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Challenges for Global TECH: Outsourced manufacturing or green house gas emissions?

Updated: Aug 3, 2023


Few months ago back in June, I had read news and analysis by Nikkei Asia on Apple's supplier base:


China ousts Taiwan as Apple's biggest source of suppliers! Out of the top 200 suppliers of Apple, 51 are from China. Nikkie analysis explained that the Apple Supplier List covers 98% of the company's materials, manufacturing, and assembly spending for the preceding fiscal year. Though it does not disclose procurement values for each company, the report serves as a barometer of Apple's reliance on suppliers from different parts of the world. Apple is known for its rigorous quality standards, and the rise of Chinese suppliers speaks of the country's growing manufacturing and tech capabilities, as well as its competitive prices.



Having spent significant time in SCM/ Technology domain and working with Tier 1 suppliers in China/ Taiwan while with PwC/ IBM/ E2open, both the new articles got me thinking about NetZERO agenda & Low-Cost Country sourcing.

I will come to that soon but first we need to understand a bit more about Scope 3 (upstream) Emissions.


What exactly is Scope 3 (upstream) Emissions?

For brand owner (manufacturer), Scope 1 and Scope 2 emissions of its Tier 1 suppliers (e.g. Foxconn, Jabil etc.) becomes Scope 3 emissions.


So YES, it makes sense, that scope 3 emissions must be part of Apple’s (manufacturer/ brand owner) NetZero agenda. But is it so simple?


With an eye on the bottom line/ creating shareholder value, need for a dependable supply chain partner etc., it is hard to ignore the low-cost sourcing / China option in spite of the fact that a significant number of these suppliers could be potentially consuming fossil fuel-generated power for their manufacturing.


So how does Apple balance the shareholder interests (low-cost sourcing) Vs bringing suppliers (scope 3 emissions) within the fold of their NetZero objectives?

  • Can ‘green’ certification of suppliers become one of the major drivers for awarding the outsourced business?

  • Possible to re-jig supplier base ensuring benefits of China option while not compromising NetZero objectives?

  • Can they allocate funds for ‘Green infra’ projects in the target outsourced countries/ suppliers?

It takes years to develop an outsourced supply chain model & having seen / experienced at close quarters working with Tier 1 suppliers in Taiwan, China including Foxconn. If not impossible, it's challenging and can take years to replace one supplier with another in a different country.


IMHO & interestingly, if each node in the supply chain focusses on their own Scope 1 and 2 emissions with rigour (and voluntarily, not compliance or customer or cost reduction objective driven) then scope 3 emissions (upstream supply chain related) gets addressed. Apple (manufacturer, brand owner) can evangelise the need/ benefits, can potentially provide financial incentives, can give preferred supplier status, can consider 'green infra' investments etc. for Tier-1 suppliers to embark on their NetZERO journey!


Is above scenario possible sometime soon? Looks like it if we read another news article via @Nikkie - Foxconn Pledges to Reach Net Zero GHG Emissions by 2050 - announcement made by Apple's largest supplier. Would be interesting to research similar for rest of 199 of Apple's top 200 suppliers! Where are these in their NetZERO journey?


Importantly - This is not just a question for Apple alone but all TECH companies that took advantage of the ‘Outsourcing’, ‘Asset light’, 'Cost arbitrage' models and shifted manufacturing to Asia, & other low-cost sourcing countries across the world. These TECH companies and their shareholders have benefited over the years. Should they now reduce their profit expectations/ forgo financial benefits for the larger good? Especially if the manufacturers need to consider funding the 'green' transformation in its supplier base.


Many pertinent questions but no easy answers! But it’s important to raise questions & continue to increase awareness of such challenges.


PS.

- Views, opinions, conclusions, suggestions are my own only. Doesn't represent any platform it is published on or my employers.

- Articles referenced here are for contextual reasons only.


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