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Home / Business / Fitbit pulls production out of China in the midst of a trade war

Fitbit pulls production out of China in the midst of a trade war



The company announced Wednesday that "effectively all trackers and smart watches" starting in January "will not be of Chinese origin" as a result of US tariffs.

Fitbit ( FIT ) The stock rose a short time on Wednesday morning after the announcement, and then fell about 1.5% from the previous close.
Many technology companies have had to face the challenges of making their wares in China as the US and China trade wars on, especially with a new round of tariffs going into effect in December covering consumer goods previously spared import taxes. The looming tariffs force companies with manufacturing operations in China to either pass the costs on to consumers or absorb them.

Fitbit appears to be one of the first major technology companies to publicly announce that it is shifting completely away from China, which has long been a hub for the Silicon Valley giants thanks to the country's abundance of skilled low-wage workers and robust technology infrastructure.

Still, the announcement is unlikely to mean that Fitbit is moving production to the United States, as President Donald Trump may have hoped. Mostly, companies look to move industry to countries in Southeast Asia, which have the advantage of low labor costs and proximity to subcontractors in China and elsewhere in the region.
Fitbit may have needed such a move more than most ̵
1; it has struggled against much larger competitors like Apple in the wearables market, and exposed weaker-than-expected sales and falling margins. For most companies, withdrawing from China is likely to be prohibitively expensive and time-consuming.

During the first half of 2019, Fitbit introduced several strategic measures to boost its financial health, including lowering the cost of some devices to appeal to new customers and offering top-notch digital services, such as improving sleep, to take advantage of users who do not replace their devices frequently. However, such measures are linked to maintaining strong margins on the units Fitbit sells, which can lead to tariffs.

Fitbit CEO Ron Kisling said in a statement Wednesday that the company began seeking alternatives to manufacturing in China in 2018, when the threat of the trade war broke out.

"As a result of these surveys, we have made changes to our supply chain and manufacturing operations and have further changes underway," Kisling said.

The company said it would offer further details on the change and its financial implications when reporting third-quarter revenue, expected later this month.


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