According to the December 2023 WSJ article: Apple Aims to Make a Quarter of the World’s iPhones in India (Paywall), Apple will be expanding production of iPhones and other products like Airpods, which were only made in East and South East Asia before now, in India. But some challenges await them that any importers interested in manufacturing electronics in India should know about, here’s the rundown…
Why produce more Apple products in India?
It’s now becoming normal for Apple to manufacture some iPhones in India, eating into what was previously almost exclusively Chinese production, but they are ramping up production further there and have the ambitious goal to produce 25% of all iPhones there in the next two to three years – that’s an amazing 50 million iPhones! But why the pivot?
The tensions between China and the West, in particular the USA, are nothing new and have been rising for several years. This leaves American importers of some products facing the difficulty of navigating additional tariffs, the difficulty of dealing with red tape, and geopolitical risks that could lead to supply disruptions from China.
As the article says:
“Companies are rethinking their strategy, determining whether some elements of their business is best conducted outside of China,” says Lester Ross, a Beijing-based partner at the law firm Wilmer Hale.
Avoiding having ‘Made in China’ on products allows companies like Apple to reduce being hit by any tariffs placed on China-made goods sold in the USA, hence switching more manufacturing to India. However, there is still a huge amount of manufacturing in China, which is itself one of Apple’s largest markets.
The same can be said for moving some production of Airpods from Vietnam to India. Although Vietnam is not under the same tariffs as China, as it is in such close proximity to China, any instability there (and in the Sth. China Sea in general) is more likely to affect SE Asian countries than India. By instability, this could be a breakdown of the political relationship between the US and China, the situation with Taiwan to get worse, or even a war of some kind. Bearing in mind that a lot of Vietnamese manufacturers are shipping parts across the border from China, you can appreciate that the supply chain there is still somewhat susceptible to disruption if the situation in China itself changes.
Two key challenges that large electronics manufacturers in India face
Let’s be clear that at the moment India is most suitable as an electronics manufacturing base for larger businesses who have the expertise and finances to invest in setting up a supply chain there. Electronics giants like Apple who are moving production to India are facing these 2 key challenges:
1. The network of component suppliers in India is not very mature
An iPhone is made up of hundreds of parts, and many come from East Asia (South Korea, Japan, Malaysia, etc), the USA, and China (image courtesy of ifixit).
The list of key components shows that even if an iPhone is being assembled in India or China, it’s a multinational product with components coming from many countries, as you can see from this X post:
In addition, it’s probably fair to say that other parts like the casing and the nice Apple packaging also come from China when the assembly is in that country, too.
Ultimately Apple will no doubt want to be able to source some of these key parts from India itself, but given that it took decades to get production in China to the efficient level that it currently is, with a very mature supply chain of component suppliers in place, this may not happen any time soon in India because it still lacks electronics suppliers who can reach Apple’s standard of quality right now (although it does have a good automotive supply chain in place already).
What needs to happen is for Apple to develop their sub-suppliers there as they did in China all those years ago, but the problem is that India has either huge manufacturers like Tata (who they can work with) or many very small workshops (who are too small to be suitable). There are not many upper-midsize specialized manufacturers to pit against each other, and there are not many large conglomerates either. So, that’s a challenge they face in the coming years if they want to move away from importing Chinese components. It is likely that some of Apple’s Taiwanese manufacturers, like Foxconn, Wistron, and so on, are already moving some of their machining/intermediate operations to India to fill the gap.
2. India can’t ramp up production as quickly as China to follow market fluctuations
Apple’s Taiwanese manufacturing partners, like Foxconn, have been very successful at very rapidly hiring and training large numbers of new factory staff in China to cater for a successful product launch, such as a popular new version of the iPhone. The number of staff hired and made operational within just a week has been up to 100,000 which is partly thanks to China’s long manufacturing history and wealth of experienced migrant workers.
India doesn’t have the same labor pool of experienced migrant factory workers who can be brought in, trained, and put to work as rapidly doing specialized electronic assembly tasks such as soldering. In addition, India also has fewer qualified engineers and technicians who work behind the scenes to set up processes, assembly lines, and testing stations, and work to ensure that production reaches a fast and efficient level as quickly as possible. Therefore, ramping up production in India as quickly as in China seems not to be possible right now.
The culture in India isn’t as forgiving as in China
Back in 2020, Taiwanese Apple manufacturer Wistron suffered from rioting at its iPhone assembly factory near Bangalore over a pay dispute where employees claimed that they were not paid as much as they were promised when joining. This seems to have been due to the business ramping up too fast:
According to investigations by police, trade unions, and the state government, a pressure-cooker situation had built up in the factory due to anomalies in the wage payment system after Wistron rapidly scaled up its contractual employee strength from around 3,000 to nearly 8,500 between September 2020 and December 2020.
Initial police investigations have revealed that the contractors were not paying the workers their full wages as per their contracts, or for overtime work. “The factory was being operated like a sweatshop,” police sources said. While wages were slashed from Rs 22,000 to Rs 8,000 in some cases, wages for November were not paid until December 12, contract employees have said. Workers were working in two compulsory 12-hour shifts. With no employee grievance redressal system in place at the firm or a union, workers were constantly asking company officials for their dues, the All India Central Council of Trade Unions has said in a report.
No doubt that mistakes were made by Wistron who was placed on probation by Apple at the time, receiving no more new orders, but it’s perhaps harder to believe that there would be such a violent reaction in China leading to the facility needing to be closed for repairs.
So adding together the culture that Indian workers are perhaps more militant than their Chinese counterparts, and the lack of migrant workers prepared to travel across the country to take on manufacturing jobs, suggests that Apple won’t be able to ramp up to accommodate very popular product launches as quickly in India.
India’s advantages
Aside from these two challenges, India also offers advantages. Here are a few:
A good China +1 option
India has a formidable border between itself and China, the Himalayan mountain range, so it is more insulated from instability in China and East Asia than other countries more local to China. This makes it an excellent prospect for China +1 manufacturing strategies. In the event of war breaking out, the Himalayas make it very unlikely that China would/could cause much disruption to its South Asian neighbor.
Good standard of English and workmanship
Factory owners and experienced engineers and technicians often have a good standard of English, meaning that communication can be easier than with their Chinese counterparts. There is also a pride in good workmanship, especially in South India where a lot of the existing electronics industry has operations.
Things are changing
The India of 2023 is not the India of 1993. A lot has changed, especially under P.M. Modi, and manufacturing is booming. The network of specialized subcontractors, including for electronic components and PCBA, is growing. Fast forward 5 or 10 years and making hardware products will be easier.
Apple is committed to India and will do NPI work there on new models
Despite the teething problems in India, Apple seems committed to the extent that they are going to undertake the new product introduction process in India for some new models which is a departure from their past method which was to do the product development in China, get the manufacturing processes down to a fine art, and then just transfer some of the assembly to another country.
So by this action, we can see that Apple has confidence that their manufacturing partners and subcontractors in India can meet delivery timelines under the immense pressure that they will be placed.
So it looks like business is assured for some time to come for some of the larger factories there that are willing to invest and evolve to cater to Apple’s needs, and that Apple is doubling down on its own China +1 strategy to insulate itself from future supply chain risks associated with India’s large neighbor across the Himalayas.
Read more blog posts about India
We’ve written plenty more posts about manufacturing in India, so don’t miss them. Read them here.
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