Samsung & Apple: Supply Chain Shift from China to Southeast Asia

Samsung's Strategic Move

In 2008, Samsung made a strategic decision to relocate its manufacturing from China to Southeast Asia, beginning with a plant in the Bachan region of Vietnam. The move aimed to counteract increasing labor costs in China and intense competition from local smartphone manufacturers. By 2019, the South Korean tech giant had completely shut down its phone factories in China, while also significantly reducing its workforce in the country. This move insulated the company from geopolitical tensions, Trump-era tariffs on Chinese goods, and supply chain disruptions experienced during the Covid-19 lockdowns.

Apple Follows Suit

Following Samsung's successful relocation, Apple too began diversifying its manufacturing operations. The decision came in response to Covid-19 disruptions and violent protests at its main manufacturing plant in China in 2022. The tech company recognized the risk of concentrating too much of its operations in one location and started seeking alternatives. Apple's plan to move away from China accelerated, focusing its attention on Southeast Asian countries, mainly Vietnam and India.

Embracing Vietnam and India

Both Samsung and Apple have found Vietnam and India to be favorable locations for their operations, primarily due to financial incentives and growing markets. Samsung now manufactures half of its smartphones in Vietnam, enjoying a lower corporate tax rate compared to China. Similarly, Apple has transferred part of its watch and iPad production to the country. In India, Samsung has built the world's largest mobile phone factory and manufactures between 20-30% of its smartphones. Apple also intends to produce its iPhone 14 models in India for the first time, indicating a commitment to these new hubs.

Challenges and Future Trends

Despite the significant shift away from China, both Samsung and Apple may still depend on Chinese suppliers for some components. This reliance was particularly evident during the height of the Covid-19 outbreak when Samsung had difficulties securing Chinese components. Therefore, the tech giants need to be tactful in handling their diversified supply chains. The shift to Southeast Asia represents a wider trend of de-risking against geopolitical tensions and trade uncertainties, demonstrating a strategy akin to diversifying a financial portfolio.

Source: The Wall Street Journal YouTube