The Supply Chain Matters blog has previously called reader attention to moves by global based contract manufacturing services (CMS) provider Foxconn (aka Hon Hai Precision, Inc.) as somewhat indicative to high-tech and consumer electronics production sourcing strategies.
Nikkei Asian Review reports (Paid subscription or complimentary metered view) this week that global contract manufacturer Foxconn reaffirmed plans to step up the provider’s investments in India and Taiwan this year as it redoubles efforts to diversify away from China amid the deepening rift between Beijing and Washington over trade and strategic technology developments.
The announcement was made by Foxconn’s Chairperson at the annual meeting of shareholders held this week.
A year ago, at Foxconn’s first annual shareholders meeting, the CMS provider indicated to The Wall Street Journal that it was prepared to move production out of China if customers such as Apple required that move. In our Supply Chain Matters commentary related to this development, we made reference to a further move to shift production of previously announced Apple iPhone models to India.
This week’s statements made at the company’s shareholder meeting are noted as a reaffirmation that plans to diversify outside of China remain in effect. The report additionally indicates that the COVID-19 outbreak reinforced desires by hi-tech companies to diversify production capabilities across Asia in the long-term rather than primary reliance on a single country.
The Nikkei report cites statements indicating that upwards of $371 million has already been invested in India based production capabilities, where older generations of iPhones, along with televisions, and smartphones for China based Xiaomi are being produced as well. About half of the India amount has been invested within Vietnam over the past two years, and the report cites multiple sources indicating that Google’s upcoming Pixel 5 phone will be produced directly in Vietnam.
A Broader Strategy of Supply Chain Segmentation
In April, we highlighted a published report by The South China Morning Post indicating that Foxconn was accelerating plans to develop a semiconductor component supply chain internally within China. The CMS signed a co-financing agreement with the government of Qingdao, a major city in eastern Shandong province to erect and operate a semiconductor packaging and testing facility. This report further indicated previously announced plans to develop semiconductor design services as well as equipment and chip design operations in southern Guangdong province. We interpreted these moves to be a further flash point to ongoing escalating trade tensions among the U.S. and China, and likely place Apple in a difficult position in having to navigate strategic sourcing strategies. We expressed the following:
“Then again, the supply network risks brought forward from the 2020 COVID-19 pandemic that first impacted China’s manufacturing sectors may cause Apple to accelerate plans to transfer some production of devices to countries such as India and Vietnam in order to reduce production and other geopolitical risks.”
In a published commentary last month, we called reader attention to a Nikkei published report indicating that Apple was encouraging a long-time component supplier, Luxshare-ICT, to expand its product value-chain presence in China to include making a significant investment in iPhone and MacBooks metal casings manufacturer Catcher, and to eventually encroach on long-time Foxconn’s existing services.
We viewed that move as a further part of Apple’s supply chain segmentation strategy.
This week’s statements by Foxconn add further credence to a more visible supply network strategy options. Smartphone and other high-tech devices destined to China vast consumer market can likely be sourced within the country from a variety of former and new CMS providers. Similar products destined for other major geographic markets, including the U.S. can likely have continency sourcing in either India, Vietnam or Taiwan.
What remains unclear at this point are definitive plans for Foxconn’s previously announced U.S. production in the state of Wisconsin, which seem to change continuously especially as the U.S. Presidential election draws closer.
What appears clear with each passing week is that contingency and supply segmentation moves remain active from a number of dimensions.
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