Apple considering a Chinese exit amid international tensions

It seems Apple does not consider itself immune from collateral damage, as whispers about a China exit are becoming louder and more plentiful.

For China, and those Chinese citizens who are dependent on Apple for their livelihood, the news will come as a shock, but this is a development which some have been expected for a while. According to the Nikkei Asian Review, Apple is considering moving 15-30% of its production capacity out of China.

This is a trend which we are starting to see pretty much everywhere. Supply chain management is a very difficult aspect of an international business, and while it might have looked attractive to take advantage of cheap labour in developing markets during yesteryear, it seems a concentration of operations is getting Apple executives twitchy today.

The quoted sources are suggesting diversification of the supply chain is a sensible way to manage some tensions floating back and forth across the Pacific Ocean.

In terms of the clues this development was on the horizon, it is worth looking back a couple of weeks. Foxconn executives have already said 25% of production is already located outside of China, and there is enough capacity to meet the demands of Apple as a customer should tensions have a negative impact on the Apple business. This appeared to be a largely unprompted statement, but perhaps the conversations were already happening behind closed doors.

What is also worth noting is that Foxconn certainly has some incentive to bend to the will of Apple executives; if it doesn’t have the capacity, a smart idea might be to spend some cash buying a company outside of China sharpish. Although not confirmed, Apple supposedly accounts for roughly half of Foxconn total revenues. If Apple wants to move production capacity out of China, Foxconn should quickly learn the moves to the new dance.

For the Chinese employees in the supply chain, this will be a very worrying time. Five million workers rely on Apple’s presence in the country, with Apple only employing 10,000 directly. Interestingly enough, there are now more named suppliers in China than in the US (41 Chinese firms vs. 37 US suppliers). What is worth noting is that China will remain the centre of Apple’s supply chain for the foreseeable future; shifting such a complex and monstrous operation would take a considerable amount of time, investment and planning.

Other countries would of course want to woo Apple, but China is a very attractive base for the iLeader. Not only does it have the necessary infrastructure, it has the skilled workers in place. 90% of Apple’s products are currently manufactured in China and replicating this successful operation will not easily be done elsewhere.

Although this would be a precautionary move from Apple, the threat is genuine. Huawei and ZTE have already shown there are heavy consequences if supply chains are too concentrated in a single market, and due to the aggressive actions of the White House it would surprise few to see retaliation from the Chinese Government.

On the supply chain side of things, Apple has been making other efforts to shift around operations. The firm has been working to move the production of some premium handsets to India in an effort to avoid the 20% import duties in the country. Apple has continued to struggle in India, partly due to the price conscious nature of consumers. Anything which can be done to reduce the price of handsets will be explored to improve market share.

Whatever your thoughts of President Donald Trump, you cannot argue the Oval Office is having a much more profound impact on the technology industry than previous administrations. Perhaps his actions will lead the Chinese semiconductor market grow, while the manufacturing and assembly operations will be spread into other Asian markets. Another couple of years and the segment could almost look unrecognisable.

Vodafone Italy set to cut 1,130 jobs

Vodafone has decided its Italian arm needs a new cunning plan and, as is so often the case, it’s likely to involve a bunch of redundancies.

Right now we’re dependent on a press release written in Italian and the best efforts of Google Translate, so bear with us. Vodafone Italia seems to be announcing a new industrial strategy, that special kind that requires immediate consultation with trades unions. Since unions only tend to get involved when there are mass lay-offs, that can only mean one thing.

In stark contrast with its previous apparent optimism about the Italian market, Vodafone now sees extraordinary competitive pressure in in that country, which has led to a drastic drop in prices and hence a sharp contraction of the whole telecoms sector. As a result Vodafone’s bottom line in Italy is heading in the wrong direction and something’s got to give.

While a lot may have been lost in Google translation, the remedial measures seems to follow the standard clichés of streamlining, agile operating models and a focus on margin to enable continued investment. All this means cutting overheads, which is traditionally done through redundancies. The announcement speaks of 1,130 efficiencies.

In hindsight the writing has been on the wall for a little while. Vodafone was one of the big spenders in the recent Italian 5G spectrum auction and subsequently announced it was going to do a nice lot of infrastructure sharing with fellow big spender TIM. With new entrant Iliad contributing to the aforementioned competitive pressure we would be surprised if this is the last bit of streamlining news to come from the Italian telecoms market.

PwC says AI is actually a good thing for jobs in the UK

Global accountancy firm PwC has defied logic and contextual awareness by declaring artificial intelligence will actually have a positive impact on the UK’s employment numbers, creating more jobs than it destroys.

According to its latest UK Economic Outlook Report, PwC predicts 7 million jobs will be displaced over the next twenty years, as AI plays a more influential role in business and society, though 7.2 million jobs will be created. The impact will be largely neutral, though there will be more a fraction more jobs created perhaps due to the limited role industries such as manufacturing and agriculture plays in the UK.

“Major new technologies, from steam engines to computers, displace some existing jobs but also generate large productivity gains,” said John Hawksworth, Chief Economist at PwC.

“This reduces prices and increases real income and spending levels, which in turn creates demand for additional workers. Our analysis suggests the same will be true of AI, robots and related technologies, but the distribution of jobs across sectors will shift considerably in the process.”

The UK is primarily a services industry, in the region of 80% of GDP, with many training courses and careers focused on this segment. The initial, and perhaps most damning, impact of AI will be on industries like manufacturing and transportation where intelligent robotics can revolutionise the market. Think of smart factories or autonomous vehicles, these are technology developments which will make the human redundant in these work environments, but how many factory workers do you know in the UK?

AI Job Displacement

Looking at a perfect world, where everyone plays by the rules, we can see why PwC has come to the conclusion more jobs will be creating in the UK. It isn’t a country which is reliant on the industries which will be negatively impacted, while there are segments which can create value out of the insight which is created. If you listen to the promises of AI developers, the aim is to remove the mundane tasks out of an employee’s work schedule, freeing up time to concentrate on value add tasks. The theory is a proactive workforce, which is positively searching for new opportunities for the company.

In reality, we suspect the world will be entirely different.

Healthcare, a segment which is used by PwC to convey its point of how AI will create new jobs and value, is one which is primed for the productivity gains. In the UK, the NHS is constantly under stress, with administrators complaining the financial strain will soon begin to impact the service which can be offered to citizens. PwC points towards a richer and aging society as positive trends, but the NHS budget, and the ability to offer care services above the basic, are not improving.

AI will improve efficiency within the NHS, but it will be used as a means to make the service a less of a loss making machine. Jobs will be lost, or not replaced upon retirement, but such is the financial strain on the service, there won’t be funds to reallocate.

You also have to look at the maths as well. Should the NHS be able to replace simplistic administrative jobs with intelligence software, how much budget will this create for new hires. Let’s say 100 low-skilled jobs were displaced, a bit will be skimmed off for budget efficiency, some will be spent on the software itself, leaving notably less to spend on new hires. How many skilled data scientists will this allow for? We can guarantee it won’t be 100.

This is a contextual example, but it is applicable to almost every segment. When there is an opportunity to spend less on a company’s largest overhead, its payroll, many senior managers will see this as an opportunity to win bonus points with investors. Improving profitability, even if top-line revenues do not change that much, is a win after all; the CEO is making more money for shareholders. Many managers are short-sighted, such is the pressure they are facing from shareholders. This is also applicable to the public sector.

PwC seems to be taking a very optimistic view on society and the management teams of corporations who claim to care about the welfare of employees and society on the whole. We agree with the assumption the impact will be reduced due to the focus of the UK on the services industry, but we are not sure the majority of CEOs are the visionary managers which PwC seems to give them credit for.

For a long-time AI will be viewed as a means to reduce the workforces impact on spreadsheets and improve profitability. Eventually companies will start seeing how AI and data scientists can improve operations, and this might start another hiring spree, but we suspect these organizations will be the exception not the rule. It might be a sceptical view, but such are the pressures on management teams to improve performance and profitability.