In this Supply Chain Matters editorial commentary, founder Bob Ferrari highlights Apple CEO Tim Cook’s recent trip to China which provides an example of the implications to today’s businesses for more closely aligning business and supply chain strategy in the post pandemic global environment.

 

Background

In a number of prior Supply Chain Matters blog commentaries, we have highlighted for readers how global smartphone and consumer electronics provider Apple has behind the scenes been influencing key contract manufacturing and component suppliers to begin to establish alternative sourcing of materials and production beyond China. The primary catalyst has been last year’s Covid-19 related lockdowns of China’s major cities and manufacturing regions, including Foxconn’s massive iPhone City complex in Zhengzhou.

In November of last year, the founder of Foxconn Technology, Apple’s prime contract manufacturer was compelled to write a letter to Chinese leaders to: “warn that strict Covid-19 controls  would threaten China’s central position in global supply chains and demanded more transparency into restrictions on the company’s workers.” In our Supply Chain Matters commentary that highlighted this development, we mentioned various business media reporting citing informed sources, indicating that China’s health officials and government advisors leveraged the letter to bolster the case for easing the country’s pandemic controls.

Such easing measures reportedly began in mid-November, leaving different interpretations by local government officials. After a house fire in the Xinjiang killed a reported 10 people triggering widespread protests in other cities, the government dropped many of the prior population testing and quarantine measures as well as curtail the ability of local leaders to impose lockdowns. Our commentary opined that one could also interpret that this letter to China’s government leaders, coming from Foxconn’s influential founder, likely served as a wake-up call that the stakes of China losing its prominence as the epicenter of global manufacturing needs were at-risk, possibly including the presence and bragging rights of Apple.

In late 2022, the consumer electronics giant publicly acknowledged that the company had too much reliance on a single country in terms of supply network and product assembly dependence. Hence, over the past three months, business and industry media has been monitoring Apple’s supplier ecosystem in terms of statements and actions. As our readers are likely aware, this consumer electronics provider maintains a strict confidentiality policy with suppliers in overtly disclosing supply chain strategy actions and hence does not directly comment to such published reports of a China Plus movement.

Latest Development

Bloomberg along with other industry media have been reporting on Apple CEO Tim Cook’s latest visit to China this week. In addition to visiting some Apple retail stores and work teams, Mr. Cook met with China’s Minister of Commerce, Wang Wentao.  According to this Bloomberg report, Wang indicated that “China will continue to open up and provide good services to foreign firms including Apple.”

Mr. Cook had joined a number of U.S. and European business leaders who also met with the Minister of Commerce in conjunction with the China Development Forum held in Beijing. Other business leaders attending the conference were indicated to be names such as Nestle, BMW, Mercedes Benz, Pfizer and Qualcomm. Mr. Cook told the audience that Apple and China have grown together, and the relationship was “symbiotic.”

What especially caught our eye was a statement issued by China’s Commerce Ministry after the meeting of Mr. Wang and Mr. Cook which indicated: “Both sides exchanged views about Apple’s development in China and stabilizing the industry supply chain.”

 

Added Perspectives

We have cited Apple specifically in our highlights of evidence of China Plus sourcing activity for two specific purposes.

The first is this company’s sheer influence and clout within high tech and consumer electronics networks. Countries such as India, Vietnam and others welcome an Apple supply network presence with open arms.

The second and more obvious motivation is access to global wide markets and specific countries, including China. In its reporting Bloomberg indicates that Apple has amassed over $40 billion in China based revenues every year since 2015. Last year the company reported $75 billion in China sales. India along with Vietnam have the potential to be other significant markets for smartphones and consumer electronics as employment and income levels increase over the coming years.

Thus is the challenge for CEO’s in the current uncertain economic and geo-political environment, the now demonstrated need for added resilience across a global supply chain coupled with maintaining access and brand influence in key regional markets.

Prior to the global pandemic, supply and production sourcing was predicated on lowest cost, highest supply chain efficiency and infrastructure. If primary sourcing was leveraged across China, sourcing and market access was a two-for so to speak.

Post pandemic learning have provided the realization that business and supply chain strategy have to be aligned, including the voice of supply chain in line-of-business and C-suite deliberations and decision-making.

The pandemic exposed the vulnerabilities of globally extended, just-in-time weighted supply networks, and their direct impact on business bottom line revenue and profitability performance both for large global wide enterprises and small and emerging businesses.

C-Suite executives now have added awareness to this balancing act. As the primary brand ambassador, they must exercise the delicate balance of conversations among major market regions, and among potential alternative opportunities of sourcing to ensure company investors that business continuity and risk mitigation actions are in-place for any subsequent black swan event.

During the pandemic there was often mention of the new normal of business. Welcome to the new normal where CEO’s not only have to possess sales and marketing strategy skills, but supply chain management sourcing and strategy as well.

 

Bob Ferrari

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