As Apple looks beyond China to secure crucial supply chains strained by Covid lockdowns and threatened by rising geopolitical tension, India has emerged as an attractive potential alternative to the world’s second largest economy.
And Beijing’s big regional rival isn’t missing a beat in talking up the opportunity. One of India’s top ministers said last month the California-based company wants to ramp up its production in the South Asian country to a quarter of its overall total.
Minister of Commerce and Industry Piyush Goyal said Apple was already making between 5% and 7% of its products in India. “If I am not mistaken, they are targeting to go up to 25% of their manufacturing,” he said at an event in January.
His comments come at a time when Foxconn (HNHPF), a top Apple supplier, is looking to expand its operations in India after suffering severe supply disruptions in China.
For years, Apple had relied on a vast manufacturing network in China to mass produce iPhones, iPads and other popular products. But its dependence on the country was tested last year by Beijing’s strict zero-Covid strategy, which was rapidly dismantled last December.
Since the middle of last year, Apple has redoubled its efforts to invest in India. But can Asia’s third largest economy deliver?
“Theoretically, it can be done, but it won’t be happening overnight,” said Tarun Pathak, a research director at market research firm Counterpoint.
“[Apple’s] dependency on China is a result of almost two and a half decades of what China put in to develop their entire electronics manufacturing ecosystem,” Pathak said, adding that the company makes nearly 95% of its phones in China.
Apple did not respond to requests for comment from CNN.
China headaches mount
But the world’s most valuable company posted shockingly weak earnings this month, partly because of its recent problems in China. The troubles started in October, when workers began fleeing the world’s biggest iPhone factory, run by Foxconn, over a Covid outbreak.
Short on staff, Foxconn offered bonuses to workers to return. But violent protests broke out in November, when newly-hired staff said management had reneged on their promises. Workers clashed with security officers, before the company eventually offered them cash to quit and leave the site.
While operations at the sprawling campus in Zhengzhou, central China, have now returned to normal, the supply problems hit the supply of iPhone 14 Pro and iPhone 14 Pro Max models during the key holiday shopping season.
Foxconn did not respond to a request for comment.
On top of that, US-China relations are looking increasingly tense. Last year, the Biden administration banned Chinese companies from buying advanced chips and chipmaking equipment without a license.
“I think they will continue to depend on China for a significant proportion of their production,” said Willy Shih, a professor at Harvard Business School, referring to Apple.
“But what they are trying to do, and I think it makes sense, is to add diversity to their supply base so that if something goes wrong in China, they will have some alternatives.”
Shih referred to this strategy as “China +1 or China+ more than one.”
China+1= India?
“India is a hugely exciting market for us and a major focus,” Apple CEO Tim Cook said on a recent earnings call.
“Looking at the business in India, we set a quarterly revenue record and grew very strong double digits year over year and so we feel very good about how we performed,” he said.
India is set to overtake China this year to become the world’s most populous country. The country’s massive and cheap labor force, which includes workers with key technical skills, is a big draw for manufacturers.
Asia’s third largest economy also offers a growing domestic market. In 2023, as global recession fears persist, India is expected to remain the fastest growing major economy in the world.
If it can sustain that momentum, India could become only the third country with GDP worth $10 trillion by 2035, according to the Centre for Economics and Business Research.
Analysts say India’s growing consumer base might give it an edge over Vietnam, which has also been attracting greater investment in electronics manufacturing.
The Indian government has rolled out policies to attract investments in mobile phone manufacturing. According to Counterpoint’s Pathak, India accounts for 16% of the global smartphone production, while China constitutes 70%.
There are some success stories: Samsung, the world’s top selling smartphone brand, is one step ahead of Apple and already makes a lot of its phones in India.
The South Korean giant has been diversifying away from China because of rising labor costs and also stiff local competition from homegrown players such as Huawei, Oppo, Vivo and Xiaomi.
It now makes the bulk of its phones in Vietnam and India, with the latter accounting for 20% of Samsung’s global production.
In 2018, Samsung opened what it called “the world’s largest mobile factory” in Noida, a city near New Delhi, and analysts say the the company may have paved the way for other manufacturers.
Apple devices are manufactured in India by Taiwan’s Foxconn, Wistron and Pegatron. Until recently, the company would typically start assembling models in the country only seven to eight months after launch. That changed last year, when Apple started making new iPhone 14 devices in India weeks after they went on sale.
Some of Apple’s biggest contractors are already pumping more money into India. Last year, Foxconn announced it had invested half a billion dollars in its Indian subsidiary.
Earlier this week, the government of the southern Indian state of Karnataka said it is “in serious discussion of investment plans” with the Taiwanese giant. Foxconn already has factories in the Andhra Pradesh and Tamil Nadu.
Where is India’s Shenzhen?
Manufacturing in India, however, comes with myriad challenges. It constitute only 14% of India’s GDP, according to the World Bank, and the government has struggled to grow that figure.
“One of the things that China did is they built infrastructure when they could. And I would argue that India did not build infrastructure when they could,” said Shih, referring to highways, ports and transport links that allow easy movement of goods.
Apple will also face a lot more red tape in India if it wants to create sprawling Chinese-style campuses.
“Will India be able to replicate a Shenzhen version?” asked Pathak, referring to China’s manufacturing hub. Building such “hotspots” won’t be easy and would require India to think about issues ranging from logistics and infrastructure to the availability of workers, he added.
Experts told CNN that accessing land in a chaotic democracy like India could be a challenge, while the Chinese Communist Party faces fewer barriers to expropriating real estate quickly for causes it deems important.
India would also have to think about moving beyond simply assembling iPhones through favorable government policies.
“You need to source components locally, which means you need to attract many more companies in the supply chain to set up shop in India,” Pathak said.
Some of the biggest businesses in India may be stepping up. According to Bloomberg, autos-to-airline conglomerate Tata Group is in talks with Wistron to take over the Taiwanese company’s factory in southern India.
Tata and Wistron did not respond to request for comment.
“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,” N. Ganapathy Subramaniam, COO of Tata Consultancy Services, the group’s software services arm, told Bloomberg.
While there are significant obstacles in India’s ambition to deepen its relationship with Apple, doing so would be a huge boost for the country and Prime Minister Narendra Modi.
‘I think it’ll be [a] big, big win,” said Pathak, noting that growing manufacturing ties with a US giant like Apple will in turn attract other global players in the electronics manufacturing ecosystem to India. “You focus on the big one, the others will follow.”
— Catherine Thorbecke and Juliana Liu contributed reporting.
