Numbers Korea - Ilho Lee
Jan 16, 2023
Alan Young is a former North American leader of Foxconn and was at the center of the beginning of 'Reshoring' in the US. He currently teaches Entrepreneurship at the University of Wisconsin-Madison...
At the end of the 2020s, can India replace 'China now'?!
The existing global economic order is being dismantled and reunited as a result of US reshoring and restructuring of supply chains. While the devil's control against China is clearly revealed, there is an opinion that 'de-China' has already begun. When and in what form will the world situation be reorganized? <Numbers> interviewed an expert who could talk about this.
Numbers Team had a video interview with Alan Yeung, former North American representative of Foxconn, on January 4th. On the 14th, I edited the video of my interview with him into about 6 minutes and released it to everyone.
In the video, the focus was on the possibility of electric car collaboration with Apple and Tesla. But in fact, the interview...
Apple and Foxconn's 'de-China' issue
China's status as the 'factory of the world' weakens
Possibilities of India and Vietnam as substitutes for China
Impact of reshoring in the US
Changes in global trade order
Overall, the changes to consignment production in the era of electric vehicles
Alan Young is a former North American leader of Foxconn who dreams of becoming the 'Emperor' of electric vehicle consignment production, and was at the center of the beginning of 'Reshoring' in the US. He currently teaches Entrepreneurship at the University of Wisconsin-Madison. He shared with Numbers insights on the changing international situation, trade order, and trends in the electric car era.
This interview will not directly help readers invest. However, if you read it, you will be able to understand the major trends of global economic change, such as how fast the global supply chain will be reorganized around the United States and how countries and companies will respond.
Foxconn, the largest OEM for Apple, the world's largest company, suffered production setbacks at its Zhengzhou, China factory in November last year. This is Apple's largest production base for the iPhone.
The situation at the Zhengzhou plant was quickly restored. However, companies that have entered China today see local politics as a 'risk', such as Xi Jinping's one-person dictatorship or China's unreasonable Corona 19 quarantine policy. At its core is the conflict with the United States that began in the late 2010s.
The Inflation Reduction Act (IRA) passed last year is a prime example. In this law, various devices are at stake to keep China in check under the name of reducing inflation. A typical example is the 'guardrail' clause that prevents semiconductor companies receiving subsidies from the US government from expanding or building production facilities in 'countries that pose a threat to the security of the United States'.
In addition, in the case of electric vehicles, there is also a content that does not give tax credits unless more than 40% of minerals originating from the United States or countries that have concluded FTAs with the United States are used after 2024 (80% in 2027). These contents have been controversial because they affect domestic companies that have entered China or import materials from China.
Q. What does the Zhengzhou plant mean for Foxconn, and what are the implications of the recent production setbacks for Apple and Foxconn?
The Zhengzhou plant believes it will be able to recover from the production setback in 2023, as production has recovered over the past few days to 90% of the level planned for 2022. As the COVID-19 pandemic has entered a new phase in China and everyone has learned lessons from it, we will be able to overcome difficulties and successfully ship our products in the future.
The Zhengzhou plant was conceived more than a decade ago and was made possible through a verbal agreement between Apple CEO Tim Cook and Foxconn founder Terry Gu (Guo Timing). The two figures discussed how Apple could grow its iPhone and iPad-related business, and Foxconn agreed to build two huge factories in China for Apple. The Qingtao factory was for iPad production and the other is the Zhengzhou factory responsible for iPhone production. As a result, Apple and Foxconn grew together, and China also achieved economic development.
Q. What does this incident reveal about Apple's dependence on China? And do you think China's status as a manufacturing powerhouse is faltering?
When the political climate is stable and global supply chains and logistics are more predictable, it is wise to centralize operations and expand massively. 300,000 workers can produce products worth tens of billions of dollars, and it's actually a very good way to operate.
However, over the past two to three years, starting with the COVID-19 pandemic, subsequent disruptions in the global supply chain, and current geopolitical conflicts, changes and uncertainties have occurred around the world, and supply chains are facing substantial risks. When this 'black swan' occurred, companies such as Apple and Foxconn began to think about how to mitigate the risks posed by supply chain concentration.
Fortunately, Foxconn, along with Apple, has already taken the time to build and operate factories in other countries. For example, Foxconn entered Vietnam many years ago and India 5-6 years ago. So, when situations arise (such as Zhengzhou), we can react quickly and expand our operations in Vietnam and India to provide alternatives.
Of course, China will continue to serve as the 'factory of the world' for years to come. Many question how quickly India can replace some or all of China's iPhone production. I expect India to show a learning curve. Infrastructure improvements need to be made in India and it will take time for production capacity to be established.
By the end of the 2020s, India will be able to compete with China. Apple is also confident of accelerating its production move to India. However, unless it is absolutely necessary, such as the situation caused by COVID-19, Apple will not be in a hurry to move production, and it will be a long-term project.