Apple’s China Risk and the Zhengzhou Turning Point

Claire Brooks

Picture this for a second. You are holding a brand new iPhone in your hand, it feels sleek, seamless, perfectly engineered. But under the hood, behind that polished glass, lies what might be the most extreme supply chain gamble in modern corporate history. Apple, a tech giant worth trillions, owns zero, literally zero, manufacturing plants of its own.

Claire Brooks

Every single device is built through third party contract manufacturers like Foxconn, Pegatron, and Luxshare. And up until 2018, between 60 to 70 percent of all those manufacturing and assembly facilities were concentrated in just one country: China. That creates a fascinating research question. How dependent can a company get on a single nation without actually owning a single factory there?

Claire Brooks

That exact question is what researcher Edanur Akcan set out to analyze in her thesis at the Mercator School of Management, supervised by China expert Professor Doctor Markus Taube. Now, you might wonder, why pick Apple for a study on global value chain vulnerability instead of say, Samsung or Huawei? Well, methodologically, Samsung owns and operates its own factories all across the globe, so there is no pure outsourcing asymmetry to test. And Huawei is a domestic Chinese firm, so you do not have that foreign multinational dynamic.

Claire Brooks

Apple is the true paradigmatic extreme case. Plus, Apple releases an annual Supplier List detailing its supplier locations, creating a uniquely transparent data set that researchers like Patrick McGee in his 2025 book Apple in China, or Miller and Venugopalan, have drawn upon.

Claire Brooks

But the real shock, the moment that turned theoretical supply chain risk into an immediate crisis, came in late 2022. China's strict zero COVID policy hit the massive Foxconn campus in Zhengzhou, often nicknamed iPhone City. Zhengzhou was responsible for the vast majority of premium iPhone 14 Pro production. When lockdowns and worker walkouts paralyzed the plant, shipments ground to a halt right before the crucial holiday season.

Claire Brooks

McGee's 2025 analysis points to Zhengzhou 2022 as the ultimate turning point, the operational wake up call that forced Apple to aggressively accelerate its so called China plus 1 strategy. Edanur Akcan recalls looking at her own iPhone during that period, reading McGee's work, and realizing that this geopolitical tightrope walk between Washington and Beijing was the defining corporate story of our decade.

Claire Brooks

So how does a global leader attempt to de risk a supply chain that took thirty years to build? To understand Apple's moves, we first need to unpack the theoretical framework behind global production networks.

Claire Brooks

To evaluate whether Apple can actually reduce its structural dependence on China, Akcan's thesis combines four major economic theories. The first baseline is John Dunning's classic OLI paradigm from 1988, which stands for Ownership, Location, and Internalization advantages.

Claire Brooks

Under OLI, Apple holds strong Ownership advantages through its brand, design, and proprietary operating systems. It uses Internalization advantages by choosing to outsource assembly rather than spending tens of billions on capital intensive factories. But the friction today is in the Location advantage. China historically offered unmatched infrastructure, massive labor pools, and dense supplier networks. As geopolitical tensions rise between the United States and China, that Location advantage is being re calculated through a security seeking lens, as scholars Deng, Wang, and Xu highlighted in 2025.

Claire Brooks

That brings us to the second theoretical pillar, Gary Gereffi's Global Value Chain, or GVC, governance framework from 2005. How does Apple control its suppliers if it does not own them? Gereffi classifies Apple's network as a classic Captive structure. Suppliers like Foxconn, Pegatron, or Goertek are highly dependent on Apple. Apple sets rigid design standards, dictates production processes, and enforces strict quality audits. There is an extreme power asymmetry.

Claire Brooks

Look at the case of Goertek, a key Chinese supplier for AirPods. When Apple urged Goertek to move manufacturing capacity to Vietnam, Goertek did not migrate out of autonomous strategic desire. They moved because Apple, as the dominant lead firm in a captive relationship, demanded it. Apple exercises control through monopsonistic market power, not equity ownership.

Claire Brooks

Now, what about supply chain resilience? Here, Akcan leverages Dmitry Ivanov's 2021 concept of Supply Chain Viability versus classic resilience. Classic resilience is about a reactive bounce back, returning to the old baseline after a shock, like restarting a factory post pandemic. Viability, however, is about a proactive bounce forward. It means structurally adapting the network to survive in a permanently altered, uncertain environment.

Claire Brooks

Apple's China plus 1 strategy is precisely a bounce forward effort. It is not just waiting for trade tensions to clear, but building long term structural capacity in secondary hubs. And finally, David Teece's Dynamic Capabilities framework from 2018 explains how Apple continuously reconfigures its resource orchestration. But as we will see in the hard numbers, even the strongest dynamic capabilities hit a brick wall when confronted with deep industrial path dependency.

Claire Brooks

Let us dive into the empirical data, because the numbers tell a very nuanced story. If you look at Apple's core electronics assembly and manufacturing sites, the proportion located in China dropped from around 60 to 70 percent prior to 2018 down to approximately 50 percent today, as documented by Miller and Venugopalan in 2025.

Claire Brooks

That sounds like a major shift, right? A 10 to 20 percentage point drop. But wait, if you examine all supplier facilities across the entire value chain, including raw materials and basic components, China's share has remained remarkably stable at around 40 percent. Why is there such a gap between final assembly shifts and overall supplier stability?

Claire Brooks

Because Apple's China plus 1 execution is strictly selective, path dependent, and partner driven. Let us break down the geographic division of labor between India and Vietnam. India, specifically states like Tamil Nadu and Karnataka, has become the strategic center for high end iPhone final assembly. Encouraged by New Delhi's Production Linked Incentive, or PLI, scheme, Foxconn and Pegatron expanded massive assembly operations there. In fact, ITIF reported in 2024 that India now holds roughly 20 percent of global IC design talent and is building out 28 nanometer semiconductor capabilities.

Claire Brooks

Meanwhile, Vietnam, particularly northern provinces like Bac Ninh and Bac Giang, has been positioned as the primary hub for accessories and peripheral products like AirPods, driven by suppliers such as Luxshare and Goertek. This division allows Apple to spread risk selectively across product categories.

Claire Brooks

But here is the critical catch, the fundamental imbalance that Akcan exposes in her research. According to Apple's disclosures, roughly 98 percent of Apple's total direct spend on materials, manufacturing, and assembly goes to its top 200 suppliers. And when Apple shifts final iPhone assembly from Zhengzhou to Tamil Nadu, what actually moves? The final screwdriving, testing, and packaging move to India. But where do the display panels, camera modules, circuit boards, and custom enclosures come from?

Claire Brooks

They are still manufactured in China! The underlying upstream value chain remains heavily anchored in Chinese industrial clusters. Moving final assembly geographically spreads surface level concentration risk, but it leaves the deeper structural dependency on Chinese sub components largely untouched.

Claire Brooks

This brings us to the core thesis finding, the four structural boundaries that limit the ultimate success of Apple's China plus 1 strategy. First and foremost is China's irreplaceable industrial depth. We are not just talking about cheap labor. We are talking about decades of accumulated process knowledge, highly specialized tooling clusters in Shenzhen, and the extraordinary ability of Foxconn to mobilize up to 900,000 workers seasonally during peak production launch windows.

Claire Brooks

The second boundary is the decoupling of final assembly from upstream component manufacturing, which we just explored. The third hurdle is the capacity constraint of alternative locations. Vietnam and India are growing rapidly, but they face infrastructural bottlenecks. A 2026 study by Nguyen et al. pointed out that domestic Vietnamese firms reach only about 52 percent of the operational efficiency of foreign direct investment enterprises, showing a lack of local knowledge spillover.

Claire Brooks

And the fourth limit is the sharp trade off between efficiency and security. As Deng, Wang, and Xu emphasize, friendshoring and geographical diversification inevitably introduce higher logistics costs, duplicated capital expenditures, and operational friction in initial ramp up phases.

Claire Brooks

Now, imagine defending these findings in a rigorous oral exam before Professor Markus Taube. What critical pushback would a top China expert raise? Professor Taube might ask, is industrial depth really a permanent barrier, or will India simply replicate China's ecosystem over the next decade?

Claire Brooks

Akcan's counter argument is grounded in time and path dependency. China took over thirty years of continuous state support, infrastructure investment, and cluster formation to build its ecosystem. While India's semiconductor design capabilities are real, building a full hardware ecosystem requires long term political continuity and sustained investment incentives. In the short to medium term, China's industrial depth remains an unyielding constraint.

Claire Brooks

Another classic exam trap: Is China plus 1 actually a true decoupling? Empirical studies by Jiang and Xing in 2025, as well as Cieślik and Zamojska, prove that global value chain connections with China remain robust. In fact, research by Alfaro and Chor in 2023 demonstrates that many goods seemingly originating from secondary countries are merely rerouted Chinese components. It is re routing, not decoupling.

Claire Brooks

If a sudden geopolitical crisis occurred tomorrow, Apple could not simply switch off its Chinese supply network without causing catastrophic disruptions to its product lineup. Apple can diversify assembly risk, but it cannot eliminate structural interdependence.

Claire Brooks

To sum up Edanur Akcan's defense in three final takeaways: First, Apple's dependency on China is defined not by final screwdriving, but by deep upstream industrial knowledge. Second, China plus 1 is real and active, but it represents controlled risk spreading, not decoupling. And third, the true limit of diversification lies not in Apple's strategic will, but in the relentless path dependency of global electronics manufacturing. A concise, powerful conclusion to a complex global puzzle.