Over recent decades, technological advances have made the world seem much smaller, transforming the business landscape and one key area in particular: company supply chains.
Where once, companies would only source parts domestically, they are now able to expand their horizons and search globally for the optimal supplier. Companies of all sizes are now able to source and purchase items from the other side of the world, in a way that is both cost efficient and commercially viable. They are searching for suppliers that provide a cost advantage, a quality advantage, or a security of supply advantage. Doing so potentially gives them access to worldwide technology, which may not be available domestically, or it gives them access to the same technology at lower prices. Additionally, companies are looking for new suppliers that are nearer to new markets and customers.
In recent times, there has been a clear shift in sourcing parts from emerging markets, which have seen huge increases in productivity and technological capability. They have lower production costs, with significantly lower labour costs, than those found in developed markets.
A good example of the globalisation of supply chains, can be seen at the world's most valuable company – by market capitalisation – Apple.
Although Apple designs the Iphone handset and operating systems itself in the US, it also benefits from having over 200 component suppliers – producing both common and customised components - from around the world, but primarily Asia. Apple’s suppliers are a mixture of niche technology companies, supplying high-tech features such as AR, and global technology behemoths, such as Samsung - who produce the displays -despite being Apple’s biggest competitor in the smartphone market.
Some of Apple’s suppliers are huge western companies that have set up subsidiaries and manufacturing facilities in Asia, specifically to produce components for Apple at lower costs. In fact, of Apple’s top 200 suppliers, only 3 don’t have Asian subsidiaries that deal with Apple. To ensure that they are not overly reliant on any one supplier and to improve their negotiation position, Apple often has at least two suppliers for each component.
Although Apple relies on the US for processor chips, its displays are made in Japan and South Korea, cameras are made in Japan, touch sensors are made in Taiwan, and memory is produced in Japan and South Korea. Finally, the whole Iphone is mostly assembled in China, in two of the biggest factories in the world. These factories together, employ close to 500,000 workers and are capable of producing up to 500,000 Iphones a day. Foxconn - the Taiwanese registered company that assemble the iPhone - is the largest contract manufacturer in the world and the largest private employer in China.
It’s clear that purchasing from and manufacturing in Asia are key parts of Apple’s strategy. As well as the obvious cost advantages, emerging market manufacturers are also much more flexible, as they find it considerably easier to deal with different production levels, due to their different labour laws. Producing the Iphone in China allows Apple to benefit from generous local tax breaks and subsidies, and allows Apple to avoid US taxes. But just as importantly, it means that the finished devices are already in the middle of Apple’s second largest geographical market – with Asia representing 35% of Apple's 2018 sales – and primed for distribution.
Coordinating the mass global production of a complex consumer electronics product is in itself no mean feat. But ensuring that strict quality standards are met – for all businesses, not just Apple – is absolutely critical. It’s Apple’s commitment to using an optimal global supply chain and management thereof, that allows it to keep its production costs so firmly under control, and maintain quality at the same time. When this is combined with Apple’s innovation, technological superiority and brand strength, it’s little wonder that it boasts industry and world leading profit margins.
At GCIS, we provide bespoke search and find services, to help you find new partners, whether they be suppliers, manufacturers, wholesalers or distributors. Our geographic flexibility and dynamism allows us to search the world on your behalf.
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