Jul 18, 2019 (China Knowledge) - Apple has approved plans to begin trial production of its popular wireless earbuds, Apple AirPods, in Vitenam. These plans mark the beginning of Apple's attempts to add onto its already existing Chinese manufacturing market and diversify its consumer electronics production.
Goertek, one of Apple's main Chinese manufacturing contractors, will begin testing the resilience of the North Vietnam manufacturing processing this summer. This production plan will mark the very first time that Apple has taken its assembly of AirPods outside of the world's second largest economy. These wireless earbuds are Apple's fastest growing product, shipping 35 million and 20 million units in 2018 and 2017 respectively.
Apple has constructed its traditional earbuds, wired directly into devices, in Vietnam for quite some time. However, with AirPods, Apple has been relying on Chinese contractors for production. Production trials are normally a precursor to mass production, as Apple has begun to explore the consequences with suppliers of outsourcing 15-30% of its total production to Vietnam from China. “Suppliers are requested to keep the pricing unchanged for the trial production stage, but this can reviewed once volumes are increased” remarked one source with direct knowledge of Apple and supplier communication.
AirPods are currently the world's top wireless earbud, holding 60% of the market share, as their initial release sparked the creation of the “wireless earbud” category in consumer electronics. However, Samsung, Huawei, Bose, and other traditional headphone companies have been racing to join the competition. Wireless earbud production has been booming, with total global shipments projected to surge to 129 million pairs by 2020, up from 48 million pairs in 2018.
This anticipated growth allows Apple to continue to use China as a basis for production, while also diversifying its production outside of China. Apple has been sensitive to any opinions that it would reduce production in China, as it has long been a base of operations for manufacturing its products. Apple and China have had a successful business relationship for the last two decades, with Apple providing a well-connected supply chain mobilizing thousands of skilled workers and components, while China has offered generous support for factories, manpower, infrastructure, and energy resources.
Despite these long-standing relationships, China's low birthrate, rising labor costs, and its current trade disagreements with Washington have caused Apple to reevaluate its long term reliance on Chinese production. Vietnam is an obvious pick for an expansion location, due to its close proximity to already existing resources and access to cheap, skilled labor.
However, with its population at only 95 million, Vietnam has a limited workforce and many other companies have already begun to look to migrate production in the fallout of U.S.-China trade. Additionally, U.S. President Donald Trump has threatened Vietnam with its own trade tariffs, shortly before the G20 summit last month. In short, Vietnam may become overheated and soon suffer increased production costs, throwing a wrench into Apple's plans at large.
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