For over four decades, China remained unchallenged as the world’s factory and one of the key players in the global supply chain. Things changed in 2018, when then US President Donald Trump launched a trade war against the world’s second-largest economy, by imposing tariffs on Chinese goods.
Things escalated further after the coronavirus outbreak, with many nations holding China responsible for the pandemic. In addition, the Chinese zero-COVID policy affected businesses, which were forced to be on lockdown for several months. Dissatisfied with the start-stop command economy of the communist regime, many major companies are now looking at alternative manufacturing hubs. India, Vietnam, Thailand, Bangladesh, and Malaysia have emerged as prime contenders in this arena.
Major international players are moving away from China, and feel free to blame the country’s rising cost of labour and living standards. These include Samsung, Nike, Apple, Sony, Nintendo, Blackrock, Kia, Hyundai, LG, Dell, HP, Google, Intel, and AirBnB.
As Apple seeks to diversify their supply chain beyond China, Vietnam and India have emerged as critical players in the tech giant’s strategy. However, while both countries offer unique advantages, apart from facing contrasting challenges.
Vietnam has become an increasingly attractive option for manufacturers seeking to move production out of China due to its low labour costs, proximity to key markets, and favourable business environment. The country has also made significant investments in infrastructure and technology.
The World Bank predicts that the Southeast Asian country’s GDP will increase by about 5.5% in 2023.
Brose, a German car supplier with 11 factories in China, is weighing moving its production to Vietnam, with Thailand being another alternative.
Lego of Denmark announced in December 2022 that it would construct a USD 1 billion (€935 million) factory close to the southern economic hub of Ho Chi Minh City. It has been one of the most significant European investment projects in Vietnam to date.
For Apple, Vietnam offers a range of benefits. The country has a young and skilled workforce, a strategic location near other Asian markets, and a government actively attracting foreign investment. In addition, Vietnam has a relatively stable political environment, which is critical for companies seeking long-term partnerships with suppliers.
Apple has already begun to shift some of its production to Vietnam, with reports suggesting that the company plans to produce up to 75 to 78 million AirPods in the country in 2023.
However, Vietnam still needs infrastructure, logistics, and supply chain management challenges, which could impact the country’s ability to meet Apple’s growing demand. Additionally, Vietnam’s labour force is smaller than China’s, which could make it more difficult for the country to scale up production quickly.
Conversely, India has emerged as a critical player in the tech industry due to its large skilled workforce, favourable business environment, and growing consumer market.
In addition, while the country has traditionally been known for its software development capabilities, it has made significant investments in manufacturing infrastructure in recent years, making it a more attractive investment destination.
For Apple, India offers a large and rapidly growing consumer market, as the Narendra Modi government is now actively attracting foreign investments. In addition, India has a large and skilled workforce, which could help the company scale up production quickly and efficiently.
The tariff costs drive up product prices overall, and the trade war between the US and China has already increased expenses by more than 10% for many Chinese businesses. As a result, companies require durable supply chains, and India may be a different choice in this situation.
India’s yearly average manufacturing wage per worker is lower, and its export mix is comparable to China’s. Additionally, the nation has more than 42 trade agreements (including preferential accords) with different countries. Additionally, India has a sizable pool of skilled workers, similar to China, making it inexpensive to source labour there. Additionally, India has one of the world’s most significant populations of English speakers, compared to China, where businesses must use interpreters to communicate.
For India to be a lucrative market, state and national governments are loosening restrictions on foreign direct investment and decreasing corporate taxes. As a result, over 100 international companies are now considering moving their headquarters to the Asian powerhouse. Cisco, Adobe, Apple, and FedEx are just a few of these businesses. Aramco and Facebook invested USD 5.7 billion and USD 15 billion in Reliance Jio and Reliance Industries Limited. Additionally, Apple is establishing a facility in India to produce more than 3.2 million iPhones for export to other nations.
The government has implemented investor-friendly laws and permitted up to 100% FDI in several sectors to encourage investment inflows. Furthermore, India is considered one of the most valuable allies in South-East Asia by the US.
However, India still faces significant infrastructure, logistics, and supply chain management challenges. The country’s transportation infrastructure needs to be developed. In addition, India has a complex regulatory environment, which could make it more difficult for companies to establish and maintain long-term partnerships with suppliers.
As Apple expands its production capabilities in Vietnam and India, it must prioritize ethical and sustainable business practices, along with upholding the highest labour and environmental protection standards. By doing so, Apple can mitigate the risks associated with geopolitical tensions and trade disputes and help promote responsible and sustainable business practices in the tech industry.