Why tech giants are diversifying their supply chains

Did you know Apple increased its supplier network in Thailand by over 100% since 2019? They aren’t alone. Between 2019 and 2024, some of the world’s largest technology companies diversified their supply chains. Vietnam, India, Malaysia, and Taiwan are the most common alternatives to China.  What’s driving these changes? More importantly, what supply chain diversification lessons can procurement leaders learn from these tech giants? 

Changing mindsets, changing suppliers 

For decades, China has been the technology industry’s manufacturing powerhouse. Its unparalleled scale, skilled labor force, and cost efficiency made it the obvious choice for businesses worldwide.  

Over the past decade, labor costs in China have steadily increased. This had made manufacturing less attractive from a cost-efficiency standpoint.  

In addition, the COVID-19 pandemic brought into sharp relief that many technology companies were overdependent on China.  

China’s zero-COVID policies led to strict lockdowns, factory closures, and shipping delays. This disrupted key tech supply routes in unimaginable ways.  

Thirdly, significant trade tensions remain. The U.S. and China recently agreed to deescalate the ongoing trade war.  

In early July, the U.S. announced that it had agreed to a framework deal with China. China agreed to loosen restrictions on the export of rare earth minerals and magnets in exchange.  

However, no deal has been finalized, and the situation remains fluid. 

Technology companies understand that supplier diversification is a risk-optimization procurement strategy. It reduces exposure associated with single sourcing critical parts and materials from one country. Diversification adds flexibility and agility by spreading risk across several countries and suppliers.  

Emerging markets in the technology supply chain 

This diversification wave has spotlighted a collection of countries rising as manufacturing powerhouses. Here is where different countries have specialized.  

Figure 1: High tech manufacturing in Asia has resulted in country-specific expertise 

1. India  

• Known for smartphone and laptop production.  
• Companies like Samsung and Apple already heavily rely on India for smartphone assembly.  
• Boasts a large, skilled workforce and government initiatives like “Make in India” designed to encourage investment in manufacturing. 

2. Vietnam 

• Emerging as a hub for smartphone and laptop manufacturing for companies like Dell and Apple.  
• Benefits from proximity to China, aiding smoother transitions for manufacturing expertise.  

3. Thailand  

• Rapidly becoming a go-to destination for electronics, smartwatches, and computer components manufacturing.  
• Apple and HP, for example, are increasingly shifting operations here, thanks to favorable incentives and skilled labor.  

4. Malaysia  

• Specializes in backend semiconductor processing, including chip packaging and testing.  
• Provides an educated workforce and strong infrastructure for high-tech manufacturing.  

5. Taiwan  

• Dominates the semiconductor production space as home to TSMC, the world’s leading chipmaker.  
• Despite geopolitical concerns, Taiwan remains a crucial player for high-tech components like sophisticated 3nm chips. 

Each country offers its unique advantages. But none fully replaces China’s scale and ecosystem, at least not anytime soon.  

China is still the dominate processor of rare earth raw materials. There are initiatives to become less dependent on Beijing for rare earths. This includes an agreement between the U.S., Japan, India and Australia. However, building the mining and processing capacity will take time. 

Diversification is more about complementing China’s role, not replacing it. 

Practical Strategies for Supply Risk Management 

Supplier diversification is not an easy task for procurement teams. Here are some things to bear in mind if your company is looking at diversification as a risk mitigation strategy. 

Should you get closer to your customers? 

It may take many years, if not decades, for other countries to match the depth and breadth of China’s infrastructure and manufacturing scale. But growth-minded enterprises should consider alternatives.  

This does not necessarily apply only to countries in Asia. Near-shoring or reshoring may be of greater benefit to your company. 

It makes sense for companies like Apple and Samsung to move parts of their supply chain to India. This is not only because of their technology manufacturing expertise. India is also a massive market for both companies.  

A 2024 report found that more than half of British manufacturers have started reshoring their operations. Furthermore, the vast majority – 90% – reported positive outcomes.  

Figure 2: Over half of British manufacturers are reshoring parts of their supply chains 

The Reshoring Institute found that reshoring and foreign direct investment resulted in 244,000 manufacturing jobs in the U.S. last year. 

In a similar fashion, European companies are looking at nearshoring or friendshoring strategies to reduce their dependency on China. 

Nearshoring or reshoring may mean higher initial costs. However, it shortens the distance between you and your largest markets.  

This cuts delivery times, offers logistics cost savings, improves customer service, and simplifies regulatory compliance. As a result, this may have a greater impact on the bottom line. 

Do you need to increase supply chain resilience? 

If you’re a procurement or supply chain leader reevaluating your strategy, where should you begin? Successful diversification requires a clear, methodical approach. It should align with your long-term strategic goals. 

While our full report dives deeper, here are some initial steps to get you started. 

Leverage data visibility in your supply chain

First, map out your dependency across existing suppliers. Once you map your network, you can identify areas of overreliance.  

Ideally, you should have visibility beyond Tier-1 suppliers. This is especially true for critical materials for your most profitable products. 

Mapping an entire supply chain can seem like a daunting task, especially if you have thousands of SKUs.   

The answer is to use a phased approach. Start where you will get the most value in the shortest time frame. You should leverage technology and expertise to simplify the process. 

Choose wisely

Diversification is about building resilience. You should assess potential new suppliers to make sure you are not bringing unintended risk into your operations.  

You’ll want to consider issues such as weather, natural disasters, logistics infrastructure, and other geo-location risks.  

You will also need to assess how a new supplier could impact strategic initiatives around ESG and sustainability.   

Develop relationships with new suppliers

Building trust is critical when working with new suppliers. Develop partnerships that encourage open communication, and mutual growth.   

Monitor supply chain disruption

You need to monitor suppliers, materials and locations for potential disruptions. This helps you get ahead of potential disruptions before they impact on your procurement process.   

Diversification helps mitigate risk. Relying on a single supplier or country for manufacturing may reduce costs. But reshaping a global supply chain takes time. Understanding where your risk are today, will help you better plan to reduce risk tomorrow.