- Vietnam expected to be a major hardware production house for these companies
- Diversifying supply chains out from China would be a slow process, as said by managing director at AArete
American technology firms like Apple, Microsoft, and Google amid the U.S.-China trade war last year, and the outbreak of the new coronavirus, have reportedly looked to move more of their hardware production units out of the world’s largest economy.
According to the report, it has also been revealed that removing the dependency from China won’t be easy. As said by Sean Maharaj, managing director at AArete ( a global management consultancy ), the manufacturing power of China is far more incorporated into the American supply chains than ever before.
According to a report, Google and Microsoft are accelerating their efforts to shift production of hardware to other parts of Asia.
One biggest problem for all these countries is that moving the supply chains quickly, as China would be still involved to play a major role. This means mitigating risk is a lot harder.
Vietnam opens doors for production
The report also revealed that Google is set to begin production of an upcoming low-cost smartphone, which has been rumoured to be called the Pixel 4a, in Vietnam from April. This upcoming smartphone will also be manufactured there in the second half of the year reportedly.
The manufacturing partner in Thailand has also been asked to prepared production lines for its so-called smart home products which include voice assistant-enabled speakers, as mentioned in the report. On the other hand, Microsoft is also planning to start production in Vietnam in the second quarter for its surface line of notebooks and desktops PCs, it added.
So far, China has been the main production hub for these countries for their gadgets and devices until now. It has also been reported that Apple was also looking to start a trial for the production of its AirPods in Vietnam. P.S. Subramaniam, partner in the strategic operations practice of Kearney, shared that there are electronic components like displays and memory, modules such as cameras, and the assembly of the finished goods to understand the reason to break down the manufacturing process.
Around 40 per cent of finished goods come from China and there is opportunity in other areas of the world, Subramaniam shared that it’s “easier (to) diversify away from China in the short term (3-6 months) for most companies which have well developed product and assembly process documentation,” he added.Subramaniam told CNBC, “This is a singular choke point as components are a necessary ingredient in modules and finished goods assemblies. This is very hard to move as it requires entire ecosystems”.
Slow and steady process
Hence, its going to be difficult to move the component manufacturing outside of China, as building similar production capacity in another country is quite challenging.
John Harmon, senior analyst at Coresight Research, told CNBC that, “Some assembly could be moved elsewhere, but these production lines take time to set up, and moreover no other country has the supply of labour as China.”
With addition to this, suppliers for components that companies rely on will have their manufacturing in China. This would in turn make any move for an American technology firm to diversify a much longer process.“Other suppliers Chinese, Taiwanese, Japanese or Korean which have set up facilities around these manufacturing plants in China will have to also diversify, which would make this switch a little bit less quick,” Neil Shah, a partner at Counterpoint Research, told CNBC.