iPhone production in India

Foxconn Technology Group, Apple's largest manufacturer of iPhones intends to shift production from China to India. Apple uses manufacturers from around the world to deliver individual parts. The components manufactured by different companies all around the world are ultimately sent to just two companies to assemble into iPods, iPhones, and iPads.....

Foxconn Technology Group, Apple's largest manufacturer of iPhones intends to shift production from China to India.

Background

Apple uses manufacturers from around the world to deliver individual parts. The components manufactured by different companies all around the world are ultimately sent to just two companies to assemble into iPods, iPhones, and iPads. Those companies are Foxconn and Pegatron, both of which are based in Taiwan.

Foxconn is Apple's longest running partner in building these devices. It currently assembles the majority of Apple's iPhones in its Shenzen, China, location, although Foxconn maintains factories in countries across the world, including Thailand, Malaysia, the Czech Republic, South Korea, Singapore, and the Philippines.

Foxconn is the company’s trade name; the firm’s official name is Hon Hai Precision Industry Co. Ltd.

Analysis

Foxconn is ready to start trial production of the latest iPhones in the country before it starts full-scale assembly at its factory outside the southern city of Chennai.

Foxconn Technology Group Chairman Terry Gou said the iPhone will go into mass production in India this year, a shift for the largest assembler of Apple Inc.’s handsets that has long concentrated production in China. For Foxconn, the China market for iPhones is saturated, and labor costs are three times higher compared with India,” said Karn Chauhan, a Gurgaon-based analyst at Counterpoint Research. “India is still an emerging smartphone market, it has a lot of potential domestically and could serve as an export hub for the region.”

Gou said that Prime Minister Narendra Modi has invited him to India as his Taiwanese company plans its expansion in the country. Apple has had older phones produced at a plant in Bangalore for several years, but now will expand manufacturing to more recent models. The company said it had injected up to $213.5 million into an Indian unit between September and January for “long-term investment. “In the future we will play a very important role in India’s smartphone industry,” Gou said at an event in Taiwan. “We have moved our production lines there.”  "We don't know how the U.S.-China trade war is going to develop," Gou told a press conference in Kaohsiung. "Some sensitive data has to be stored in a third-party location and Taiwan is a neutral location between China and the U.S."

The Taiwanese contract manufacturer, the biggest maker of iPhones, will initially invest about $300 million to set up for Apple with investments to ramp up as capacity expands, they said.

India has become the fastest-growing smartphone market in the world, while China stagnates and Apple loses share to local competitors such as Huawei Technologies Co. and Xiaomi Corp. Foxconn already has two assembly sites in the southern Indian states of Andhra Pradesh and Tamil Nadu, where it makes devices for Xiaomi and Nokia. Locating more production in India would help diversify Apple and Foxconn’s manufacturing footprint away from China amid ongoing trade tensions with the U.S.

Producing phones locally would also help Apple’s retail push in India. Indians bought more than 140 million smartphones last year, with just 1.7 million sold by Apple, as consumers favoured cheaper models from China. The company needs to meet a 30 percent local sourcing rule to be able to open its own stores in the country. The investment will also create up to 25,000 jobs in the country. 

Counterpoint 

It can be noted that FOXCON has suffered in the past from the allegations of poor working conditions, with long working hours. In India, business is also challenged by the bargaining power of the trade unions.

Assessment

Our assessment is that this aligns with the ‘Make in India’ campaign which helps Apple avoid any import cost. We feel that manufacturing costs in China are comparatively less due to better infrastructure, lower electricity, labour and interest cost, better logistic facilities, state subsidy and better R & D.  India’s infrastructure needs to catch up with those available in China in order to compete in the manufacturing space. 

We feel that Taiwanese hardware makers have been shifting production out of China back home and to other countries, in response to new tariffs on networking equipment and server motherboards.

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