Apple is set to begin a small-scale AirPods trial production run in Vietnam, as the Cupertino firm seeks to reduce its production reliance on China.
A new report by Nikkei Asian Review says China’s GoerTek, one of Apple’s key contract manufacturers, will begin testing production of the popular wireless earbuds later this summer. The report’s “sources with knowledge of the plan” said the test run will take place at GoerTek’s factory in northern Vietnam.
Initially, only small volumes of AirPods are expected to be produced in Vietnam, though Apple has asked all its component suppliers to support GoerTek in this effort. It has asked them to keep the component pricing intact at least during the trial production run. As per one of the sources, the component prices will be reviewed once the production volume increases.
“Suppliers are requested to keep the pricing unchanged for the trial production stage, but this can be reviewed once volumes are increased,” said one of the sources with direct knowledge of the communication.
“The initial output will be limited, but it is easy to increase capacity once all the manufacturing procedures are running smoothly,” the person said.
This will mark the first production of the wireless earbuds — which came to market in 2016 — outside the world’s second-largest economy. They are Apple’s fastest-growing product, racking up 35 million shipments last year against 20 million in 2017.
The decision to shift AirPod production to Vietnam comes as Apple works to move 15 to 30 percent of production outside of China, where rising labour costs (a byproduct of the country’s accelerating development) and the trade-war tariffs have made depending completely on the mainland untenable.
Vietnam boasts a number of advantages that make it an ideal alternative to China. Geographically, it’s nearby, which makes coordinating transnational supply chains easier, while labour is also cheaper. However, with a population of just 95 million people, one-fifteenth of China’s, its workforce is constrained and the flood of new manufacturing activity could rapidly push wages higher.
“Many tech players are relocating or increasing production [in Vietnam] to avoid tariffs, given that it is close to China, and has a relatively complete supply chain compared with other Southeast Asian countries,” said Karen Ma, an analyst specializing in emerging markets at Hsinchu-based Industrial Technology Research Institute. “However, everyone is now worried that Vietnam could become overheated and might soon suffer labor shortages, as well as increased production costs.”