Will we see a major smartphone manufacturing shift away from China?

This article may contain personal views and opinion from the author.
Will we see a major smartphone manufacturing shift away from China?
We’re back at it again! This time, however, it’s not about the Huawei ban and its consequences. We’ve covered what it means for Huawei and the various aspects of its business and how, on the other hand, it will give a significant boost to Huawei’s direct competitors. But the ban is just a small piece of a much larger puzzle — the relationship between the US and China. And as the two superpowers are exchanging economical blows, companies caught in the cross-fire are paying close attention and trying to figure out how they can come out of it without taking too much damage.

It seems the safest way to go about it is to avoid China altogether, or at least as much as possible. And we’re already seeing the first signs of that happening

The winds of change are blowing away from China

Many have the impression that China’s vast human resources and factories, alongside all the infrastructure needed to support them, make it an irreplaceable destination for cheap large-scale manufacturing. But all that was just a bonus to the favorable business conditions created by China’s government rather than the main reason companies chose it over the alternatives in the first place.

Factories are expensive to build, of course, but in the grand scheme of things, their cost is not so high as to stop a company from relocating if it comes to it. And with the relationship between USA and China rapidly worsening, it seems like for some the time is nigh.

The companies under the most pressure are those that manufacture goods sold in the States and of course, at the top of this list are Apple’s assemblers. And they seem to be the ones acting the fastest. Foxconn, Apple’s biggest contractor, already has an operational factory in India. The move was made mostly due to the high taxes on imported products that made iPhones prohibitively expensive, but it seems it may serve two purposes. The new assembly line is currently manufacturing older models for the local market but sources say it will be able to produce the 2019 models as well. The capacity of the Indian plant is far below what Apple needs to become independent from China, but it’s a step in that direction.

Another prominent Apple partner, Pegatron, just recently announced its intent to invest close to $1 billion to build a factory in Indonesia meant to manufacture chips for Apple smartphones. What’s curious about that is that currently, Pegatron isn’t even in the chip-making business at all. Right now, Apple gets its silicon from TSMC, which is a company based in Taiwan (another sensitive topic for China).

Pegatron is also looking at India and Vietnam as two other possible locations for new factories outside of China. Vietnam has become a lucrative destination for many companies as its government has passed various laws and regulations that reduce the tax burden on foreign investments and makes it easier to set up shop in the country. The new strategy is paying dividends and the country’s economy is one of the fastest growing globally. Foxconn is also considering expanding into Vietnam but the plans for that are far behind those for India, so it doesn’t seem like we’ll be seeing Vietnamese made iPhones quite yet.

Just like in a strategy game, pieces are moving everywhere around the map. With hundreds of billions of dollars at stake, securing the capability to fulfill orders is paramount for any manufacturer and conveniences such as location or marginally cheaper labor (if even that) have little weight when put against the future of the company.

The trade war might be temporary, but the consequences can be permanent

If the forces at work are willing, this whole tension between the US and China can disappear in the span of a single meeting. We’ve seen countless similar conflicts getting resolved like that in the past. But while taxes can be reduced with the signing of a few documents and bans can be lifted, all the changes that were set in motion during this troublesome period are likely to remain for decades to come.

Once the factories are built, workers hired and products being made, there’s hardly any reason for companies to look back. The gripe between world leaders has started a chain reaction that will leave a lasting mark on China’s economy. And countries that are getting China’s lost business won’t be eager to give it back either. Just like we see cities bend over backwards to lure companies like Amazon to build headquarters within their jurisdictions, we can expect governments to do the same when it comes to investments that can change the lives of thousands of their citizens for the better.

For us consumers, all of that will likely have little effect on the end products we get. The manufacturing processes are so optimized that you can get the same quality pretty much everywhere as long as there’s enough control. Of course, some users will benefit directly from the lower cost of devices made in their country, but for the rest of us, the only noticeable difference will be the country name after “Made in” or “Assembled in” on the product and packaging.

How severe the manufacturing migration will be we’re yet to see. Currently, there’s no evidence of the relationship between the US and China improving, which means we can expect to see more and more companies looking for alternatives for future expansions. And if one thing is clear, it’s that the rest of Asia will gladly accept the exiles.



1. Back_from_beyond

Posts: 1472; Member since: Sep 04, 2015

Most of the world doesn't have a problem with China, it's primarily the Americans that feel threatened. The only thing the USA is currently succeeding at is widening an ever growing divide between it and its long-time allies and with moronic Trump fueling the fire because he doesn't understand trade and diplomacy. Meanwhile Putin is laughing his ass off at the ever increasing chaos in the world.

3. currator

Posts: 13; Member since: Sep 23, 2016

You seem to lack any real knowledge of the subject. So I can safely assume you are Chinese and possibly work as a paid troll. Most of the world can not stand China and are happy to see them getting what they deserve. China is a communist country and limited rights and a human rights violators. So no most of the developed world does not like them

5. Back_from_beyond

Posts: 1472; Member since: Sep 04, 2015

That's bulls**t and you know it. As long as the average consumer can get what they want at reasonable prices they don't care where it comes from or the conditions it was made under. The only country that basically still cares that it's a communist country is the USA and even then it's primarily politicians that actually care, at least in public. I wouldn't even be surprised if the majority of Americans didn't even know that it still is a communist country.

14. raky_b

Posts: 420; Member since: Jul 02, 2014

USA have a problem with its self, with their own tax laws and their own companies... China is not USA's problem, their international companies are. Just look at that Facebook, Apple or Google and how much tax they are escaping to pay...if USA thinks that all that factories are made in China because China did something to win them, it's wrong....they are in China to make more profits for them self avoiding taxes all over the world, because USA did wrong on the 1st place,by letting them not paying taxes on everything made outside US, but with sticker "designed in..." instead, like it's made in USA. Now, to their government whole world is guilty for their bad politics (and because of which US citizens are paying cheapest iPhones/Samsung's devices and many other things)...only thing is, they need to know that, when you start with blaming others, they could think about yours relationship and bring taxes to your's product....since, why not if there is no trade deals anymore!? We all know FB, Apple, and many other American companies does not pay taxes almost in whole world, by committing US laws, they are escaping to do that...by paying some smaller amounts in places such as Virgin islands. Now, that times are going to be over....USA should change that and charge what they should do on a first place, so will rest of the world. That means everything will become more expensive...or that companies that tries to overcharge will lost all, but no one else will be blamed for USA losing their jobs and businesses.

2. User123456789

Posts: 1150; Member since: Feb 22, 2019

Presence of Apple in China brings a lot of money to them. So, I doubt they will ever ban Apple. Even important people from two big chinese brands were caught using iphones instead of their own phones. And considering the fact that since 2014, at least 90% of the phones from chinese brands had iphone design , this show how important Apple is there.

7. oldskool50 unregistered

What? The iPhone doesn't have to be made in China to be copied. That is just dumb. And lots of OEMs have much larger investments then Apple does. Samsung for example actually has factories in China. How many does Apple have? None. Yes Apple does have a few manufacturers who make their stuff, and yes it helps to have more workers. But other OEM's can help bring factory to China that could replace everything Apple has been providing. After all, OEM's like Intel, Microsoft, CISCO and others were in China having stuff made long before Apple. Apple only started making phones in roughly 2006 in China. Samsung was making millions of phones in China along with many big names like Nokia, RIM and others. Apple isn't the world and when you consider how Apple treats its partners, i would be glad never to do any business with them.

8. oldskool50 unregistered

China has its own brands and Huawei has already past Apple and now others there will too.

9. rossy

Posts: 47; Member since: Aug 23, 2013

The point is that China has nothing unique anymore that Vietnam or India cannot provide for manufacturing. The only unique about China is the scale of IP theft and forced technology transfer its companies and government engaged in.

17. mootu

Posts: 1541; Member since: Mar 16, 2017

Yes it does have something unique, the supply chain and infrastructure. You can build factories wherever you like but without the supply chain and infrastructure they will never be optimal.It took China 20 years to build all that with massive government investment, it cannot happen overnight it's impossible.

4. rossy

Posts: 47; Member since: Aug 23, 2013

Thank you, Georgi for an insightful article! I want to see more balanced analysis like this that goes beyond the headlines. Sure beats click baits I see Alan put out.

6. oldskool50 unregistered

If Apple moves out of China, then it will make it easier for China to ban Apple and its products totally from the country.

10. rossy

Posts: 47; Member since: Aug 23, 2013

For once I agree. Apple would have been banned on the grounds of Apple not providing back door to the security services if it were not for employment of workers inside China.

11. TS020

Posts: 62; Member since: Feb 16, 2019

I lived in China. The reason companies are leaving China doesn't have much to do with Americans, they're just an excuse for the problems the Chinese govt created for themselves: -Foreigners are watched closer and have more restrictions placed on them now than they did before. This makes it harder to find employees willing to go and work there, and the ones who are there are more likely to want to leave. -The cost of living in major cities in China has massively increased, driving wage costs up. -The Chinese govt is pushing communist propaganda again, creating unease for further investment.

15. TBomb

Posts: 1662; Member since: Dec 28, 2012

I believe that only 1 or 2 people in the PhoneArena system are actually Politically inclined with their knowledge. The rest have their bias and don't know how to have a real conversation regarding it. We should stop having them - especially when there are a lot of non-native english speakers in the comments.

16. tokuzumi

Posts: 1961; Member since: Aug 27, 2009

Anything that's going to happen is going to take decades. The "made in China" tag on everything we own now didn't happen over the course of a couple of years. Companies will move to where labor is cheap. This will mean places that probably don't have very much infrastructure. So warehouses will need to be built, infrastructure (power, water, waste) will need to be built. Nothing will happen in the short term. I've known that once China gets a taste for the western way of life, and wages rise, companies will leave anyway. This would have happened regardless of the US/China trade war.

* Some comments have been hidden, because they don't meet the discussions rules.

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