Behind the world’s biggest business break-up

While celebrity breakups can be big news, it’s business breakups that have a bigger real-world impact. And boy, do we have some tea🍵.

In recent weeks, Apple has reportedly accelerated the shift of its supply chain away from China, where it currently makes 90% of its devices. This marks a major shift in the supply chain strategy that played a key part in building the world’s most valuable company.

🍏 Background: Apple products were originally manufactured in the USA. But come the late 1990s, as Mac sales slowed and profits dwindled, then-CEO Steve Jobs decided to look into outsourcing (fun fact: the person chosen to head up this project was none other than current CEO Tim Cook, the company’s operations chief at the time).

The company ended up choosing the Foxconn Technology Group, a Taiwanese supplier, as one of its manufacturing partners in China. And like the honeymoon phase in relationships, things just… worked.

Over time, Apple grew to become Foxconn’s biggest customer, and similarly, Foxconn is Apple’s biggest supplier. It currently operates “iPhone City,” a factory-city consisting of 300,000 workers that can produce more than 500,000 iPhones per day for Apple.

And though the labor cost is certainly lower in China, that’s not where the country's true secret sauce lies. Rather, it’s in its large labor pool, manufacturing know-how, and well-developed supply chain, per a report from Bloomberg Intelligence, which estimates it would take Apple eight years to move 10% of its production away from China.

• Apple’s longer-term goal is to ship 40% to 45% of iPhones from India, compared with a single-digit percentage currently, the WSJ reports.
• Vietnam is expected to shoulder more of the manufacturing for other Apple products, such as AirPods, smartwatches, and laptops.

⚙️📉 Zoom out: If you’ve been seeing less “Made in China” labels over the past few years, that’s not your imagination. According to Kearney Consulting’s annual Reshoring Index, 55% of US manufacturing imports came from China in 2021, down from 66% in 2018.