Apple to move production from China to India
2023.02.11 02:04
Apple to move production from China to India
By Kristina Sobol
Budrigannews.com – India has emerged as an appealing potential alternative to the world’s second-largest economy as Apple looks beyond China to secure crucial supply chains strained by Covid lockdowns and threatened by rising geopolitical tension.
In addition, Beijing’s major regional rival is enthusiastically promoting the opportunity. The California-based company wants to increase production in the South Asian nation to a quarter of its total, according to a statement made last month by one of India’s top ministers.
According to Piyush Goyal, minister of commerce and industry, Apple already produces between 5% and 7% of its goods in India. If my memory serves me correctly, they intend to manufacture up to 25% of their products,” he stated at a January event.
After experiencing severe supply disruptions in China, (HNHPF), a major Apple supplier, is looking to expand its operations in India.
Apple had relied on a vast manufacturing network in China for years to mass produce popular products like iPhones, iPads, and others. However, Beijing’s strict zero-Covid strategy, which was swiftly dismantled in December of last year, put its dependence on the nation to the test.
Apple has redoubled its efforts to invest in India since the middle of last year. But can the third-largest economy in Asia succeed?
The research director at Counterpoint, Tarun Pathak, stated, “Theoretically, it can be done, but it won’t be happening overnight.”
Pathak stated, “[Apple’s] dependence on China is a result of almost two and a half decades of what China put in to develop their entire electronics manufacturing ecosystem,” noting that the company manufactures nearly 95% of its phones in China.
However, this month, the world’s most valuable company reported shockingly low earnings, in part as a result of its recent issues in China. The issues began in October when employees began fleeing Foxconn’s largest iPhone factory because of a Covid outbreak.
Foxconn offered workers bonuses to return because it was short on staff. However, in November, when newly hired employees claimed that management had broken their promises, violent protests broke out. Before the company eventually offered them cash to leave the site, workers had arguments with security guards.
Despite the fact that the sprawling campus in Zhengzhou, central China, has resumed normal operations, the shortage of iPhone 14 Pro and iPhone 14 Pro Max models occurred during the crucial holiday shopping season.
In addition, it appears that tensions between the US and China are growing. The Biden administration outlawed Chinese companies from purchasing advanced chips and equipment for chipmaking without a license last year.
Willy Shih, a professor at Harvard Business School, said of Apple, “I think they will continue to depend on China for a significant portion of their production.” He was referring to the company.
However, “but what they are trying to do, and I think it makes sense, is to add diversity to their supply base so that they will have some alternatives in case something goes wrong in China”
This tactic was referred to by Shih as “China +1 or China+ more than one.”
During a recent earnings call, Apple CEO Tim Cook stated, “India is a major focus for us and a hugely exciting market for us.”
He stated, “We feel very good about how we performed” because, “Looking at the business in India, we set a quarterly revenue record and grew very strong double digits year over year.”
This year, India is expected to surpass China to become the world’s most populous nation. Manufacturers are particularly attracted by the nation’s large and inexpensive labor force, which includes workers with essential technical skills.
The third-largest economy in Asia also provides a expanding domestic market. India is anticipated to continue to be the major economy that is growing at the fastest rate in the world in 2023, despite the fact that concerns about a global recession persist.
According to the Centre for Economics and Business Research, India could become only the third nation by 2035 to have a GDP worth $10 trillion if it is able to maintain this momentum.
According to analysts, India’s expanding customer base may give it an advantage over Vietnam, which has also been attracting more investment in the manufacturing of electronics.
In order to encourage investments in the production of mobile phones, the Indian government has implemented policies. Pathak of Counterpoint says that China makes up 70% of the world’s smartphone production, while India makes up 16%.
There are some examples of success: Samsung, the most popular smartphone brand in the world, already produces a large number of its products in India and is currently one step ahead of Apple.
Due to rising labor costs and fierce local competition from domestic players like Huawei, Oppo, Vivo, and Xiaomi, the South Korean giant has been diversifying away from China.
Vietnam and India now produce the majority of its phones, with India accounting for 20% of Samsung’s global production.
Analysts believe that Samsung may have paved the way for other manufacturers by opening what it referred to as “the world’s largest mobile factory” in Noida in 2018.
Foxconn, Wistron, and Pegatron in Taiwan produce Apple products in India. Up until recently, the company would typically begin putting together models in the country seven to eight months after they were first released. That all changed the previous year, when Apple began manufacturing brand-new iPhone 14 units in India just weeks after they went on sale.
India already receives additional funding from some of Apple’s largest contractors. Foxconn announced last year that it had invested $500 million in its Indian subsidiary.
The government of Karnataka, a southern Indian state, stated earlier this week that it is “in serious discussion of investment plans” with the Taiwanese giant. Andhra Pradesh and Tamil Nadu are already home to Foxconn factories.
However, manufacturing in India is fraught with numerous difficulties. The World Bank estimates that they only make up 14% of India’s GDP, and the government has struggled to increase that number.
One of China’s actions was to construct infrastructure as soon as possible. In addition, “I would argue that India did not build infrastructure when they could,” Shih said, referring to highways, ports, and transportation links that make it simple for goods to move around.
If Apple wants to build campuses as big as those in China, it will also have to deal with a lot more paperwork in India.
“Will India be able to imitate a version from Shenzhen?” Pathak inquired, referring to the manufacturing hub in China. He added that building such “hotspots” won’t be easy and would require India to consider logistics, infrastructure, and worker availability issues.
Experts said it might be hard to get land in a chaotic democracy like India, but the Chinese Communist Party has less trouble quickly taking over real estate for causes it thinks are important.
India would also need to consider alternatives to merely assembling iPhones by utilizing favorable government policies.
Pathak stated:
“You need to source components locally, which means you need to attract many more supply chain companies to set up shop in India.”
It’s possible that some of India’s largest businesses are expanding. Bloomberg reports that Tata Group, a conglomerate that sells everything from automobiles to airlines, is in talks with Wistron about buying the Taiwanese company’s factory in southern India.
N. Ganapathy Subramaniam, COO of Tata Consultancy Services, the group’s software services arm, stated, “I am not directly involved in that, but it should be really good for India because this is going to create an opportunity in India to manufacture electronics and microelectronics.”
India’s desire to strengthen its relationship with Apple faces significant challenges, but doing so would be extremely beneficial to the nation and Prime Minister Narendra Modi.
Pathak stated, “I think it will be a big, big win,” noting that expanding manufacturing ties with a US powerhouse like Apple will in turn draw other international players in the electronics manufacturing ecosystem to India. The smaller ones will follow if you concentrate on them.
