Reports are emerging on the efforts of the electronics sector to relocate their operations and the operations of the supply chain out of China.

For example, Nikkei Asia is reporting that the companies “Applied Materials, Lam Research and KLA” who account for a third of what they call “chip production tools”, have been, since October, “either relocating non-Chinese staff from China to Singapore and Malaysia, or increasing production capacity in Southeast Asia, according to five people familiar with the situation.”

The Nikkei also quoted a supplier of one of the three companies, saying that “our customers have been asking us to accelerate our support to their Southeast Asia locations in the past few months. We also noticed they’ve increased their personnel there.”

The trigger for this has been the politics around the US export controls on China. American companies, in particular, are under pressure to pull out from China, so such shifts should not be so surprising.

However, relocating is not always risk-free. The Financial Times today reported that Apple was encountering problems with its new Indian supply chain, specifically at a facility making casings for mobile phones which Tata Group owns. The output had a quality control failure rate of 50%, whereas Apple aspires to ‘zero-defects’. Reportedly, Apple has also encountered problems with its programme of expansion in India “due to challenges in logistics, tariffs and infrastructure”.

It is unclear where these reports have emerged from. The FT implies it is someone from within Apple, leading to the possibility that Apple is looking to put pressure on its supplier, Tata. However, the wider issues of ‘logistics tariffs and infrastructure’ are hardly surprising.

Apple has outlined its ambitions to make India an important supply and production base for its hardware products, having previously been heavily dependent on China for assembly operations and components.

These reports add substance to the big picture story around the supposed shift out of China by the electronics sector. Many macroeconomic indicators suggest that foreign investment in China is continuing to be substantial. However, some sectors do seem to be changing their approach to China. A dedicated ‘China supply chain’ in electronics hardware appears to be emerging, whilst the production destined for the rest of the world continues to shift to South East Asia.

Author: Thomas Cullen

Source: Ti Insights

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