Partners in profit

Still very much Made in China...

“Surely the apple is the noblest of fruits,” claimed the 19th century American essayist Henry David Thoreau. Can the same be said of its modern namesake, the world’s best known electronics brand, Apple Inc?

Not according to tech news website The Information, which published an investigation recently into seven Chinese companies in Apple’s supply chain suspected of using forced labour.

It’s not the first time that Apple has been asked to address this issue (it dropped camera module supplier O-Film late last year after similar reports). But the most recent allegations come at a time when its supply chain is under scrutiny on two further fronts.

Firstly, in early June the Nasdaq-listed giant published a list of its top 200 suppliers for the first time in more than two years. And the compilation suggested that far from broadening its engagement with partners to a fuller range of firms from countries other than China – as Apple said it would start doing in 2019 – it has deepened its relationship with companies there. The latest list includes 12 new mainland Chinese entities. This brings the total to 51 (if Hong Kong is included), surpassing the number of suppliers headquartered in Taiwan for the first time (numbering 48).

Apple’s list provides a barometer on global supply chains. As such, it is likely to be in the news again this weekend as G7 leaders meet in the UK. Earlier this year officials from the Biden administration said the US president would use the meeting to push for coordinated action on forced labour and increase consumer awareness of those companies that exploit it. Human rights campaigners want measurable commitments, including an agreement to eliminate forced labour from G7 supply chains by 2025.

If The Information’s report is correct, one of the new entrants to Apple’s supply chain won’t be there for long. That’s Shenzhen Deren, which makes antennas and internal cables. The report alleges it relies on at least 1,000 staff from Xinjiang, with further allegations that six of the seven companies named in the study participate in work programmes that are operated by the Chinese government. Activists allege that the schemes are cover for forced labour, particularly involving Uighurs living in Xinjiang.

On a different note, the list also includes Shenzhen-listed Luxshare (see WiC506), which has built up its exposure to Apple by acquiring Taiwanese suppliers. These include: buying a 45% stake in casing manufacturer Casetek (from Taiwan’s Pegatron), a 45% stake in Apple camera module manufacturer Cowell and taking over a Chinese iPhone assembling plant from another Taiwanese company, Wistron.

Luxshare’s move up the Apple rankings highlights a second important trend. While the number of Chinese companies on the supplier list is growing, they‘re not necessarily basing their operations solely in mainland China. In this regard, Apple is meeting its target of shifting 15% to 30% of its production out of China – and Chinese companies are helping it to do it.

What’s noticeable is how many Chinese companies now have additional plants in India, Thailand and Vietnam. For example, Luxshare appears on Apple’s list in four Chinese provinces (Anhui, Jiangsu, Jiangxi and Zhejiang). But it also lists a plant in Vietnam as well (in Bac Giang).

Another new entrant – Shenzhen-listed Lingyi iTech – is also mentioned in four Chinese provinces (Guangdong, Henan, Jiangsu and Sichuan). But it has diversified overseas with factories in Brazil, India and again in Vietnam’s Bac Giang.

Taiwanese suppliers are also leading the charge into Southeast and South Asia. Companies that have ‘Gone South’ since the 2018 Apple supplier list was published include: Compal (Thailand and Vietnam), Foxlink (India), Foxconn (India and Vietnam), Quanta (Thailand) and Yageo (Thailand and Vietnam).

But the number of Chinese companies on the Apple list will expand by four or five this year, counters Global Times, because the Chinese economy has been less disrupted by the pandemic than India and Vietnam. Jiemian.com agrees, citing China’s skilled labour and vast manufacturing ecosystem. It also highlights how Chinese firms are moving up the value chain, noting the addition to the top 200 list of Gigadevice, a memory chip designer from Shanghai. 

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