Made in China to Make in India: Apple's new big bet

Jobs did attempt to manufacture in the US, setting up various plants and automating the process in the factories. He was passionate about presenting the company to be savvy enough to manufacture its technology in the US, just as well as the Japanese consumer electronics giants of the time, from where Jobs drew inspiration. However, it did not work out and Apple had to eventually outsource the manufacturing. Most of it happens in China today. And now, India is the next potential base. Therefore, Apple CEO Tim Cook’s five-day visit to India in the third week of April did not come as a surprise. Apart from launching the retail stores, Cook also met some industry veterans and government officials to discuss Apple’s prospects in India.  

Jobs had hired Cook, a wizard at creating global manufacturing supply chains, as senior vice president for worldwide operations in the late 90s. But it is only in the past decade that India has appeared on Apple’s radar.   

Apple has been eyeing expanding in India since 2016, when Cook first met Prime Minister Narendra Modi. During that meeting, Cook told Modi about the possibility of manufacturing and retailing Apple goods in the country. In an interview with CNBC in 2016, Cook said he saw huge market potential in India and that Apple was bullish on the country. “India will be the most populous country in the world in 2022,” Cook had said. India recently overtook China as the world’s most populous country.

Through its three contract manufacturers, Apple currently produces and exports the iPhone 12, 13, 14 and 14+ models from India. Apple’s contract manufacturers—Hon Hai Technology Group (Foxconn) and Pegatron, both located out of Tamil Nadu, and Wistron, which is in Karnataka—are all participants in the government’s smartphone production linked incentive (PLI) scheme launched in April 2021.  

India has been attempting to attract new investment through the PLI scheme and other incentives targeting IT and electronics manufacturing. According to reports, since the PLI scheme came into effect, Apple contract makers and component suppliers have cumulatively created 50,000 direct jobs and around 100,000 indirect jobs.  

In January, Bloomberg reported that more than a dozen of Apple Inc.’s Chinese suppliers have received clearance by India to expand in the country, helping the tech giant’s efforts to diversify its assembly network beyond China. AirPods and iPhone assembler Luxshare Precision Industry Co. and a unit of lensmaker Sunny Optical Technology Group Co. are among the companies that have got approvals.  

Foxconn and Wistron shipped more than $1 billion of Apple’s iPhones abroad in the first nine months of 2022. Pegatron, which was added as the third contract manufacturer in September last year, is on track to export around $500 million Apple phones. Pegatron is currently manufacturing the iPhone 13 and 14 in India.

Apple began assembling its flagship iPhone 14 in India last year. It was the first time the US tech giant produced its latest model in India close to its launch. Apple has been manufacturing iPhones in India since 2017, but these were usually older models.

Also read: All you need to know about Apple's first-ever store in India

Apple has been looking to diversify production away from China. To begin with, Apple has been looking for a back-up plan due to the US-China trade war. Additionally, instabilities in China were exposed last year after a Covid-19 outbreak and worker protests at the world’s largest iPhone factory in Zhengzhou, which is run by Foxconn, disrupted production.   

Apple has just a 5 percent market share in India’s smartphone market, and there’s a lot that remains untapped in this growing market for the company. 95 percent of the market is dominated by Android users. [see chart]

Apple did $74 billion in sales in China, Hong Kong, and Taiwan in fiscal 2022. That’s about 18 percent of Apple’s total revenue during the period. India is not there yet. It’s reported in a category with other markets called ‘rest of Asia Pacific’, which reported only $29 billion in sales during the same time period.  

India has been introducing several initiatives to attract manufacturers in the past few years. The Phased Manufacturing Program (PMP) was launched to build a robust local mobile phone manufacturing ecosystem and offer several benefits to every stakeholder in the value chain, thus creating a component ecosystem in India, explains Upasana Joshi, principal analyst for mobile devices research at International Data Corporation (IDC).  

“The first phase of PMP was started in 2015 by making local mobile phone assembly (semi knocked down) cheaper than direct imports by imposing a countervailing duty, which was extended to chargers, batteries, and headsets in 2016. Gradually the duty was increased to other parts and components, and manufacturing moved to Completely Knock down (CKD),” says Joshi.  Currently more than 95 percent devices sold in India are locally manufactured, indicative of a robust production capability, evolving as an export hub globally by 2025, she adds.

“More than 70 percent iPhones in India were locally manufactured in 2022, up from less than 40 percent in 2020. While it will be immensely challenging for Apple to move its entire value chain from China to India, we can say that gradually India is getting ready to enter the critical parts of value chain related to the electronics manufacturing,” explains Joshi.

Apple’s Original Device Manufacturers (ODMs) in India  

India is becoming an increasingly important location for Foxconn, the largest suppliers of Apple products worldwide. It plans to open two more manufacturing facilities in Telangana and Bengaluru. In March, Foxconn chairman Young Liu marked his second visit to India in less than a year. The Taiwanese company is expected to set up an electronics manufacturing and assembly unit on the outskirts of Bengaluru, which will manufacture the iPhones. The 300-acre plot near the Bengaluru International airport will be Foxconn’s largest such unit in India. 

Also listen: Neil Shah at Counterpoint on why India remains a bright spot for Apple

Another $300 million facility of Foxconn is expected to launch on May 15 in Telangana, The Deccan Chronicle recently reported. The TS Industrial Infrastructure Corporation (TSIIC) of the Telangana state government would be handing over a 187-acre land parcel in Kongarakalan on the city outskirts by the end of April to the company for the project. According to reports, the government has allocated the land to Foxconn for nearly Rs 200 crore.  

“India has talent, infrastructure and government policies that are becoming competitive globally. In India, we started with ICT products nearly two decades ago, and now we are expanding to include semiconductors. Foxconn, with its subsidiaries and affiliates, is present in four Indian states,” Foxconn told Forbes India in a statement.

Foxconn has two facilities in India currently—one at Sriperumbudur in Tamil Nadu under Hon Hai, where it makes iPhones, and the other operated by Bharat FIH (previously, Rising Star) in Sri City, Andhra Pradesh, which acts as a contract manufacturer for brands such as Xiaomi. According to news reports, it is also looking to establish a research and development centre in Bengaluru’s Whitefield.  

“Our capex this year will be larger than last year and it includes expansion in Vietnam, the United States, Mexico and India in response to customers and supply chain adjustments. It is customer demand that guides Foxconn’s considerations on how we deploy our production capacity in the ICT field,” Foxconn added in its statement.

The Tata Group is also planning to start manufacturing for Apple. According to latest news reports, the group is set to complete the takeover of Wistron’s iPhone plant in Bengaluru. Wistron’s Indian plant has nearly eight production lines, which are currently manufacturing iPhone 12 and iPhone 14. The Tatas are expected to start manufacturing iPhone 15 after the takeover. Taiwan-based Wistron’s Bengaluru plant was the only product line for Apple products in India. With this buyout, Wistron will be completely divesting from the iPhone business in India which is estimated to be worth $600 million, according to newspaper reports. The 2.2 million square foot factory is located on the outskirts of Bengaluru. Tata Electronics did not respond to the queries sent by Forbes India.  

Long way to go

In order to ramp up the manufacturing in India on a large scale, better infrastructure and skilled labour will be the need of the hour to maintain quality. Tarun Pathak, research director at Counterpoint Research, says, “We need to focus on creating indigenised intellectual property rights for India. A lot of investment will be required in the workforce, and ensuring that our infrastructure is really good. Because if you have to invite all these factories or the component players in India, it is important to make sure that the policies are very strong. And obviously, it won't happen overnight. So we are looking at it more from a decade perspective.”  

China is no longer cheaper to produce or assemble iPhones. “Labour in China is now expensive. So if you want to lower your cost of production, you have to move to other countries like India,” explains Nitin Soni, senior director of Fitch Ratings. “Apple is also expanding in Vietnam to produce AirPods and other products. So there is a focus to lower cost of production and move to those countries where the demand for iPhone is going to grow strongly than the other markets. India is obviously one of those markets with a large population and growing disposable income.”