Vietnam or other ASEAN states, and India could become the next manufacturing hubs of Taiwanese firms over the next one to two decades, especially after Apple Inc reportedly told its major contract manufacturers to boost capacity outside China to avert risks of production disruptions.
Apple is a key client of many Taiwanese manufacturers, which assemble iPhones, iPads, MacBook laptops and airPods in China or supply components for those gadgets. Some of Apple’s suppliers and manufacturing partners had to suspend production this month to comply with China’s “zero COVID” policy and strict restrictions to curb the spread of the virus in Shanghai.
Those measures led to a dip in revenue and shipments, as well as a spike in logistics costs, and the impact could last a bit longer before moderating as the port city reopens and production gradually resumes.
As more arbitrary and capricious actions from the Chinese government might be expected, Taiwanese manufacturers are seriously considering a major realignment of their manufacturing capacity to minimize operating risks.
That is a reverse of the manufacturing diversification inertia seen in the past. Large-scale manufacturers have taken advantage of China’s low-cost labor and comprehensive supply chains, as those two factors are crucial to making a profit from the low-margin business of hardware assembly. As building new supply chains elsewhere is a challenging and time-consuming task, they preferred to stay in their comfort zone rather than face new risks.
When President Tsai Ing-wen (蔡英文) took office in 2016, she launched the New Southbound Policy — ticking off a list of countries that Taiwanese companies were encouraged to invest in to reduce their reliance on China. Local enterprises were not quick to embrace the policy. Presently, about 90 percent of Apple products are still made in China, based on the calculations of TF International Securities analyst Kuo Ming-chi (郭明錤).
However, with China’s investment environment undergoing significant changes because of the COVID-19 pandemic, the prolonged US-China trade dispute and Beijing’s crackdown on Chinese technology and financial giants, large-scale Taiwanese companies have been exploring other manufacturing hubs. This would be the biggest shift by Taiwanese firms after spending 30 years building their Chinese capacity.
iPhone assemblers Hon Hai Precision Industry Co and Pegatron Corp make iPhones in India, but only to supply the local market. Hon Hai said it is quickening expansion in India to match the pace of global peers. It is also investing in Southeast Asian countries, including Vietnam and Thailand.
Vietnam looks high on the priority list of Apple’s manufacturing partners to add new production, as Chinese companies that make AirPods have early on reportedly set up manufacturing in Vietnam.
Taiwanese companies have said it would be a big challenge to duplicate their Chinese production in other countries. Hon Hai said it would take at least three to five years to reach productivity similar to what it has in China now.
With the latest push from Apple, it has become an inevitable trend for Taiwan’s Apple suppliers and manufacturing partners to boost new capacity in countries other than China. With small-scale capacity already installed in India and Vietnam, it is no surprise that those two countries have a good chance of overtaking China and becoming the new manufacturing bases for Taiwanese firms.
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