As Tim Cook pushes for a fresh Apple retail strategy in India, opening first stores in Mumbai and Delhi this month, key Apple component suppliers like Foxconn are boosting their in-country production capacity. The fast growing Indian consumer market is also noting record smartphone outbound shipments as new policies incentivize export-oriented production. Foreign investors should note upgrades in the capability of India technology supply chains.
As Tim Cook’s pictures go viral on digital platforms following the launch of Apple’s first retail stores in India, it will be pushing another related company story to the background. Apple assembled more than US$7 billion worth of iPhones in India in FY 2022-23, tripling production from the previous year.
The Cupertino, California-based technology giant makes almost 7 percent of its iPhones in India through its suppliers, up from just about 1 percent in 2021. Key Apple suppliers Foxconn, Wistron, and Pegatron have reportedly all met the manufacturing targets to qualify for India’s production-linked incentive scheme (PLI) payouts.
So, as Apple afficionados in India plan their visit to the Apple flagship store at Reliance Jio World Drive Mall in Bandra Kurla Complex, Mumbai or the second location at New Delhi’s Select Citywalk Mall (opening Thursday, April 20), the Indian government has reason to celebrate as well.
Meanwhile, electronics manufacturers and OEM suppliers will be taking note of India’s developing technology supply chain.
iPhone makers hit incentive targets for FY 2023 production in India
India’s PLI scheme for Large Scale Electronics Manufacturing just completed its third year since roll-out in April 2020 (see official Guidelines here). The scheme intends to build up India’s electronics manufacturing supply chain and attract higher value investments in the electronics sector.
Notified on April 1, 2020, it offers a production-linked incentive to companies making large investments in India for manufacturing mobile phones and specified electronic components, including Assembly, Testing, Marking and Packaging (ATMP) units.
iPhone makers Foxconn and Wistron were among foreign applicants deemed eligible for benefits under the scheme, provided they met periodic targets. They are now among the first to claim their PLI incentives for FY 2022-23.
Under the scheme, eligible beneficiaries will receive an incentive of 4-6 percent on incremental sales (over base year FY 2019-20) of goods manufactured in India and covered under target segments for a period of five years subsequent to the base year as defined.
It is reported that Foxconn met its targets within nine months of FY 2023. Further, Wistron and Pegatron have also completed their incentive targets and filed their claims for the third round of PLI subsidies.
Expanding production of Apple devices outside China
After major disruptions at Foxconn’s flagship plant in Zhengzhou during a COVID wave last year affected the global supply of Apple’s marquee devices, the company pushed its suppliers to more seriously consider upping production capacity outside China.
This makes sense on another level too for the US firm – avoiding entanglement in geopolitical tensions to keep market access steady across all regions.
The pressures on Apple give India an opportunity it has not resisted – the government has in recent years negotiated over various policy adjustments to facilitate the technology firm’s India investments. These have helped Apple tide over strict local sourcing criteria, among others, to slowly begin laying the foundation of a manufacturing presence in the country.
Indian market a growth frontier for Apple
The India Cellular and Electronics Association reports that India is perceived as the next growth frontier for Apple. From April 2022 to February of this year, approximately US$9 billion worth of smartphones were exported from India, with iPhones representing more than half of that total.
Apple sees India as the second-largest smartphone market globally and intends to manufacture iPad tablets and AirPods in the country in future. Further, with the new regional retail push, Apple hopes to expand its rather meagre market share of 3 percent.
At present, Taiwanese contract manufacturers Foxconn Technology Group and Wistron Corporation are responsible for the bulk of the iPhones assembled in India. The two companies alone shipped almost US$1 billion worth of iPhones in the first nine months of the last fiscal year. Foxconn has a plant in Tamil Nadu and Wistron is located in nearby Karnataka state.
Pegatron Corporation, another Taiwanese electronics manufacturing company, currently accounts for 10 percent of Apple’s iPhone production in India on an annualized basis, per research firm Counterpoint. It opened a facility at Mahindra World City near Chennai, Tamil Nadu state, in September 2022 through a US$150 million investment.
Nevertheless, China’s position at the center of Apple’s supply chains will not be easy to shift. The company has high quality standards that still need time for Indian factories to reach. For example, a Financial Times report was heavily carried across Indian media in February, which stated, “At a casings factory in Hosur run by Tata, 50% of components produced is fit to be sent to Foxconn, Apple’s assembly partner, while Apple’s goal is zero defects.”
Tariffs, infrastructure, and logistics remain the pain points for Apple in India. Cook will no doubt be raising these near-term grievances faced by the company and its technology suppliers when speaking to India’s business magnates and Prime Minister Narendra Modi this week.
More Apple suppliers set to increase their India presence
However difficult to take-off it may have been, the urgent business-need to diversify global supply chains and the scalability of production that India offers means more electronics production can be expected to be shifted here.
Foxconn, for example, has had plans to quadruple its India workforce in two years, as per Reuters reporting in 2022. The company just got a US$967.91 million investment proposal greenlit by the Karnataka government before the end of FY23. It has variously been reported that the company has won an order to source AirPods, the trademarked earphones from Apple.
There are also talks of a second smaller factory to be opened by Pegatron near its first plant. Pegatron has been expanding its production of Apple components in Southeast Asia and North America in recent years.
In the meantime, suppliers like Finland’s Salcomp, which makes iPhone chargers, are quietly looking at increasing their Indian investment. The company took over a Nokia facility in Chennai and began production in 2020; 85 percent of their 12,000 staff are women.
Other suppliers such as Jabil Inc. have recently started making components for Apple AirPods locally.
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