Apple could be trying to ‘hedge its supply chain bets’ away from China with CEO Tim Cook’s whirlwind Southeast Asia tour

For years, "Asia" for Apple usually meant China. The world's second-largest economy is one of Apple's most important overseas markets, and a massive manufacturing hub. "There’s no supply chain in the world that’s more critical to us than China," Apple CEO Tim Cook said on a trip to China in March. But with China sales slumping and possible threats to its supply chain, Apple could be taking a closer look at new Asian markets.

Apple's CEO just wrapped up a five-day tour of Southeast Asia, stopping by Vietnam, Indonesia and Singapore in a trip that could be an effort by the company to "hedge its supply chain bets" and "ease the path" for later investment in the fast-growing region.

Southeast Asia is one of several emerging markets, alongside India and Latin America, that Apple needs to target for future growth, says Ivan Lam, senior analyst at Counterpoint Research.

“Apple’s brand image is perceived as high-end in the Southeast Asian region and holds a favorable position in consumers’ mindsets,” he says. The analyst anticipates “further enhancement” in Apple’s sales strategies for Southeast Asia as the region’s consumption levels improve.

Southeast Asia, for now, makes up a small, but fast-growing, percentage of the iPhone market.

“Apple shipped just under 10 million iPhones per year to Southeast Asia last year, which accounted for less than 5% of global iPhone shipments. But that was still 32% growth for iPhones in Southeast Asia,” Bryan Ma, vice president of client devices research at IDC, says.

But Ma suspects that Cook’s interest in Southeast Asia is driven not by retail, but manufacturing.

“I suspect that an even bigger motivation behind the visit though is for the company to hedge its supply chain bets as the industry continues to diversify from China. That means not just meetings with suppliers who have operations in the region, but also with governments who can ease the path for investments in their countries later,” Ma said.

China is still Apple's largest manufacturing hub, but the COVID pandemic demonstrated to the iPhone maker the risk of having everything in one place. COVID lockdowns in Zhengzhou, sometimes known as "iPhone City," lowered Apple's smartphone production in 2022. Apple later partly blamed COVID disruptions for a 5% year-on-year drop in revenue for the 2022 holiday quarter.

More broadly, the U.S. is encouraging companies to "de-risk" by diversifying supply chains away from China.

Where did Apple CEO Tim Cook visit in Southeast Asia?

Cook’s first stop was Vietnam, already part of Apple’s supply chain. The country boasts a typical export-oriented manufacturing economy, and can leverage its close proximity to existing manufacturing supply chains in China.

During his two-day stay in Vietnam, Cook pledged to increase spending on Vietnam-based suppliers during a meeting with Pham Minh Chinh, the country’s prime minister, in Hanoi. The company says it’s already spent close to $16 billion on the country’s supply chain since 2019, creating about 200,000 jobs.

Cook then traveled to Indonesia, Southeast Asia’s largest economy and most populous country. During a meeting with the country’s outgoing president, Joko Widodo, Cook said he would consider setting up manufacturing facilities in the country.

Apple currently has no manufacturing facilities in Indonesia. Instead, the company has set up several app developer academics since 2018. Apple said it would open its fourth developer academy in Bali during Cook's visit.

Indonesia requires smartphones sold in the country to be made up of at least 35% local components by volume, though Apple satisfies the requirement, despite the lack of local production, through its developer academies.

The government hopes the U.S. tech giant will go beyond software. Indonesia’s industry minister, who was also at the meeting with Cook and Widodo, suggested after the meeting that Apple could partner with Indonesian companies to obtain components, even if it does not set up a manufacturing facility.

Cook’s final stop on his Southeast Asian tour was Singapore, the city-state with the region’s highest per capita income. The country is home to three of Apple’s five Southeast Asian stores. (The other two are in Thailand, and Apple is reportedly considering its first store in Malaysia)

Upon Cook's arrival, Apple announced that it would invest over $250 million to grow its campus in the city-state. Apple opened its first facility in 1981, with 72 employees focused on the Apple II personal computer. The company says it now uses Singapore as a regional hub for critical roles and currently employs over 3,600 staff.

Apple's CEO met Singapore's prime minister-to-be, Lawrence Wong, on Friday. On LinkedIn, Wong wrote that he discussed "opportunities in Southeast Asia" and "the close partnership between Singapore and Apple" in his meeting with Cook.

On a popular Singaporean radio show on Friday, Cook said he wanted to invest more in R&D in the country. “Singapore has always held a special place in my heart,” he told listeners.

This story was originally featured on Fortune.com