Manufacture of 20% Apple iPhones worth USD 40 billion to move from China to India
Placing all its eggs in one basket has shown Apple the folly of relying highly on one country, China. In early 2015, much before the COVID-19 pandemic struck, Apple Inc.’s management teams had suggested that the company relocate assembly of at least one iPhone product to Vietnam which would allow Apple to begin the multiyear process of training workers and creating a new cluster of component providers outside of China. However, Tim Cook’s leadership at Apple failed to heed to the advice then. Now, both the pandemic that originated in Wuhan, China and the undercurrents of the trade war between Washington and Beijing are forcing Apple and Tim Cook to re-evaluate and reconsider the decision. Early or late, Apple is now in talks with India to shift nearly 20% of its production capacity from China to India, aiming at USD 40 billion in revenue. Will India gain from Apple iPhones MAKE IN INDIA?
The Shift from China to India
- Chairman Simon Lin of Wistron Corp, Apple’s manufacturing partner, declared that half its capacity would reside outside China within a year. It is setting aside USD 1 billion to fund the expansion this year and next to set up manufacturing in India.
- Alex Yang, Foxconn Technology Group investors relations chief, told investors in a recent call, “Trade, the virus, all these things will make the world very different in the next decade,” Foxconn which already has a presence in India, manufacturing iPhones since last year, is now rethinking to expand its present capacity.
- Similarly, Chief Executive Officer Liao Syh-jang at iPhone assembler Pegatron said, they would also be diversifying manufacturing sites, and it’s further looking at India as a location for new facilities.
Apple set to become India’s top mobile phone exporter
Apple Inc. is in talks with Indian officials to produce up to USD 40 billion worth of iPhones, mainly for exports through its contract manufacturers Wistron and Foxconn, under India’s production-linked incentive (PLI) scheme.
The PLI scheme with an outlay of INR 40,000 crore will be applicable from August 1, 2020, on mobile phones and specified electronic components such as Printed Circuit Boards (PCB), photopolymer films, and Assembly, Testing, Marking and Packaging (ATMP) units among others. The scheme outlines that companies which make phone priced at INR 15,000 and above and which will make a cumulative investment of INR 1000 crore over four years starting with INR 250 crore in the first year will qualify for an incentive of 6% for the first two years followed by 5% for the next two and 4% in the fifth year. Incremental sales of manufactured goods over the base year should be INR 4000 crore for these companies in the first year with sales totaling INR 25,000 crore by the fifth year.
Apple is currently ironing out a few issues it is facing under PLI. As one of its executives’ mentions, “There are some problems with some of the clauses. For instance, valuing the entire plant and machinery already in use in its plants across China and other places at 40% of that value and the extent of the business information sought under the scheme are some of the irritants.”
Apple Inc wants to reap the benefits of the Indian government’s new PLI scheme in order to make the big shift from China to India and eventually become India’s top mobile phone exporter.
The Facts and the Figures
In February, 2020, Apple CEO Tim Cook expressed taking small steps to partly move out of China on account of the supply-chain being effected by the pandemic. The process would be slow and well-thought of. He said “We’re talking about adjusting some knobs, not some sort of wholesale, fundamental change.” But then again in May 2020, Apple Inc. started serious talks with the Government of India to seek alternatives to China for shifting a part of its production facility.
- Apple’s revenue touched USD 260 billion in 2019.
- In the last quarter, Apple held a 62.7% market share in India’s premium smartphone market.
- Apple sells phones worth approximately USD 1.5 billion in India, of which less than USD 500 million are manufactured locally.
- In China, it produced merchandise valued at USD 220 billion in 2018-19, of which USD 185 billion worth of goods were exported.
- Apple, directly and indirectly, employs over 4.5 million people in China.
- Apple Inc. partners are looking to diversify their factories outside of China to include additional manufacturing units in countries like India, Vietnam, and Indonesia.
In the wake of the current coronavirus (COVID-19) pandemic, a tech giant like Apple Inc. is eyeing India, to shift some of its current manufacturing from China to India. Whether India can match the ease and efficiency of basing manufacturing in China, waits to be seen. The optimism surrounding India’s growth is founded upon foreign capital moving to India from China. Under the leadership of PM Narendra Modi, India is yet to improve its ranking in ‘Ease of Doing Business’ in the country. First Japan announced USD 2.2 billion in monetary support for Japanese-based businesses to shift their production and manufacturing out of China. Soon riding the wave were South Korean and US companies who approached the Government of India to relocate some of its manufacturing from China to India. Will India be able to capitalize on that, remains to be seen.