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Not made in China is global tech's next big trend

Debby Wu, Bloomberg News on

Published in Science & Technology News

Three years ago, manufacturing gadgets in China was a given. That's changed fundamentally in the era of trade wars and coronavirus.

Under the new reality, the world's electronics makers are actively seeking ways to diversify their supply chains and reduce their dependence on any single country, no matter how attractive.

Never has there been so much angst among suppliers. And no wonder, because by most reckonings, the world is facing some of the biggest shocks to production since Taiwanese manufacturers -- responsible for assembling the majority of the world's gadgets -- began to decamp en masse to China 30 years ago.

The latest trend started with the U.S.-China tariff battle, which reached a boiling point last year. Now the onset of the Covid-19 pandemic has rapidly accelerated those plans and emboldened officials to speak openly of their exodus efforts.

These days, more conversations with Taiwanese tech executives revolve around choosing the best location outside mainland China for manufacturing. They like Vietnam because of its proximity to China, though labor costs there are on the rise. While Taiwan is home, it's considered too expensive, again mainly due to relatively high wages.

On earnings calls, analysts are increasingly asking companies how they plan to shake up the geographic spread of facilities to avoid U.S. tariffs on Chinese imports. At the beginning of Donald Trump's presidency, executives shied away from such questions as they did not want to anger Beijing. But recently they openly provide details of shift from China now seen as inevitable. No one wants to be seen as lagging behind in hedging against risk.

Simon Lin, chairman of iPhone assembler Wistron Corp., was even bold enough to tell analysts last week that his company can have 50% capacity outside of China by 2021. Two other Taiwanese assemblers also announced further plans to bolster their non-China production capacities in the past seven days.

Covid-19 is hastening such moves. Eric Tseng, chief executive officer of Taipei-based Isaiah Research, said some companies had been holding back from making any major supply-chain decisions, waiting to see if there would be any lasting resolution to the Washington-Beijing trade spat. "But coronavirus risks people's lives. Now A lot of companies will accelerate their departure," he said.

 

It won't be easy to replicate the intricate network of suppliers, competent workers, efficient distribution systems and large domestic consumer that China offers, and authorities are also doing their part to sway manufacturers to stay. In Zhengzhou, home to the "iPhone City" mega-complex, the local government has appointed specially designated officials to help Apple Inc. partner Foxconn address logistics and labor-shortage related issues brought about by the coronavirus spread.

Apple has also said it wasn't looking to make any quick moves out of China because of virus-related interruptions. "We're talking about adjusting some knobs, not some sort of wholesale, fundamental change," Chief Executive Officer Tim Cook said in late February.

Still, Foxconn begun churning out older iPhones in India last year, a move that appeared to signal Apple's growing interest to bolster its presence in the world's largest market for smartphones after China. Regardless whether they select India, Vietnam or any other country -- it's clear that electronics makers are past the point of no return in their gradual migration from China.

(c)2020 Bloomberg News

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Distributed by Tribune Content Agency, LLC.

 

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