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<p><div class="image-container float_right" style="width:540px"><div class="image"><p class="source"><a href="http://en.wikipedia.org/wiki/File:Boeing_737-529_VP-BHA_SkyExpress%28Russia%29.jpg">Wikimedia Commons</a></p></div></div>Global companies struggle with decisions on how much to outsource. Too little means an organization may lose the pricing advantages that can come with using competitive providers worldwide. Too much—or the wrong kind of outsourcing—and quality and knowledge management can suffer.</p>
<p>A panel at a recent Wharton Global Forum in Tokyo titled, "Global Supply Chain Management: <keyword id="6363915" type="COMPANY" weightage="60" keywordseo="Outsourcing">Outsourcing</keyword>, Re-shoring, and Near-Shoring," looked at the reshaping of the global supply chain, and how companies choose where and whom to source from in a fast-changing environment. During the discussion, led by Wharton professor of operations and information management <a href="https://opimweb.wharton.upenn.edu/profile/27/">Morris A. Cohen</a>, the panelists suggested that the cheapest solution is not always the best, and that the architecture of supply chains can vary widely depending on the industry and products involved.</p>
<p><keyword id="6357957" type="CITY" weightage="60" keywordseo="Boeing">Boeing</keyword>'s supply chain evolves from extensive research into customers and the environments in which they operate, said Beth Anderson, a Boeing vice president. "We go through the entire cycle of designing the airplane and designing the production system, and understanding who our customers are going to be and how we're going to support [the aircraft] once it goes into service."</p>
<p>Boeing's main customer base has evolved since 20 years ago, when 75% of the company's production took place in the United States and Europe, with the rest happening elsewhere. Now, just 25% of Boeing's backlog is in its traditional markets in the U.S. and Europe, with 75% in fast-growing economies like China and India. Thus, Boeing's vast supply chain is evolving to fit its changing market and advancing technologies.</p>
<p>Last year, the manufacturer sourced 783 million parts used to build 600 aircraft. By 2014, it will be bringing in more than one billion parts from a total of 7,500 suppliers to build 700 planes. "It's a vast supply chain and very complex," Anderson said of the 500,000 people in 73 countries engaged in helping to build Boeing products. "It [takes] really well choreographed logistics ... to bring those airplanes together." She noted that even a seemingly simple window shade is sourced from seven suppliers.</p>
<p>Like most manufacturers, Boeing is contending with immense competition, and that means its choice of suppliers has to enhance its competitive advantage. Ultimately, "it all comes down to safety," Anderson said. Each of Boeing's 7,500 suppliers is held to the same standards the company requires of itself. Optimizing its supply chain and other qualities such as fuel efficiency and aerodynamics enabled Boeing to gain 35% in efficiency between 1975 and 1995, but airlines are demanding still more improvements. "Our world has changed dramatically," Anderson noted. "To be competitive, we are working with our supply chain. We're looking at whom we work with, [and] how we change the engineering, the architecture."</p>
<p>Boeing's manufacturing processes have been in the spotlight lately because of the company's high-tech 787 Dreamliner, which suffered from delays, cost overruns and, after its launch, high-profile battery problems. Last week, an empty 787 Dreamliner caught fire while parked at London's Heathrow Airport. Boeing, along with Great Britain's Air Accidents Investigation Branch, the U.S. National Transportation Safety Board and Honeywell, maker of the emergency device located in the area where the fire appeared to be burning, is investigating the possible causes of the incident.</p>
<p>Ultimately, Boeing seeks to minimize risk and maximize the value of its supply chain by gauging the capability, capacity, collaboration, cash and commitment of its suppliers. It also has to work with aspiring partners in emerging markets such as China, despite potential risks from technology transfers. "It's a balancing act. We don't want to say, 'No, we're not going to share,' because we would be shutting ourselves out of the market. But we have to decide when we have to say no," Anderson noted.</p>
<p><strong>Where, and How Many?</strong></p>
<p>Japanese aircraft maker and defense contractor Mitsubishi Heavy Industries, whose company has worked closely with Boeing on the 787 and other planes, is also balancing its domestic manufacturing base with the need to expand into global markets, said Shigefumi Tatsumi, the company's vice president and general manager for commercial aircraft. The company makes at most 50 of its best-selling aircraft in a month, with lead times that are often over a year. "We have a very flat supply chain, which is not good for the current business environment," noted Tatsumi. Key considerations are location and quality assurance.</p>
<p>Nissan Motors faces similar challenges, according to Vincent Cobee, corporate vice president in the automaker's Global Datsun Business Unit. Nissan's supply chain, like Boeing's, has been transformed by globalization and the emergence of newly affluent markets outside of North America, Europe and Japan. The shift of production to offshore markets to help defuse trade friction ended the traditional reliance of Japanese automakers on marketing through the big Japanese trading houses. That transition was followed by a shift toward localization across many markets.</p>
<p>While Nissan maintains full control over development of its vehicles, it has had to localize supply chains to reduce costs and reach its key markets. The automaker uses several different business models. The premium brand, Infiniti, is competitive with German luxury cars and developed and made in Japan. The global Nissan product is developed in Japan but localized for various markets. Finally, there is Datsun, which Cobee calls a global-local product, developed and sourced locally with Japanese expertise.</p>
<p>For high-tech products, supply chain logistics can be even more daunting, said Kenji Mizuno, a senior vice president in electronics maker Fujitsu's supply chain management unit. Unlike aircraft and cars, Fujitsu's products are often invisible to consumers, but there are similar pressures to ensure that goods are delivered quickly enough to meet customers' requirements. Fujitsu counts among its clients nearly half of all Fortune 500 global companies and it is the world's third-largest IT service provider, with 173,000 employees and 4.4 trillion yen in annual sales.</p>
<p>Rather than thousands of suppliers, Fujitsu relies on only a handful for each of the many components used in its X86 servers, which Mizuno cited as an example. It buys CPUs from Intel and AMD, and hard disc drives from Seagate and Toshiba. The realities of the supply chain, and high expectations of Fujitsu's customers, mean that Fujitsu has to source parts from suppliers that have moved offshore to China and elsewhere in Asia, and keep costs low, while providing high quality and high reliability and managing grueling time limitations.</p>
<p>Despite the small number of suppliers, Fujitsu must provide servers tailored to meet up to 20,000 configurations, Mizuno said. Fujitsu's solution to the dilemma of scattered suppliers and short delivery times of five or six days is to buy parts from China or from members of the Association of Southeast Asian Nations (ASEAN), ship them by sea freight and have them ready for final assembly close to its customers' locations in Japan, Europe and China. "We assemble the products, put them through long tests and deliver. This is the only scenario that allows us to make money and meet all the other requirements," Mizuno noted.</p>
<p>To manage its myriad supply chains, Fujitsu has opted for a "virtual global SCM" (supply chain management system) to decide who will make and deliver products. "We are doing this every day. We look at the customer orders, factory lines and parts supplies. This is the only way we can do it," Mizuno said. Tokyo Electron, which makes the chip sets used in Sony Play Stations and other devices, faces similar requirements for high reliability and quality but has a less open approach to its own supply chain, noted Akihisa Sekiguchi, the company's vice president and general manager for corporate marketing. Tokyo Electron produces mainly for export, though only eight customers account for almost all its business.</p>
<p><strong>No Single Solution</strong></p>
<p>Although it is not that well-known to consumers, Tokyo Electron once was number one in the integrated circuit industry, back when Japan was the leading manufacturer of semiconductors. Now, it is at the top in Japan and number three in the world, with 12,000 employees and $5 billion to $7 billion in annual sales. The firm's manufacturing is all done in Japan, though it ships 90% of its products overseas. "Our R&amp;D is global, but sourcing is domestic," Sekiguchi said. Keeping production onshore works for Tokyo Electron because the components needed to make its tools are made in Japan, and the country's infrastructure can support its manufacturing.</p>
<p>Apart from trials related to years of "endaka," or the high-valued yen, Tokyo Electron's biggest challenge came with the March 2011 earthquake and tsunami, which forced its factory in Fukushima to close for about two months. The company's workers pulled together to get production back up as soon as possible, though "it takes time to track down 4,000 or 5,000 suppliers," Sekiguchi noted. Calamities like the March 2011 disasters drove home the need to mitigate risk through multi-sourcing. But it does involve costs. "It's not an easy solution," Sekiguchi said. "IP protection is an issue. Geographic location is an issue."</p>
<p>Ultimately, there is no single solution that works in all cases. The question of IP protection is vital to supply chain management, Cohen noted during the panel discussion. But for companies like Boeing, the extremely high degree of regulation typically helps to prevent bogus parts from getting into the industry. "Mostly the regulators do the policing. We just ensure that all the parts have the right documentation," Anderson said.</p>
<p>Automakers like Nissan face much greater risks, given the prevalence of independent auto service companies in many markets. "It's very difficult to guarantee the source of the parts. Our badge is on the car no matter where the parts come from," Cobee noted. "I recommend not using an unauthorized dealer in China."</p>
<p>Partly out of those concerns, some consumers are choosy about the origin of the products they buy. But for IT companies like Fujitsu, although components are made in various places, from Costa Rica to Israel, "we can boast that our products are made only in Japan," said Mizuno. "The real issue is reliability and capability. We do very special tests, and sometimes many components fail. But when we deliver the finished computers, they are very high quality. That's our expertise. They are made and assembled in Japan with our technology."</p>
<p>Tokyo Electron, likewise, uses components from overseas but puts its products through extensive testing before they are shipped. "If components fail, they are dropped," Sekiguchi said of the tests, which extend to the "molecular level. In the semiconductor industry, we buy the product, not the location or the source."</p>
<p>Stretching to reach global markets involves risks, as Boeing's experience with the 787 attests. Yet, outsourcing is something Boeing will continue to do, even if the company found that it went a bit too far with the Dreamliner.</p>
<p>"We had an expectation that our suppliers could do the same things that we do every day. We learned that stuffing an airplane full of parts, [something that] we take for granted, is ... challenging," Anderson noted. "We'll take our expertise and start getting the next new airplane on the books. We're taking advantage of the expertise around the world. We can't believe we're the only ones who can do it." According to Tatsumi of Mitsubishi Heavy Industries, working with Boeing is an elaborate process involving hundreds of engineers and a collaboration that has to evolve as the products and market environment change.</p>
<p>Companies must realize that once they have opened the door to collaboration or outsourcing, though, it can never be closed, noted Nissan's Cobee. Given the huge risks of failure for products like automobiles and many other products, "you have to think about not only the benefit for tomorrow but also about whether you can sustain it." To keep a competitive edge requires constant innovation. "You have to innovate more than the others. Yes, we have the daily job of protecting IP. It doesn't take a genius to dismantle a car and reverse engineer it," Cobee said. "The only way is innovation."</p><p class="tagline">This story was originally published by <a href="http://knowledge.wharton.upenn.edu/" target="_blank">Knowledge@Wharton</a>.</p>

Why Companies Like Boeing Keep Outsourcing American Jobs

<keyword id="6354427" type="General" weightage="100" keywordseo="apple" source="Orion">Apple</keyword> is working on a self-driving electric car that could launch in a few years and now a new report has claimed that the iPhone maker has partnered with a South Korean company to develop the autopilot chip for its car.<br /><br />According to a report by TheElec, Apple has partnered with a South Korean outsourced semiconductor assembly and test (OSAT) company to develop its car's autopilot technology.<br /><br />The project is led by Apple's South Korean offices. It was initiated in 2021 and is expected to last till next year.<br /><br />Apple is reportedly taking a similar route to Tesla. The Elon Musk-owned EV firm while developing its autopilot chip, used Samsung memory and gave assembly work to JCET STATSChipPAC Korea.<br /><br /><keyword id="2069539" type="General" weightage="20" keywordseo="Apple-Car" source="Orion">Apple Car</keyword> is also expected to use LED screens all over the vehicle to inform other drivers what the self-driving system is doing.<br /><br />The display would show braking information, the speed of the car and other messages in the form of graphics as well as video.<br /><br />For drivers parking the vehicle, the displays could show a goodbye message, or welcome the user on arrival to the vehicle itself, the report added.<br /><br />The upcoming Apple Car is expected to use a "C1" chip based on the A12 Bionic processor with in-cabin AI capabilities such as eye-tracking.<br /><br /><b>SEE ALSO:</b><br /><br /> <b><a href="https://www.businessinsider.in/business/auto/news/kia-carens-price-specs-features-comparison-with-alcazar-india/slidelist/89589644.cms">Kia Carens launched in India — Price, specs, features compared to Hyundai Alcazar</a></b><br /><br /> <b><a href="https://www.businessinsider.in/business/auto/news/bajaj-chetak-is-now-available-in-20-cities-checkout-price-features-and-other-details/slidelist/89661825.cms">Bajaj Chetak is now available in 20 cities — Checkout price, features and other details</a></b><br /><br /> <b><a href="https://www.businessinsider.in/business/auto/news/best-scooters-and-bikes-in-india-under-1-lakh/slidelist/89588060.cms">Best scooters and bikes in India under ₹1 lakh</a></b><br />

Apple Car to reportedly feature autopilot tech co-developed with a South Korean company

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>AP</span></p></div><p></p></div></div>Earlier this week, it came out that Apple was kicking the tires on <a href="http://www.ft.com/cms/s/0/523422ba-7ffd-11e6-8e50-8ec15fb462f4.html?siteedition=intl#axzz4L6kqtSP5">buying an existing stake in McLaren</a>, a British automotive company best known for making million-dollar supercars. </p><p>A ton of Apple observers and stakeholders are taking this news as evidence that Apple knows it doesn't have the expertise to manufacture a car, and is looking for a automotive partner to help it build factories and a supply chain. </p><p>Here's two reasons why that's wrong.</p><ul><li>Apple doesn't actually do much manufacturing today. It contracts with firms like Foxconn and Pegatron to build its iPhones and Macs - and people don't think Foxconn is an Apple M&amp;A target.</li><li>McLaren builds its cars by hand. Apple products are built at scale. A former Apple engineer currently in the automotive industry told Business Insider recently that Apple wouldn't be interested in a production process with lots of individual hands-on work. </li></ul><p>What's most likely if Apple does decide to build a car is that it will need a key manufacturing partner - several, actually.</p><p>Apple will need the automotive equivalent of Samsung or Foxconn to build its car. It will need suppliers to provide things like electric motors, electronic components, and assembly services. And it will need those parts in high volume. </p><p>Apple could dip into some of its over $200 billion in cash to start the process. In the past, <a href="http://www.bloomberg.com/news/articles/2013-11-04/apple-to-build-plant-in-arizona-with-2-000-workers-to-make-parts">Apple has spent generously</a> to build facilities to lease back to its key suppliers, which might not have had the capital to build the factories on their own. <a href="http://www.wsj.com/articles/japan-display-may-build-new-factory-in-japan-to-supply-apple-1424408233">It's also reportedly financed facilities</a> for companies that make key components for the iPhone. </p><p>So who might Apple work with? Morgan Stanley recently distributed a list of 30 companies that it thinks is best positioned to take advantage of the coming electric and driverless car waves - the same waves it looks like Apple is looking to ride.</p><p>Here are a few companies that Apple might need to work with to build a car: </p><h2>Magna</h2><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Markus Leodolter/AP Images</span></p></div><p></p></div></div></p><p>Magna is the name that comes up most often when discussing Apple's car project, and for good reason. Magna is the world's largest contract manufacturer of vehicles, using its plants to make cars to specifications for brands like BMW and Mini. </p><p><a href="https://www.bloomberg.com/features/2016-magna-international/">Magna is reportedly already working</a> with Apple, according to a new feature in Bloomberg about the Canadian-headquartered company. About a dozen Magna engineers are working with Apple in its secretive<a href="http://www.businessinsider.com/everything-we-know-about-project-titan-the-apple-car-2016-7"> Sunnyvale, California</a> car facilities. </p><p>"We believe Magna-Steyr is in a singular position to help new entrants who may want to 'make' their own cars by playing a similar role to what Foxconn does today for Apple in the smartphone industry," Morgan Stanley advises. </p><p>Magna could easily be Apple's "Tier-1" partner. </p><h2>Mobileye</h2><p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span><a href="http://us.mobileye.com/mobileye-560/">Mobileye</a></span></p></div><p></p></div></div></p><p>Mobileye has been in the headlines recently because the company is <a href="http://fortune.com/2016/09/15/tesla-mobileye-partner-cameras/">publicly feuding</a> with its former customer, Tesla, and its famous CEO, Elon Musk.</p><p>But the spat underlines the fact that Mobileye is a key player in the hardware and software powering autonomous driving features on the road today. </p><p>Morgan Stanley describes it as a "primarily software-driven business model specializing in proprietary algorithms for vision systems for cars." It's a "Tier-2 supplier," which means it would supply parts to the OEM that would assemble the final product, and Morgan Stanley says it has "few, if any, direct peers."</p><p>Mobileye says it has 80% of the auto vision market. Apple might make its own computer vision software, but there's a chance it decides what Mobileye is offering off-the-shelf is just as good and perhaps better. </p><h2>Delphi Automotive</h2><p>Delphi is a British company that makes automotive parts. Lots of automotive parts. It's a massive company that has 161,000 employees.</p><p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>Delphi</span></p></div><p></p></div></div>If cars to go an OEM-driven business model where much of the value is captured by software and design firms like Apple or Google, Delphi could be a big winner. "Delphi is one of the few global suppliers that can leverage secular technological shifts in the auto industry to become a 'mega supplier,'" writes Morgan Stanley. </p><p>The company "stands to benefit significantly from the emergence of fully outsourced business models of OEMs, driven by ... importance of software in vehicles," the note continues. </p><p>Someone's going to need to build brakes and suspensions for Apple's car, and Delphi is certainly a possibility. </p><h2>NXP Semiconductors and Nvidia</h2><p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>NVIDIA</span></p></div><p></p></div></div>Someone's going to have to design and make the car computers that collect data from all the sensors a self-driving car is equipped with - the cameras, the radar, and the LIDAR. </p><p>NXP Semiconductors is one of the leaders in this field, along with Nvidia, a company best known for making graphics cards for gamers. NXP says "four of the world's top five automakers" are using its chips. </p><p>However, there's a good chance that Apple will want to design its own car computer, after all, designing silicon is one of Apple's deepest strengths.</p><p>But to get there, there's always the possibility that Apple will buy a chip company to kickstart its division, like it did with <a href="https://en.wikipedia.org/wiki/P.A._Semi">P.A. Semi in 2008</a>. </p><h2>Tesla Motors</h2><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Kif Leswing/Business Insider</span></p></div><p></p></div></div></p><p><a href="http://www.businessinsider.com/apple-should-buy-tesla-2014-11">It just makes sense</a>! Tesla makes an Apple-inspired electric car, but is short on money. Apple wants to make an Apple-style electric car, and has piles of money.</p><p>Apple probably wouldn't invest in Tesla. But it could buying it. The purchase would mean that Apple would buy Tesla's factories, which is something it might be reluctant to do. But Apple could find a use for the Tesla factory in Fremont, California. </p><h2>Bosch</h2><p>Unless there's a patent that Apple hasn't revealed, it's not building its own electric motors. German electronics giant Bosch makes electric motors, and Apple has poached Bosch automotive engineers in the past. </p><p>Especially with the rumors that Apple is doing a lot of its car operations in a base in Germany, it makes sense that Apple would look to an electric motor supplier based in Germany. <a href="http://www.autocar.co.uk/car-news/industry/how-apple-icar-could-crack-automotive-industry">Autocar fingers</a> Bosch and ZF as possibilities. </p><h2>Bonus: Samsung! </h2><p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>Thomson Reuters</span></p><p class="caption">The logo of Samsung Electronics is seen at its headquarters in Seoul</p></div><p></p></div></div></p><p>Samsung is one of Apple's key supplier for the iPhone and iPad - it fabricates Apple's chips, makes some of Apple's displays, <a href="https://9to5mac.com/2016/01/14/samsung-apple-oled-supplier/">and may make even more</a> of Apple's displays next year. </p><p>Although Morgan Stanley doesn't say Samsung is one of its target companies for electric cars, it's been making moves so that it can be a major supplier for auto parts. Earlier this year, <a href="http://www.bloomberg.com/news/articles/2016-08-03/samsung-said-in-talks-to-buy-assets-of-fiat-auto-parts-unit-ireppnz7">Bloomberg reported</a> that Samsung was in talks to buy Fiat's auto-parts unit, Magneti Marelli, which makes lighting, in-car entertainment and telematics systems. </p><p>The deal hasn't been confirmed yet, but Samsung has made no secret about its desire to become an auto parts giant. It has a team that's working on components and autonomous driving, and last year it bought a big stake in a Chinese electric car company.</p><p>The road to the Apple Car might end up going straight through Samsung. </p>        <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/apple-iphone-7-samsung-galaxy-s7-specs-comparison-2016-9">Here's how the iPhone 7 compares to the Samsung Galaxy S7</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="5keHFyNTE6SqBngTPWssX0hJ0WhONuNJ" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

If Apple built a car, here are the companies it would probably work with

<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>AP</span></p><p class="caption">Apple under CEO Tim Cook is reportedly looking to shift some of its product production out of China in the wake of the ongoing trade war.</p></div><p></p></div></div></p><ul class="summary-list"><li><a href="https://www.businessinsider.com/category/apple">Apple's</a> reported interest in moving some of its product production out of <a href="https://www.businessinsider.com/category/china">China</a> in the wake of the <a href="https://www.businessinsider.com/category/trade-war">trade war</a> could take years to realize, supply chain experts told Business Insider.</li><li>The company's complex production system is set up to deliver supplies to and ship products out of China; redirecting that system elsewhere will take enormous time and effort, they said.</li><li>Right now, other countries don't have the infrastructure in place or enough trained labor for Apple to shift a significant amount of its production to them, the experts said.</li><li>But the company could be aided by the fact that many electronics makers are looking to shift production out of China, both because of the trade dispute and because of rising labor and regulatory compliance costs.</li><li><a href="https://www.businessinsider.com/prime?module=article&amp;area=summary">Click here for more BI Prime stories</a>.</li></ul><p>Apple is looking for a new country to be its <a href="https://www.businessinsider.com/category/iphone">iPhone</a> factory. </p><p>After years of relying on China to build its electronics products, Apple is reportedly casting its gaze across the globe in search of new pastures. The move is due to the growing trade tensions with China, as President Trump threatens hundreds of billions of dollars in tariffs that would make the country a much less ideal manufacturing homebase.</p><p>But moving out of China will create a variety of problems for Apple that could slow down production of its computers and smartphones, test its reputation for high quality, and, ultimately, not even guarantee that Apple would be completely out of the tariffs' reach. For that reason, Apple is unlikely to move more than a small, token portion of its manufacturing outside of China anytime soon, according to supply chain experts that Business Insider spoke to. </p><p>While it makes sense for Apple to explore alternatives to China as a long-term strategy, the iPhone maker, like nearly all of the consumer electronics industry today, is just too firmly entrenched in the Asian nation and will have a difficult time extricating itself from there, they said.</p><p>"This is not stuff you can just pick up and relocate," said Ryan Reith, vice president of mobile devices at market research firm IDC. The process of moving production from China to another country is "a years thing," he continued, "not a months thing."</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>REUTERS/Stringer </span></p></div><p></p></div></div></p><p>It's important to note that Apple doesn't actually produce any of its devices on its own. Instead, it outsources production to <a href="https://www.businessinsider.com/category/foxconn">Foxconn</a> and Pegatron, Taiwan-based contract manufacturers that have extensive networks of factories in China and other countries. Apple coordinates the supply of components to those factories and the distribution of finished products from them.</p><p style="padding-left: 40px;"><em><strong>Read this</strong>: </em><a href="https://www.businessinsider.com/gba-gregor-berkowitz-says-manufacturers-are-moving-out-of-china-2019-5"><em>The trade war is speeding up tech manufacturers' plans to move out of China, a longtime industry analyst says</em></a></p><p>On its face, Apple's reliance on contract manufacturers would seem to make shifting production to other countries easier. After all, those companies already have manufacturing plants outside of China. In fact, Foxconn Chairman Terry Gou, who is in the running to become President of Taiwan, recently  <a href="https://markets.businessinsider.com/news/stocks/foxconn-founder-urges-apple-move-iphone-production-out-of-china-2019-6-1028298475">urged Apple to move its production from China to Taiwan</a>. And earlier this month, the head of Foxconn's semiconductor group said <a href="https://www.businessinsider.com/apple-backup-plan-foxconn-can-move-iphone-production-outside-china-2019-6?utm_source=markets&amp;utm_medium=ingest">the company was prepared to help Apple move production out of China</a> if it needed to.</p><p>But moving production to other countries involves a lot more than setting up a line of equipment in a new building, the supply chain experts said.  And Apple can't just move iPhone production by placing an order at another of its contractor's facilities.</p><p>A plan by Foxconn to build an LCD factory in Wisconsin <a href="https://www.chicagotribune.com/business/ct-biz-foxconn-plant-hiring-target-20190205-story.html">has been mired in problems and delays</a> since it was announced a few years ago. Apple's plan to shift as much as 30% of its manufacturing capacity out of China to countries such as Vietnam, India, or Mexico, as the Nikkei Asian Review <a href="https://asia.nikkei.com/Economy/Trade-war/Apple-weighs-15-30-capacity-shift-out-of-China-amid-trade-war">reported</a> last week, is especially ambitious.</p><h2>Shifting production will be a big challenge</h2><p>As labor costs have risen in China, <span> companies in industries like apparel, footwear, and automobile parts, have already started to move production out of China to Vietnam, Mexico, and other countries. </span></p><p>There are existing electronics factories in areas outside of China, in countries like Mexico, Vietnam, Indonesia, and India. Some assemble products that use older, less-cutting edge technology, like the older iPhone 6 and 7 models that contractor Wistron Corp makes in Bangalore, India, according to Bloomberg. Apple is preparing trial productions of newer iPhones X models at a Foxconn facility in India, <a href="https://www.bloomberg.com/news/articles/2019-04-02/foxconn-is-said-close-to-trial-output-of-newest-iphones-in-india">Bloomberg recently reported</a>, but it's not clear what level of output is expected if it successfully moves into mass production.</p><p>Right now, nearly all of Apple's supply chain is organized around delivering components to production facilities in China and shipping goods from those factories to retailers and customers around the world, they said. Moving production to other areas of the world would require Apple to reorient its supply chain to those facilities, a daunting task.</p><p>Part of the challenge is that many of Apple's suppliers and component makers are themselves located near the plants that make its finished goods, said IDC's Reith. Apple would either have to ask those suppliers to set up shop near its new plants outside of China or figure out how to ship their components to those new factories.</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Kin Cheung/AP</span></p></div><p></p></div></div></p><p>Getting the suppliers up and running in the new countries could make the task of moving take even longer. And sourcing any necessary components for the new factories from China could pose its own problems. Those components themselves could be subject to tariffs. And by not being close to Apple's plants, it could take longer for those component makers to make changes.</p><p>"The reason why China is such a manufacturing hub is not really about it having the cheapest labor," Reith said. "It's all those other aspects of manufacturing that take place there."</p><h2>Skilled workers can be hard to find<span></span></h2><p>Even if Apple is able to find or set up new factories in other countries and find suppliers for them, it still has to find people to work in the plants or for its component makers, the experts said. The company's products are known for the high quality of their manufacturing, said John Jordan, a clinical professor of supply chain and information systems at Penn State University's Smeal College of Business. Building a case for an iPhone or other components often requires precision techniques that few people are trained in, he said.</p><p>Few of the workers that have those skills are likely to move to new plants outside of China, he said. But finding workers inside the countries where Apple might move could prove to be a big problem. While Vietnam and other countries have seen a pick up in manufacturing of apparel or other goods, the skills needed for such factories don't necessarily translate into making iPhones, Jordan said.</p><p>"You can't really convert what they're doing into what Apple needs anytime soon," he said.</p><p style="padding-left: 40px;"><em><strong>Also read:</strong> <a href="https://www.businessinsider.com/apple-iphone-factory-foxconn-china-photos-tour-2018-5">Inside 'iPhone City,' the massive Chinese factory town where half of the world's iPhones are produced</a></em></p><p>Apple's Chinese plants have an extensive network of roads they can rely on to connect them to suppliers and distributors. They also have major shipping facilities close by and warehouses needed to store products. That type of infrastructure took decades to develop in China and isn't necessarily in place yet in other areas of the world.</p><p>"There's a whole host of infrastructure issues that have to be dealt with," said Abe Eshkenazi, CEO of the Association for Supply Chain Management, an industry group.</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>REUTERS/Carlos Barria</span></p></div><p></p></div></div></p><p>Apple likely could shift a small amount of its production outside of China in a reasonably short time frame, said Bruce Arntzen, the executive director of the supply chain management program in MIT's engineering school. But it likely couldn't move a sizeable portion of it anytime soon, because of those labor and infrastructure issues. Other countries just don't have the capability right now to replace even a significant fraction of what Apple produces in China, he said.</p><p>"They would pretty quickly tie up most of capacity," Arntzen said.</p><h2>Moving will be a years-long process</h2><p>Thanks to such challenges, moving production out of China would likely be a long process.</p><p>In a research note last week, Dan Ives, a financial analyst who covers Apple for Wedbush, estimated that the company could shift 5% to 7% of its iPhone production to India in 12 to 18 months. To move 15% of its smartphone production out of China to other countries would take about two to three years "given the complexity and logistics involved in such a gargantuan endeavor," he said.</p><p>Those estimates roughly line up with those of the supply chain experts who spoke with Business Insider. <span>Gregor Berkowitz, a longtime tech industry consultant who travels frequently in Asia,</span> for example, thinks Apple could get some manufacturing moved to Taiwan in a matter of six months, but thinks it could take two to three years for it to get facilities up in running countries such as Thailand or Vietnam. Reith, for his part, thinks a move could be a three-year process, although he believes Apple has likely already started working on it.</p><p>"I don't see this as something that could happen overnight," he said.</p><p>That said, a couple of factors may help ease such a transition for Apple. Because the company is such a major manufacturer and represents such an important client for many of its component makers, many of those suppliers are likely to be at its beck and call, <span>said Berkowitz.</span> If Apple says it plans to set up a factory in Vietnam or Indonesia, those suppliers will likely take their lead from it and move their operations with it, he said.</p><p>"For other companies" the question of whether suppliers would move with them to a new location "would be more concerning," he said. "But for Apple, because of their leverage, they're not going to see the same kinds of risks."</p><p>And Apple's not likely alone in looking to move outside China. Because of the rising costs of producing there and the trade war, many electronics makers are exploring a shift in production. That's likely to spur even component makers that would be reluctant to set up shop elsewhere to do so anyway, Arntzen said.</p><p>"Everyone is in the position Apple is in," he said. "Because everyone's got the same problem," he continued, "it probably will happen sooner that the supply base moves to other countries."</p><p><em><strong>Got a tip about the tech industry?</strong> Contact this reporter via email at twolverton@businessinsider.com, message him on Twitter <a href="https://twitter.com/troywolv/">@troywolv</a>, or send him a secure message through Signal at 415.515.5594. You can also <a href="https://www.businessinsider.com/how-to-tip-business-insider-securely-guide-signal-securedrop-2017-6"> contact Business Insider securely via SecureDrop</a>.</em></p><ul class="read-more-links"><li>Read more about the trade war:</li><li><a href="https://www.businessinsider.com/huawei-new-operating-system-is-likely-doomed-industry-experts-say-2019-6" data-read-more-link="" data-e2e-name="read-more-link">Huawei's plan to replace Android with its own operating system is likely doomed from the start, mobile industry experts say</a></li><li><a href="https://www.businessinsider.com/why-huaweis-operating-system-effort-could-be-doomed-experts-say-2019-5" data-read-more-link="" data-e2e-name="read-more-link">3 tech execs who tried to create new smartphone and PC operating systems explain why Huawei's plan to build an Android replacement will be almost impossible</a></li><li><a href="https://www.businessinsider.com/gregor-berkowitz-huawei-trump-hurt-google-2019-5" data-read-more-link="" data-e2e-name="read-more-link">A longtime industry expert explains why Trump's attack on Huawei could end up hurting Google and other US tech giants</a></li><li><a href="https://www.businessinsider.com/apple-china-hsbc-erwan-rambourg-report-survey-iphone-sales-2019-2">These 4 charts show why Apple's China troubles aren't going away anytime soon</a></li></ul>     <div class="margin-top">        <h3>NOW WATCH: <a href="https://www.businessinsider.com/why-verizon-att-charge-more-extra-mobile-data-unlimited-plan-2019-6">Here's why phone companies like Verizon and AT&amp;T charge more for extra data</a></h3>        <div>                    </div>    </div>

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