- [Narrator] In 2008,
Samsung's smartphone manufacturing facilities
were scattered throughout Mainland China.
Just 15 years later, those factories have disappeared
and nearly all of them have relocated to Southeast Asia.
- It may have given Samsung a competitive advantage
to go to Vietnam first.
- [Narrator] But Apple was on its heels.
Over the last few years, the tech giant
started making similar moves to diversify its operations.
Here's a closer look at how Samsung
and Apple's manufacturing moves from China
are reshaping their businesses,
and what the strategies reveal
about the rapidly shifting global supply chain.
In 2008, Samsung set up a plant
in the Bac Ninh region of Vietnam
to reduce its dependence on China.
Tech industry analysts say it was a forward thinking move
for the South Korean company.
- They benefited in a lot of ways.
They benefit from cheaper labor in some of these countries
that they're moving to.
They benefit from being insulated
from some of the geopolitical tensions
that come with operating in China
and continuing to expand in China.
They also benefit from being insulated
from the kinds of supply chain shocks that we saw
during the COVID lockdowns in China
and the supply chain disruptions that resulted from that.
- [Narrator] Over the next decade,
rising labor and operating costs in China
made it difficult for Samsung to produce its phones cheaply.
That coupled with intensifying competition
from domestic smartphone rivals
led Samsung's market share in China to plummet.
Meanwhile, the company was slowly moving
its smartphone operations out of the country.
Since 2013, the number of Samsung employees in China
has fallen by 70%.
Samsung still kept significant
manufacturing centers in China,
including for its expansive memory chip business.
(whooshing sound)
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- [Narrator] But moving its smartphone operations
meant to the company was shielded
from many of the Trump era tariffs on Chinese made goods.
- Those tariffs coupled with the geopolitical tensions
developing between the Western world and China
led a lot of companies to reconsider
where they're manufacturing things.
- [Narrator] By 2019, it had-
- Shut its last phone factory
in the world's biggest smartphone market.
- [Narrator] One year later, the pandemic hit
propelling tech companies like Apple
to make similar moves away from China.
- China had a very strict COVID policy
that led to a lot of disruption for many of these companies,
and seriously pushed them to consider
manufacturing elsewhere where that kind of disruption
would be less of a thorn in their sides.
- [Narrator] Apple's plans gained even more momentum
in late 2022 after violent protests rocked the company's
largest iPhone manufacturing plant in Guangzhou, China.
(rioter speaking in Chinese)
Demonstrations erupted when the workers
who had been under strict COVIDS lockdown for weeks
learned bonus payments would be delayed.
At the time, Apple said it was working with the facility
to ensure employee concerns were addressed.
According to analysts and people
in the company's supply chain,
Apple no longer feels comfortable
having so much of its business tied up in one place.
While different events
first propelled Samsung and Apple out of China,
their new supply chain strategies focus on the same places,
India and Vietnam.
- These countries, some of them have offered tax breaks
to companies to locate their manufacturing.
There have been, in some cases, grants and other incentives
that are hard for these companies to pass up.
- [Narrator] Samsung pays about 10% corporate income tax
in Vietnam versus China's standard 25% rate.
It now produces half of its smartphones there.
Apple also has operations in Vietnam.
The company started producing its watches in the country
and moved some iPad manufacturing there too.
In Apple's most recent list of its top 200 suppliers,
25 were in Vietnam.
That's 25% higher than four years ago.
Then, there's India.
Around 20 to 30% of all of Samsung smartphones
are now manufactured there, according to Morgan Stanley,
and it's still expanding.
In 2022, it opened the world's largest mobile phone factory
near New Delhi.
These moves helped the company to become a dominant force
in India's rapidly growing smartphone market.
The second largest in the world behind China.
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- [Narrator] In 2022, Samsung accounted for around 20%
of the country's total market share
while Apple held less than 4%.
Apple is working to change that.
In a recent earnings call, CEO Tim Cook said.
- India is an incredibly exciting market.
It's a major focus for us.
- So, this year Apple has said it plans to manufacture
a portion of its iPhone 14 models in India
for the first time which is a significant move.
You know, the company is essentially saying
that we wanna diversify.
- [Narrator] Tech analysts say manufacturing iPhones
in India and then selling them to the surrounding
Southeast Asian market ensures a smooth
and more resilient supply chain.
Apple's longer term goal
is to ship 40 to 45% of iPhones from India,
according to supply chain analysts.
In 2022, that number was in the single digits
for the company.
More recently, the company started moving manufacturing
even closer to home.
A multi-billion dollar deal with US Chipmaker Broadcom
will allow Apple to source critical chip components
from manufacturing hubs around the US.
But even as Apple and Samsung spend billions
to move away from China,
the manufacturers may still depend on suppliers there.
During the height of the 2020 COVID19 outbreak in China,
Samsung found itself scrambling
to secure suddenly scarce Chinese components.
- There's also a political challenge
because these companies many of them
still need to manufacture in China to some extent,
and they need to be delicate
about how they handle diversifying their supply chains.
- [Narrator] Even though a supply chain shift
won't happen overnight,
Samsung and Apple's manufacturing strategies
reveal a larger de-risking trend
that's transforming global markets.
- It's kind of like diversifying a portfolio, if you will.
Increasingly, as the US and China,
that relationship becomes more contentious
and a lot of western companies see China as more risky.
And so, they're thinking about doing less in China.
They're thinking about de-risking from the perspective
of the politics in this situation.
(gentle upbeat music)