Prime Minister Narendra Modi’s Atmanirbar Bharat scheme and the idea of getting more global supply chains to India have received a big push recently. Apple’s biggest contract manufacturers globally, Foxconn and Wistron have applied for the government of India’s production linked incentive scheme or the PLI. The big news is that iPhone is moving from China to Chennai and it will now be manufactured at the Foxconn plant near Chennai. Not just iPhone 11 but Apple’s new offering- the iPhone Se, also known as iPhone sc 2 is also going to be manufactured in India.
It brings us back to a report in the wall street journal that highlighted Apple’s problem with China and listed a number of factors but in the end, it said that even with all the problems in China, Apple cannot produce iPhone 11 in India because of the lack of skilled labor and lack of Infrastructure that’s available. Today, in July, the news has been to be wrong. Apple is indeed coming to India and is indeed making iPhone 11 here and everyone is thrilled about it.
But it’s not just iPhone, it’s not about one company or one mobile brand coming to India because we need to look at the larger picture here and that is where there are three aspects that are discussable:
- What could have made Apple’s incoming in India possible?
- Why Apple would want to take such a step of coming to India?
- Apple’s china problem – the critical reason why iPhone 11 production is coming to India.
Why this happening is was because of the production linked incentive scheme that was the launch recently. As the name suggests, the scheme incentivize production in India so the government is looking to give a big boost to local mobile manufacturing, apart from specific electronic components which include assembling, testing, marking, and packaging. The idea was to give companies incentives to produce in India and for the sales of goods that were manufactured in India, over a base year incentives would be provided.
These incentives were critical in bridging the revenue gaps that many companies were facing and that is why now more companies with the incoming of PLI are now looking for manufacturing in India, Apple is just one of them. Apple’s contract manufacturers Foxconn and Wistron were two of the companies which applied for the PLI scheme and now we will see the manufacturing of iPhone 11 at Foxconn plant near Chennai. But that’s the first aspect what’s making it possible, we’ve seen PLI not just for electronics manufacturing also for pharma sector but that’s just one aspect.
India’s big infrastructure is the big attraction center for other companies to make a plan here. Now, that’s all about the PLI but what does it mean for in the larger picture for the Indian manufacturing sector. First thing, there will be greater domestic value addition to the exports, because these companies, the Foxconn will not just be making phones for the Indian market which they already do, but they would also ship phones around to the markets around the globe especially in Europe and the Middle East.
The second aspect is the sheer size of the Indian market, the sheer growth in the Indian market. Now that the Jio revolution is taking place, we’ll have a billion internet users in another three or four hears. Then there is also the question of 5G and Apple has an area of products they are coming up with the first 5G iPhone sooner or later. There are a number of iPhone products like iPhones, iPods, AirPods they had come up with to name a few hardware gadgets.
Now they would want to invest heavily in the Indian market because probably the same market that was not as lucrative for them as a decade ago is now lucrative with the urban growth piercing with the kind of interest people have in Apple products. Even though Apple constitutes a very small share probably some in the neighborhood of three or four percent in the Indian market, it would certainly want to increase it. The companies which have applied for this not just include Foxconn and Wistron, but also include Samsung and Flextronics which are the South Korean giants and they are looking to have in India the manufacturing plants in the future.
The coming if Foxconn and Wistron are beneficial in two ways. One is it will also boost the market for local manufacturers; it will enable the once-famous now-forgotten companies like Carbon, Lava, and Micromax to up their game. Another is it will help in the skill-building of India.
The third and most critical aspect is Apple’s china problem. The US and China have pensions of their own going on but it’s also impacting companies like Apple, Google, or even Microsoft. Now Apple has five reasons to move out of China. First is the trade war, the trade what if it aggravates with the incoming of some issue, the trade war will only worsen and in that scenario, it makes sense for Apple to diversify the supply chains to diversify whatever manufacturing they have in China and what better place than India, to begin with.
The second reason is the Chinese interference. The Chinese armed twisting of Apple was witnessed recently and we have seen the Hong Kong protests which were quite prevalent before the national security law took place. The Chinese government actually twisted Apple into deleting one of the apps on the app store which somehow assisted Hong Kong protesters. Now Apple wouldn’t want to be in a position where it has to balance the idols of the united states- its original home and the business ethics of china because that doesn’t make for a good pr.
Coronavirus taught us never to put your supply chain eggs in the same basket. If tomorrow there is any problem in China due to war with the United States or any other factor, Apple would want its supply chain to be safe. When coronavirus was at its peak in China, Apple suffered problems of supply chains and they would want to avoid a situation like that. The Boycott of Chinese products is going in India and we are seeing it in many places as well. People who might have been interested in buying expensive Chinese Smartphones might not be turning to South Korean companies likes Samsung, and this was one opportunity Apple would want to cash in on.
The major factor is India’s growing market (I.e.) the billions of internet users coming up. Even if Apple is to tap into five to ten percent of the market, it will have close to 100 million iPhone users. It sounds like a big number right now but if they can manage to do it, it will still be a big number. By moving to India, Apple also sends a message to China that – “look, you cannot arm-twist business companies as you’ve done to a lot of companies because there are lots of destination, there is a lot of markets that are ready to be explored, that requires investments.”
With iPhone 11 coming to India, the manufacturing coming to India through Foxconn, the message will be heard loud and clear in vision. This explosion when it comes to electronics around the globe is just 3℅, so there’s a lot of ground we have to cover and the coming of Foxconn and Wistron is the right step in that direction. One would only hope that more and more global hands come to India, even if they don’t want to leave China, they should look to diverse from China and where else can they do it but India.