Imagine living in a city built to manufacture iPhones.
In the center is a gigantic factory that employs hundreds of thousands of workers to construct,
check, and ship the devices out across the world.
This seems like a dystopian horror story, but the truly scary thing is that it’s real.
Almost every iPhone that is currently being used on planet Earth came from a factory in
Zhengzhou, China.
Here, in iPhone city, laborers are overworked, underpaid, and fed up.
You are about to find out the truth as to why Apple is moving their manufacturing hub
out of China, and it is absolutely appalling.
A few years ago, at its most efficient, iPhone city in Zhengzhou, China, produced around
80% of the iPhones on the market.
There were over 200 million iPhones shipped out of China in the years before COVID, which
means that Zhengzhou's facilities were manufacturing somewhere around 160 million iPhones annually.
This number is staggering.
The problem now is that manufacturing at iPhone city has dramatically decreased.
We will get into the reasons for this later on, but for right now, let’s dive into how
China became the number one manufacturer of iPhones and why Apple is in big trouble.
We are going to warn you now that this is not a happy story.
Apple is not moving its manufacturing out of China to make the world a better place.
The real reasons why will be hard to swallow.
Apple technically does not own the factories that produce its products.
Instead, they contract with other companies to help them manufacture their electronics.
The main company Apple works with is called Foxconn Technology Group, which is based in
Taiwan.
This is where things get a little mirky.
Technically, Taiwan is an independent nation.
However, China desperately wants to incorporate them back into its borders.
There are a few reasons for this, but the main ones have to do with Tawaian’s economic
power from microchip manufacturing, the need to suppress Western influence in the region,
and China’s desire to show its power.
But even though Apple contracts with a Taiwanese company, their products are still being constructed
in China.
Foxconn has factories around the globe, including India, Vietnam, Mexico, the Czech Republic,
and the United States, just to name a few.
However, it is their facilities in China that are most utilized by Apple.
This is for obvious reasons.
The Chinese government has very few restrictions on how little workers should be paid and no
restrictions on the number of hours they can work.
What this means is that both Foxconn and Apple benefit greatly from manufacturing in China
because they can grossly underpay their workers while forcing them to work obscene hours with
crushing restrictions on when they can see their families or even just leave the factory
itself.
The reality is that the iPhone you or someone you know owns was made by workers in China
who are being grossly exploited.
To be fair, Apple is not the only company that is using cheap labor working under oppressive
conditions to manufacture their products.
Pretty much every major electronics company has a factory in China.
Paying next to nothing for skilled workers keeps prices reasonably low for consumers
and profits high for corporations.
It is enough to make your stomach churn, but this is the world we live in, and until the
world places people’s lives and well-being over profits and consumption, this is how
things will stay.
There had always been reports of the workers in the Zhengzhou, China factory working under
strenuous conditions for very little pay, but over the past several months, harsh restrictions
have been put in place across China to stop COVID outbreaks.
In places like Zhengzhou, these restrictions have resulted in employees pretty much living
where they work to reduce the risk of catching COVID and shutting down the whole operation.
This is because China has a zero-tolerance policy for COVID right now, meaning that if
there is one positive case, entire cities are put on lockdown until everyone tests negative.
This has disrupted people’s lives and the manufacturing capabilities of the country
as a whole.
Obviously, this has made businesses operating in China, like Apple, nervous, as supply chain
issues have already hurt their bottom lines, and factory shutdowns could lead to disaster.
Again, the companies who manufacture their goods in China aren’t necessarily worried
about the well-being of their workers; they are focused on what these shutdowns mean for
their profits.
Restrictions in China have gotten so bad that its citizens are taking to the streets in
protest, something that is rarely done due to fears of the government’s response.
Protests even broke out at Foxconn and Apple’s Zhengzhou facility not too long ago.
Videos were released of workers shouting for more rights while riot police beat and arrested
them.
With so much unrest in China, restrictions hurting profits, and policies that make it
harder to do business, Apple has decided it is time to look elsewhere to construct their
phones.
It is important to remember that by “looking elsewhere,” what is meant is that Apple
is trying to find a large, cheap source of labor that they can exploit to keep costs
down and still manufacture huge numbers of electronics.
Again let’s be clear: Apple is absolutely not the only company doing this; it is just
the nature of Capitalism.
However, the position that Apple finds itself currently in is one of their own making.
For years they have concentrated almost all of their production in China.
Even though tensions between the United States and China have always been high, the ability
to access a huge labor pool for cheap was just too tempting.
In hindsight, Apple executives are kicking themselves for relying so heavily on the workforce
of a single country.
In the short term, it made a lot of sense since it kept profits high.
But all it took was a series of unfortunate events in China to disrupt Apple’s production
to the point that its manufacturing capabilities have been reduced by over 50%.
Apple has relied on China for so long that even though it’s clear they need to expand
manufacturing elsewhere, they can’t.
Apple has recently entered talks with Chinese companies such as Luxshare Precision Industry
and Wingtech Technology to start new facilities within China.
It may seem counterproductive for a company to claim it needs to expand outside of China
and then enter talks with Chinese companies, but Apple is so reliant on the Chinese labor
pool that there is likely no way they can ever completely leave.
At least this is true until they can find a labor market large enough to suit their
needs, facilities that can match China’s, and a government that will not force them
to treat their workers fairly.
The reason that Apple can’t seem to get away from China at the moment is because of
something called new product introduction, or NPI.
When Apple designs a new product, it needs to work with contractors to figure out the
best way to mass produce that device.
For example, every year, when a new iPhone comes out, the factories that had been making
the previous version need to modify their production plans to ramp up the manufacturing
of the new model.
This requires an entourage of contractors, production engineers, and suppliers.
China is one of the only counties in the world that can carry out new product introduction
in a quick and streamlined way.
Apple and other electronics companies rely so heavily on China because of their NPI ability.
It helps that there are low labor wages across the country, the government, for the most
part, did everything it could to help make sure things went smoothly, and almost all
of the components that are needed to produce electronics are constructed in China or within
close proximity to the country.
Knowing how profitable manufacturing enterprises could be, the Chinese government encouraged
companies to team up with foreign corporations.
They also, until recently, allowed tech companies to have free reign to do what they needed
to bring investments and money into China.
All of these things allowed Chinese factories and manufacturing centers to hire the skilled
engineers they needed and pull from a gigantic pool of laborers to keep up with new product
introductions.
Now, Apple is encouraging their partners, such as Foxconn, to start looking for places
outside of China where this same work can be done.
However, this is easier said than done, as the tech industry has relied on China for
decades, and there is nowhere else in the world as efficient at new product introduction
as China.
So, it is clear that Apple desperately wants to get away from China, but there is more
to the story.
Yes, the COVID-19 policies play a major role in slowing Apple’s production in China,
but something else is going on as well; something that could lead to a revolutionary change
in China.
The exploitation of the Chinese people by major tech companies could only last for so
long.
Currently, the factories used by Apple and other major tech giants are running into a
labor shortage.
For decades there seemed to be an endless supply of eager laborers who would work for
next to nothing.
This is because working for a few dollars a day was better than no money at all.
This is undoubtedly terrible, but the reason that manufacturing in China was so lucrative
was that the major tech factories were often the only businesses offering jobs.
And given a choice between starving to death or working for a tech giant who pays in pennies,
many people chose the long hours and brutal working conditions just to stay alive.
As China has become more powerful and started generating massive amounts of revenue of its
own, there are more opportunities.
Millions and millions of people still live in poverty, but there are definitely more
options for work than there were twenty years ago.
This means that the younger generations are no longer willing to work for next to nothing.
The internet has opened up the floodgates for people to see what life in other parts
of the world is like.
Young people in China don’t want to be building electronics for wealthy people; they want
to be wealthy themselves.
Having the ability to make more than just a few dollars a day has led many young people
to flock to cities or look for jobs where there is upward mobility.
This means that as manufacturing facilities look to replace workers who are too old or
become sick, there are less and less people to choose from.
This problem has been exacerbated by COVID-19 and the strict laws the government has put
in place to keep outbreaks from occurring.
Apple sees this societal shift happening in China and is nervous that in the future, they
won’t have enough workers to produce the quantity of devices needed to meet demand.
The obvious solution would be to pay workers higher wages to attract more talent, but since
the Chinese government can be unpredictable and doesn’t seem to be loosening its restrictions
any time soon, Apple has decided it is time to jump ship.
However, until they can find a new part of the world that can match the manufacturing
capability of China, they are kind of stuck.
It is clear that, for the time being, China wants companies like Apple to stay, but they
are shooting themselves in the foot with their own policies.
For example, even the state-run People’s Daily reported that Apple alone directly or
indirectly created more than a million local jobs in Zhengzhou in 2019 alone.
And that Apple’s factories generated $32 billion for the Chinese economy that year.
This is a lot of money to give up by implementing restrictions that are forcing tech companies
out of the country.
Although, President Xi and other officials are starting to realize that maybe they don’t
need to cater to foreign companies anymore.
Recent policies put in place have stripped tech giants of their ability to monopolize
the industry.
Over the last few years, the Chinese government has heavily fined corporations for data collecting
and engaging in anti-competitive practices.
Xi and his advisors have also set up regulations to promote growth in the Chinese tech industry
while forcing foreign companies to play by new rules.
Any company that doesn’t follow these new regulations will either be hit with extensive
fines or will not be allowed to do business in China; this includes Apple.
What the Chinese government is currently trying to do is make their tech industry less reliant
on outside businesses and instead grow State-backed companies that will compete on the global
stage.
Even if it hurts the Chinese economy in the short term, Xi believes that by making the
Chinese technology sector self-reliant, it will lead to huge economic gains and innovation
in the future.
This is bad news for companies like Apple who will need to adjust their practices to
conform to new Chinese policies.
And knowing that the Chinese government could change the rules at any time as they hold
all of the power, Apple is desperately trying to find ways to move their production lines
to other parts of the world.
In the meantime, Foxconn and Apple have been trying some pretty crazy strategies to get
workers to keep up with quotas and pumping out iPhones.
At the Zhengzhou factory, workers have been told they must stay on-site and limit their
contact with the outside world if they want to keep their jobs.
This means no face-to-face interactions with their families, going out with friends, or
leaving the facility’s grounds.
Imagine being told by your employer that you were not allowed to leave at any time.
You would probably quit right then and there.
And that is exactly what many did at Apple’s manufacturing plant.
Foxconn has sealed off smoking areas, gotten rid of vending machines, and even shut down
cafeterias.
Workers have been told to grab their food take-out style and eat it alone in their dormitories.
The hope is by limiting the amount of interaction with the outside world and between workers,
the factory will remain COVID-free and will not have to stop operations.
But again, this didn’t sit well with many workers.
People wanted to see their families, and they felt working at the Apple factory was more
like being in prison than having a job.
To be fair, many people felt this way before the crazy restrictions were implemented, but
these new levels of isolation were too much for most workers to handle, so they walked
out.
Losing workers is not something that Apple can afford, which is another reason why they
are looking to expand their production centers elsewhere.
There seems to be more and more unrest with each day that passes.
The procedures of the past are no longer working in the present.
Workers demand better conditions, such as not having to walk a half-hour between the
factory and their dormitories when they are forced to live in iPhone city.
Workers who had enough started jumping the fences surrounding the Zhengzhou facility
and trekked along deserted highways back to their homes.
When the police would not let people leave the factory, violence broke out.
Apple and Foxconn won’t admit it, but a type of martial law has been implemented at
their facilities to keep workers in and producing iPhones.
The Chinese government doesn’t want to lose such a huge source of income, so they are
backing the crazy lock-in practices that Foxconn and other manufacturing companies are implementing.
When you consider that the workers in places like Zhengzhou make less than 5 dollars and
hour for the 10 to 12-hour shifts they put in at the factory, it is no surprise that
many are now desperately trying to escape.
One employee posted to her social media account that “it’s better for us to skate by at
home than to be sucked dry by capitalists.”
And to be fair, who could argue with her after learning about the terrible working conditions
at the factory?
Obviously, this is not a good look for Apple, and most people employed by the company either
don’t know what is happening in China, or they just don’t want to know.
Executives who are very much aware of the atrocities occurring at places like the Zhengzhou
factory are desperately trying to deny these claims.
However, it is this very situation that has forced Apple to rapidly ramp up their search
for other locations to manufacture products in.
The executives at the company are quickly realizing that the situation in China is not
going to get any better any time soon.
The only way for Apple to save face in the future is by relocating their manufacturing
facilities to areas where the workers can be controlled, the government is willing to
be more lenient, and they can keep pumping out products to keep their customers happy.
It is estimated that tens of thousands of workers are missing from the Zhengzhou factory
alone.
These people either escaped or decided never to return once the no-tolerance COVID restrictions
were put into place.
It’s reported that the facility in Zhengzhou, which, again, produces somewhere around 80%
of the iPhones in the world, is running at around 20% capacity.
This is why anyone who pre-ordered new iPhones this year will be waiting months for them
to be delivered.
Supply is so backed up that Apple can no longer ignore the problems happening within China,
which is why they are rushing to move production out of the country as soon as possible.
So, the question becomes: where can Apple go?
They need a country that has a large workforce that can modify their production practices
and supply chains to accommodate new devices coming out every year.
They also need a country that won’t force them to follow strict rules and regulations
or require them to pay their workers high wages.
As sad as this sounds, Apple has several different options.
They are confined to countries that already have some sort of tech industry because starting
from scratch would take far too.
A former Foxconn executive has recommended companies like Apple start moving their production
to Vietnam.
The manufacturing sector in the country is growing rapidly.
There is already an established tech industry, and cities like Ho Chi Minh City and Hanoi
have large amounts of talent.
Also, the fact that the Vietnam government has close ties to the United States means
that there are incentives for U.S. companies to move part of their production there.
It also means that the Vietnam government likely won’t spontaneously enact radical
new policies that could disrupt the production or distribution of devices being manufactured
by an American company.
The problem for Apple is that Vietnam is not very big and has a population less than a
tenth the size of China’s.
The current infrastructure can handle factories that employ around 60,000 workers, which is
nowhere near the hundreds of thousands that work at factories like the one in Zhengzhou.
This means that although Vietnam is a good place to move some of the production for Apple,
it can not be the only place.
Nor should it be.
As Apple is finding out at this very moment, putting all of your eggs in one basket is
never a good idea.
Therefore, the second country that Apple is looking to move more of their manufacturing
to is India.
India has a population about the size of China’s, meaning that it has a large enough labor pool
to match what Apple is used to working with.
However, there are some key problems with moving to India.
Firstly, a lot of time and resources would need to be put into building new state-of-the-art
factories to produce Apple products.
This might take time that Apple does not have.
But there is an even bigger problem.
One of the key factors that made China so perfect for Apple initially was that the process
of procuring labor and resources was streamlined, so it was easy to make adjustments when needed.
The reason for this is that the government is centralized and controls pretty much everything
within the nation.
If Apple needed to make changes to a Foxconn factory or build a new facility to ramp up
production, China was more than happy to make sure zoning permits were immediately delivered
and that construction could begin without a hitch.
India’s government is not set up in the same way.
Each state in the country is handled by a regional government with its own rules and
regulations.
Apple has already run into problems, such as local governments requiring them to meet
specific obligations before constructing factories or buildings in their region of the country.
This slows everything down and can even lead to month-long delays.
The risks of building factories in India are definitely something Apple is weighing against
the benefits.
The labor market is big enough, and the wages paid would be comparable to what Apple is
paying in China, but the inefficiency between sectors of the government may not allow the
company ever to reach the efficiency of pre-COVID China.
And even though some may pose the question: why doesn’t Apple just manufacture its phones
in the United States and cut out the middle man?
The answer is obvious.
If Apple moved their production to the U.S., they would have to pay workers many times
more than they do in countries like China and India.
This is, of course, super messed up, but it is the reality of the situation.
Taxes are also higher in the U.S., and Apple would be required to provide their employees
with healthcare, all of which would cut into their profits.
It may seem crazy that people are paying thousands of dollars for a new iPhone, but it happens
every day.
However, if Apple moved its operations to the United States, the cost of their phones
would skyrocket and become more unaffordable than they already are for many people.
That being said, if Apple wasn’t under the pressure of shareholders to make an exuberant
amount of profits each year, they might have more flexibility in the matter.
It is estimated that Apple makes around 350 dollars from every product that is sold.
Imagine how much more workers could be paid if Apple kept their prices the same but decided
to cut these profits to just 300 dollars per device and give the extra 50 dollars to their
workers.
The company sold over 235 million iPhones in 2021 alone.
This means they could have theoretically made 300 dollars in profits per deceive and had
an extra 11.75 billion dollars to pay their workers higher wages.
Unfortunately, this is not the world we live in.
The only solution for Apple is to expand their manufacturing to several different countries.
They will likely keep producing phones in China’s iPhone city, but they may also branch
out by teaming up with other Chinese companies that already have a reliable workforce.
Apple will also start increasing the production capabilities of its factories in India.
Currently, Apple produces less than 10% of its phones in the country.
However, in the future, they hope to manufacture between 40 and 50 percent of their iPhones
there.
The factories that Foxconn has around the world may be required to pick up some of the
iPhone slack being left by China as well.
There is no doubt that the higher-ups at Apple are scouring the globe for the most cost-effective
and reliable places to manufacture their products.
They realize that China can no longer be trusted as their production hub due to the tensions
between its citizens and the government, along with new regulations and policies that China
has been implementing.
China and Apple used to be inseparable, but now Apple is desperately trying to break up
with its former partner.
Unfortunately, breakups can be messy, and as Apple is finding out, very expensive.
The desire for iPhones by global consumers likely isn’t going anywhere any time soon.
But until Apple diversifies where it manufactures its products, it could be several more years
until it can sever its ties with China.
Now watch “Modern Companies that Collaborated with Nazis During World War 2.”
Or check out “Modern Companies that Collaborated with Nazis During World War 2.”