It was a hot summer morning in Taipei when several officials from the American Institute in Taiwan, the de facto U.S. embassy, visited the top management of a major tech company, a key supplier to Apple.
It was immediately apparent that this was unlike previous courtesy visits, where U.S. officials stop in from time to time to hear what’s happening in the industry. This time, they cut the chitchat and threw out a blunt question soon after they sat down: “Why aren’t you moving more of your production capacity outside of China?” they asked. “Why aren’t you moving faster?”
Participants described the conversation as “serious and unsettling.” “We felt uneasy,” said one. “They asked many questions that we didn’t know if we could answer. The answers would have involved unreported strategies about ourselves and our clients.” But the message was unambiguous: The U.S. government was directly appealing to his company to cut its ties to China, he said.
The idea of unpicking the sophisticated tech supply chain that has grown up in China over the last two decades would have been unthinkable just two years ago. But pressure from the Trump administration has made this a reality, with companies from Apple to Google decamping from China to Vietnam, India, Thailand and Malaysia in the last 36 months. For the global tech industry, the question is whether the alternative supply chain that emerges can match the efficiency of the one in China that builds more than 200 million iPhones a year.
Apple walking a bit of a tightrope here:
A number of the biggest companies are doing their best to straddle the widening chasm between Beijing and Washington, in an effort to avoid picking a side. Apple, for one, has adopted a two-sided strategy to balance itself from the tech war. While it has been pushing suppliers to accelerate their shift away from China since late 2018, it has also been aggressively cultivating Chinese homegrown suppliers to play a more important role inside China, and secure continuous access to the 1.4 billion strong market.
Fascinating read. My gut reaction is that diversification is incredibly important, minimizing dependence on China is good for Apple, as long as they can still reach China’s billion-plus market.