Fitbit to move 'effectively all' production out of China

Dive Brief:

Fitbit, a brand of wearable fitness trackers, will move "effectively all" of its manufacturing of trackers and smartwatches out of China by January 2020 to avoid tariffs, the company announced in a press release.
CFO Ron Kisling said in a statement the company has been working on finding alternatives to China since 2018. Kisling said he would provide more detail in the company's upcoming earnings call, the date of which has not been formally announced.
On the company's July earnings call, executives did not mention tariffs, but CEO James Park did explain the company is working out a new "joint development model" wherein manufacturers share more of the cost burden of developing new products. This new arrangement will allow the company to iterate and bring new products to market faster, Park said. He did not specify the country where this new model would be used.

Dive Insight:

The idea of diversifying sourcing or manufacturing away from China is a hallmark of the Trump administration's trade war — though affected companies rarely bring manufacturing to American shores as the president once commanded. In electronics, U.S. production is particularly unfeasible due to labor costs, said Linda Lim, a professor of corporate strategy and international business at the University of Michigan.

Fitbit's release did not specify what other countries Fitbit will shift manufacturing toward. Lim told Supply Chain Dive soon after the initial announcement of list four tariffs that Malaysia and the rest of Southeast Asia are good bets for electronics manufacturing.

Fitbit has been working on the sourcing change since before list four tariffs were announced. That decision looks particularly prudent now, since the Consumer Technology Association assessed electronics make up more than half of list four products. Some of the goods on the list have been subject to 15% tariffs since Sept. 1, and others will be tariffed at 15% beginning Dec. 15. List one through three tariffs will increase to a rate of 30% Oct. 15.

Apple has also made moves suggesting a big change in sourcing may be coming to its supply chain, though so far no major shifts have been announced.

Uprooting manufacturing completely comes with considerable expense and risk of supply interruptions. But investors are apparently on board with the change. The company's stock rose 3.5% the morning after the announcement, according to Seeking Alpha.