How Apple and Samsung are Reshaping Global Supply Chains
In 2008, Samsung’s manufacturing sprawled across mainland China. Yet, by 2023, those manufacturing facilities have dwindled, replaced by operations spread throughout Southeast Asia. A similar transformation has taken place at Apple. This massive shift is not accidental or coincidental. It is a strategic decision made by these tech giants to diversify their operations, fundamentally reshaping their businesses and influencing the global supply chain dynamics. This piece seeks to examine the motivations behind these shifts, the strategies employed, and the potential implications for the future.
Rationale for Moving
In 2008, Samsung pioneered the transition by setting up a manufacturing plant in Vietnam’s Bac Ninh region. This move signaled an intention to dilute its dependence on China. It wasn’t a reckless gamble but a calculated move that analysts lauded as forward-thinking.
There were a multitude of benefits. Firstly, Samsung capitalized on lower labor costs in countries like Vietnam, making manufacturing more economical. Secondly, this move insulated the South Korean tech giant from geopolitical tensions inherent in operating within China, thus reducing associated risks. Lastly, this diversification proved to be a bulwark against supply chain disruptions, like the ones experienced during the COVID-19 lockdowns in China.
Over time, rising labor and operating costs within China eroded Samsung’s ability to cheaply produce its products. Fierce competition from domestic rivals compounded the issue, leading to a precipitous drop in Samsung’s market share. In response, Samsung systematically relocated its smartphone operations, shrinking its workforce in China by 70% since 2013.
While Samsung maintained some significant manufacturing centers in China, primarily for its memory chip business, the company shielded itself from the Trump-era tariffs by moving its smartphone operations. The tariffs, paired with escalating geopolitical tensions between the West and China, compelled numerous companies to reevaluate their manufacturing locales.
In 2020, as the world grappled with the pandemic, Apple, too, began considering similar moves. China’s stringent COVID policy disrupted operations for tech companies, leading many to contemplate manufacturing elsewhere.
Apple’s decision gained traction following violent protests at its largest iPhone manufacturing plant in Guangzhou, China in 2022. Discontented workers who had been under strict COVID-19 lockdown protested against the delay of bonus payments. According to insiders and analysts, these incidents made Apple uncomfortable with having a substantial portion of its business ensnared in one location.
The India and Vietnam Strategies
While different catalysts propelled Samsung and Apple out of China, their strategies converged on two new manufacturing hubs: India and Vietnam. Both countries offered appealing incentives like tax breaks and grants to entice companies. In Vietnam, Samsung’s corporate income tax is 10%, compared to China’s 25%. This advantage, combined with the large workforce, led to Samsung producing half of its smartphones in Vietnam.
Meanwhile, Apple expanded its manufacturing operations in Vietnam, moving some of its watch and iPad manufacturing to the country. Its list of top 200 suppliers in 2023 included 25 Vietnamese companies, marking a 25% increase from four years ago.
India, boasting the world’s second-largest smartphone market behind China, emerged as another key player in this grand shift. Around 20–30% of Samsung smartphones are manufactured in India, and the company continues to expand its operations. By 2022, Samsung accounted for around 20% of India’s total market share, making it a dominant force in the market.
Apple, lagging with less than 4% market share in India, has been strategizing to change this narrative. In 2023, for the first time, Apple has planned to manufacture a portion of its iPhone 14 models in India, marking a significant shift in its operations. The long-term goal is to manufacture 40–45% of iPhones in India, improving its supply chain resilience and ensuring smoother access to the Southeast Asian market.
Future Implications and Challenges
These massive strategic shifts underscore a growing trend amongst multinational companies to diversify their supply chains. However, these changes don’t happen overnight and don’t come without challenges. Despite Samsung and Apple’s efforts to relocate their manufacturing operations, they still rely heavily on Chinese suppliers for critical components. During the peak of the COVID-19 outbreak, Samsung grappled with securing suddenly scarce Chinese components, highlighting the ongoing dependence on Chinese suppliers.
The tech giants need to tread carefully to maintain their relationships with Chinese suppliers while diversifying their supply chains. As the US-China relationship becomes more contentious, many Western companies perceive China as riskier, prompting them to think about doing less in China and focusing on de-risking their operations from political uncertainties.
Conclusion
Samsung and Apple’s decisions to diversify their supply chains present a new model for other tech giants to follow. By relocating to Southeast Asia and India, they have not only circumvented the rising costs and geopolitical tensions in China but also capitalized on the economic incentives offered by these new locations. This great diversification has not only reshaped their businesses but also signaled a paradigm shift in the global supply chain. As geopolitical and economic landscapes continue to change, this trend is likely to continue, encouraging more tech companies to diversify their operations and supply chains in the coming years.
