This fall, Apple will manufacture some of its flagship iPhones outside of China for the first time, a small but significant change for a company that has built one of the world’s most sophisticated supply chains with the help of Chinese authorities, reports The New York Times.
Apple is taking small steps towards India, but production of the line iPhone 14 and 14 Pro shows how difficult it will be to make these changes. According to four people familiar with the company’s new manufacturing operations, Apple’s Chinese employees and suppliers have done more difficult work than ever before and created the technological components for the 15th generation iPhone, including some of the manufacturing design, audio speakers, and batteries. As a result, the iPhone has gone from being a product that is designed in California and manufactured in China to a product that is the creation of both countries.
The work done by China shows the country’s progress over the past decade and a new level of involvement of Chinese engineers in iPhone development. After the country lured companies to its factories with legions of low-cost workers and unrivaled manufacturing facilities, its engineers and suppliers became far more professional to claim most of the money American companies spend on making gadgets.
The increased responsibility China has taken on the iPhone could call into question Apple’s efforts to reduce its reliance on the country. That goal has become more urgent amid rising geopolitical tensions over Taiwan and concerns in Washington about China’s rise as a technological competitor.
Chinese companies operating in India will continue to play a key role in Apple’s plan to manufacture some iPhones in the country. In Chennai, India, Taiwanese supplier Foxconn, which already makes iPhones in factories across China, will lead the Indian production of the devices with support from nearby Chinese suppliers, including Lingyi iTech, which has subsidiaries to supply chargers and other iPhone components. China’s BYD is also setting up glass-cutting operations for displays.
Disruptions related to COVID-19 have worsened Apple’s predicament. When China closed its borders in 2020, Apple was forced to rethink its operations and abandon the practice of sending hordes of California engineers to China to develop the assembly process for flagship iPhones. Instead of imposing long-term lockdowns on staff, Apple began to provide new opportunities and hire more Chinese engineers in Shenzhen and Shanghai to manage critical design elements for its best-selling product.
The company’s production and design teams began conducting nightly video calls with colleagues in Asia. After travel resumed, Apple tried to encourage its employees to return to China, offering a reward of $1,000 per day during the two weeks of quarantine and four weeks of work. Although the payout could be as high as $50,000, many engineers were reluctant to go because of the uncertainty of how long they would have to be quarantined. Because of the lack of travel, the company encouraged staff in Asia to hold meetings that colleagues in California once held. The staff also took responsibility for selecting some Asian suppliers for future iPhone parts.
Apple is now increasingly turning to China to hire high-paid workers for these jobs. Apple posted 50% more jobs in China this year than it did in all of 2020, according to GlobalData, which tracks hiring trends in various tech industries. Many of these new workers are Western-educated Chinese citizens.
The changes in Apple’s work coincided with an increase in the number of Chinese suppliers it uses. A little more than a decade ago, China’s contribution to iPhone production was small. First, the country provided low-wage workers who assembled the device from components shipped from the United States, Japan, and South Korea. According to a study by Yuqing Xing, a professor of economics at the National Institute for Policy Studies in Tokyo, the cost of this work is about $6, or 3.6% of the cost of an iPhone.
Gradually, local suppliers appeared in China, which began to displace Apple suppliers from around the world. Chinese companies have started making speakers, cutting glass, supplying batteries and making camera modules. According to Mr. Xing, Chinese suppliers now account for more than 25% of the cost of iPhones.