Dave Gilbert here, editor of smart money.
Designed by Apple in California. Assembled in China.
If you bought it Apple Inc. (AAPL) products over the years – and chances are you’ve based it on the iPhone which now claims a 50% market share in the US – you’ve probably seen this language printed on the box.
That pretty much sums up the production process. Apple designed its products and then outsourced manufacturing to China, which provided cheaper labor and resources.
Apple, of course, wasn’t alone. China is a manufacturing powerhouse, leading the world in total output value for 11 consecutive years. China accounts for almost 30% of the world’s manufacturing industry. frequency based Made in China appears on the products we buy, it looks like it would be even higher than that.
But this well-established trend is at least slowing down if not reversing.
Assembled in China appears on fewer Apple products now than before, and more of the company’s manufacturing is expected to move to other countries.
It’s more than interesting. This has implications for investors…
Change is in the air
Apple confirmed yesterday that it is manufacturing the new iPhone 14 in India as it moves some production out of China. The company has been assembling older iPhones in India since 2017, so production there isn’t completely new. New is the assembly of the current flagship model in India.
To be clear, most iPhone production continues to take place in China. But the change is real. According to JPMorgan, Apple will manufacture 5% of its iPhone 14 units in India by the end of this year.
There are several reasons for Apple’s change. One is simply to sell more phones in India. Even though India is the world’s second-largest smartphone market, Apple held just 3.8% of the market last year, losing out to lower-cost phone makers including Samsung. iPhones dominate the “ultra-premium” smartphone market, which some analysts say is just beginning to grow in India.
The second reason for this change is to reduce dependence on China. Overreliance on anything is a business risk, but lockdowns and China’s aggressive COVID response have disrupted production and created supply chain issues around the world. Apple would clearly like to reduce some of this risk.
Eric Fry was one step ahead of the game when he clearly identified this change exactly two years ago in the September 2020 issue of Fry’s Investment Report…
…there is no doubt about the direction in which the political winds are blowing. And these winds are fanning a powerful new investment trend that I call “NMIC” – Not Made in China…
In the wake of the coronavirus crisis, we Americans have become more mindful of the vulnerability of foreign supply chains, especially those from places like Russia and China…
For Eric, the pandemic has laid bare the dangers of overreliance on China and other foreign supply chains. Everything from a war to a global health crisis to the changing whims of a nation’s leaders could choke off the sources of essential goods and ingredients. He continued his initial analysis earlier this year…
“Made in China” is becoming both a political and logistical risk for many companies in the United States and elsewhere… [A] a growing number of Western companies are working to eliminate or reduce Chinese production from their supply chains, if they can do so responsibly and profitably.
A move to “Made in America” would be the optimal outcome for many of these companies, but the first thing to do is simply establish production that is “not made in China.”
Before the COVID pandemic, America’s growing reliance on the production of many products in China seemed slightly infuriating, but convenient.
While we certainly don’t like exporting manufacturing jobs overseas, we didn’t mind buying Chinese-made products for a fraction of what the US-made equivalent would cost.
Then came COVID.
Suddenly, our low-cost sourcing of Chinese-made products seemed much less convenient. Costume jewelry, cat toys and action figures from China continued to flood Walmart’s shelves, but many Chinese-made staples and/or essentials, such as face masks, syringes and antibiotics, could not be found.
Suddenly, we Americans discovered that we had become too dependent on China for various products. Because of this realization, increasing US production of key raw materials and products has become the “#1 priority” in boardrooms across America.
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Opportunities for businesses and investors
Two years after Eric first shared his analysis, we continue to see this diversification of production. In fact, it has accelerated due to the war in Ukraine and Russia’s growing status as a global pariah that no one wants to do business with.
Eric tells me that it even gave rise to new terminology. We all know”relocationwhich sends manufacturing overseas to take advantage of lower costs.
Now you can learn more about “relocation” Where “relocationboth of which mean bringing manufacturing and jobs overseas.
And now there is also “relocation.” This means bringing production closer to home, reducing supply chain risks and transportation costs.
So this is it. If we invent words to describe the phenomenon, there must be something.
Energy is probably at the top of the priority list. Europe continues to face an oil and gas crisis because it has been so heavily dependent on Russia for its energy resources. Things could get spooky this winter when heat demand peaks, and officials are already talking about power outages and plant closures. The inhabitants are already stocking up on firewood.
Manufacturing is a massive global industry. Research firm Interact Analysis predicts that global manufacturing output will reach $44.5 trillion in 2022. When even a small part of it is disrupted, you’re talking big numbers. And that can mean opportunities for businesses and investors.
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