire cities were shut down upon the detection of a single case. This understandably severely impacted the productivity of Apple, resulting in worker-shortages at component plants, assembly factories and unusually long wait-times for stock to arrive, and on the side of statistics, where Apple was forecasted to experience a shortage of between 5 to 15 million iPhones in the previous year of 2022.

Growing trade tensions between China and the US, where the US commerce department issued orders to shut off China’s access to advanced semiconductors. With this decisions being made under the basis of Xi Jin Ping’s decision to tie its military reach with its economic development, even more hurdles have been put in place for the production of tech products in China.

While it is true that Apple currently faces a number of issues which threaten to greatly impact its supply-chain in the near future, a certain fact is that China can no longer serve as Apple’s main production hub, but nevertheless, the strength of Apple’s brand appears strong enough to avoid being significantly affected by these happenings.

Places like India or Vietnam, which both have pre-existing manufacturing sectors as well as the labour numbers and talent to potentially to meet the demand Apple needs, but looking at the complex structure Apple has with China, it may be difficult to replicate the same success elsewhere.

15 views0 comments


bottom of page