Today, Foxconn said its chairman had visited India, but denied it had “entered into any binding, definitive agreements”. This means Foxconn has no such plans at present.
Strong sentiments have marked iPhone production in India. It has become a symbol of India’s rising manufacturing prowess. The iPhone is the showpiece of the government’s ‘Make in India’ campaign that now rides high on huge subsidies it offers to tech companies for local production. A few years ago, sceptics doubted India would ever be able to produce an iPhone. On the other hand, when Foxconn began local assembly in 2017, many saw India upstaging China as the exporter of cutting-edge tech products.
Sentiments apart, where does India’s iPhone economy stand today? Is it really on course to replace China’s iPhone supply chain?
Where India’s iPhone economy stands
Foxconn, Apple’s largest supplier, began building facilities in India in 2017. It had sensed the need to start diversifying its manufacturing. It was a small assembly operation, holding no big promise. A shift came in 2022 when, besides assembling older-generation iPhone models in India, it began assembling the new iPhone 14, sooner than expected after a surprisingly smooth production rollout slashed the lag between Chinese and Indian output from months to mere weeks.
Ratings agency Moody’s said the iPhone 14 production demonstrated the maturity of the company’s manufacturing capabilities in India which could be ramped up quickly. It indeed was a watershed moment for Apple as well as India’s manufacturing push.
Apple’s three Taiwanese partners — Foxconn, Wistron and Pegatron — currently assemble iPhone SE, iPhone 12, iPhone 13 and now iPhone 14 in India.
Apple exported more than $2.5 billion of iPhones from India from April to December last year, nearly twice the previous fiscal year’s total, underscoring how the US tech giant is accelerating a shift from China with geopolitical tensions on the rise.
Prime Minister Narendra Modi has made it a national priority to grow India’s manufacturing sector, especially electronics, providing financial incentives and government support for companies’ expansion projects. Apple is a centrepiece of this enterprise.
Apple’s rapidly growing export numbers show its intent to ramp up its operations outside of China, where chaos at Foxconn’s main plant in Zhengzhou exposed vulnerabilities in the company’s supply chain and forced it to trim output estimates. Add to that sluggish demand for electronics as a global recession looms and worsening US-China relations.
Apple has become the first company from India to export smartphones worth $1 billion (₹8,100 crore) in a month, meeting the milestone in December 2022, ET reported.
However, at present, it’s outlandish to say that India will soon replace China as the biggest iPhone producer. According to Bloomberg, India produced about 3 million iPhones in 2021 — compare that with 230 million in China.
Manufacturing of the iPhone, like most high-tech products, is not an isolated exercise. It requires an elaborate ecosystem of reliable component makers, service providers, assemblers, testers, infrastructure, logistics, etc. Apple took two decades to build such an ecosystem in China. In comparison, India’s iPhone production is largely confined to assembly, without any significant local component manufacturing.
Recently, the Financial Times reported that only one in every two components coming out of the production line of an iPhone casings factory run by an Indian company is in good enough shape to be sent to Foxconn’s assembly plants. This 50 per cent “yield” does not meet Apple’s goal for zero defects, FT reported.
A Bloomberg Intelligence analysis estimated it would take about eight years to move just 10% of Apple’s production capacity out of China, where roughly 98% of the company’s iPhones are being made.
Where India’s iPhone economy is headed
Yet, several overwhelming factors suggest India might replace China as the biggest iPhone maker sooner than expected.
According to Bloomberg Intelligence, India’s cost savings and market potential are among the benefits it offers to Apple’s iPhone supply chain. Its ample labor supply and low wages — at least 50% lower than in China — can be a strong draw for EMS players such as Hon Hai and Pegatron, given their thin margins and labor-intensiveness. India’s Production-Linked Incentives (PLI) offer subsidies equivalent to 4%-6% of production costs for five years once certain performance criteria are met.
India is trying to build a local ecosystem for iPhone production by adding more local providers into the supply chain.
More than a dozen of Apple Inc.’s Chinese suppliers are receiving initial clearance by India to expand in the country, helping the tech giant’s efforts to diversify its assembly network beyond China, Bloomberg reporter in January. The clearances from key Indian ministries are a step toward full approval for expansion in India, though the companies will still likely to be required to find local Indian joint venture partners.
Some Indian companies, such as the Tata Group, already provide Apple with parts. Tata is also planning to buy a major iPhone production plant of Taiwan’s Wistron Corp. in southern India. This deal can create a desi iPhone maker, certainly a big leap for India.
There is evidence that the iPhone supply chain is growing in India. Finland’s Salcomp, a supplier to Apple, is expected to double its workforce in India to nearly 25,000 over the next three years, Reuters reported. Salcomp currently employs about 12,000 at its Chennai plant, where it makes mostly chargers, but also other smartphone parts.
The government seems to realise that it can’t increase local value added in the supply chain without first attaining the critical size. In Budget 2023, the government eliminated import tariffs on some components used to assemble high-end phones from global companies such as Apple.
While India is making several kinds of efforts to develop the local iPhone supply chain, global conditions too favour production shifting out of China to India, especially the worsening US-China relations..
Apple’s Chinese suppliers are likely to move capacity out of the country far faster than many observers anticipate to pre-empt fallout from escalating Beijing-Washington tensions, says one of Apple’s most important partners. Behind the scenes, 9 out of 10 of Apple’s most important suppliers might be preparing large-scale moves to countries like India,
Recently, Bloomberg reported that behind the scenes, 9 out of 10 of Apple’s most important suppliers in China may be preparing large-scale moves to countries like India, which is dangling incentives to drive PM Modi’s Make in India initiative.
JP Morgan projected last year that Apple is likely to shift nearly 5% of iPhone 14 to India from late 2022 and reach 25% by end of 2025. It also predicts that 25% of all Apple Products will be made outside China as compared to 5% at present.