Apple’s efforts to increase India production are proving difficult as the tech giant is under pressure from China to reduce its dependence on China.
Four people familiar with the operation claim that the iPhone maker sent product designers and engineers from California to southern India to help set up production and train locals.
This comes as Apple tries to reduce its dependence on China-centred supply chains after months of Covid-19 disruptions that saw it report its first quarterly decline in revenues three and a quarter years earlier.
Apple has begun operations in India as part of its long-overdue diversification strategy. It follows the same blueprint that it used in China two decades back. Engineers and designers spend weeks to months in factories overseeing manufacturing.
Apple has been manufacturing lower-end iPhones in India for years, but last September saw a significant shift. Indian suppliers built flagship models in just weeks after their launch in China. This is where almost all iPhones and other Apple hardware are manufactured.
However, the country’s experience over the past months has shown the extent of the work that needs to be done.
About one-third of the components that come off the Hosur casings factory run by Tata, an Indian conglomerate, is in good enough condition to be sent to Foxconn. Foxconn is Apple’s assembly partner.
Apple’s goal of zero defects is not met by this 50 per cent “yield”. Two employees of Apple’s offshore operations stated that the factory has the plan to improve proficiency, but it is still a long road.
Bain consultant Jue Wang said that Apple is just beginning its expansion into India. She said that Apple is not at the same scale as Zhengzhou’s factory — which employs around 300,000 people in China.
China’s suppliers and officials adopted a “whatever is necessary” approach to winning iPhone orders. Ex-Apple employees have described instances when they estimated that a task would take several weeks but then found it was completed the next day at an inexplicable pace.
According to an ex-Apple engineer briefed on this matter, operations in India don’t run at such a pace: “There just isn’t the same sense of urgency.”
An Apple employee said that the slow pace of expansion to India was due in part to logistics, tariffs, and infrastructure. According to this person, Apple’s diversification into Southeast Asia was made easier by the Regional Comprehensive Economic Partnership. This is a free trade agreement between 10 regional countries.
Venture Outsource president Mark Zetter said that such inertia is a problem for many years.
Zetter conducted research five years ago for the Indian think-tank Gateway House. He found that contract manufacturers “frequently claimed they could fulfil any need” of an electronic client. In reality, they would “slowly respond to customer concerns once the deal has been signed” and “lack of flexibility” to change.
Apple engineers are sometimes accommodated in city-centre hotels in Chennai. They are two hours from the factories they work at. This means that they must commute for four hours each day and sometimes have poor WiFi connectivity.
Apple declined to comment.
Analysts believe that India has a huge potential to become an Apple market, despite these issues. Bain, a global consultancy, projects that India’s manufacturing exports could more than double to $418bn by 2022 and more than $1tn by 2028. This is due to policy support and low cost. The company estimates that electronics exports will increase at an annual rate of 40 per cent.
Vivek Wadhwa is a Silicon Valley-based entrepreneur, academic, and investor who met last month with Prime Minister Narendra Modi to discuss how the government encourages businesses to benefit from Apple’s need for diversification.
He said that the provincial governments are “bending over backwards to bring the industry into their provinces, and they will do as China did”. These are only baby steps. Apple is currently learning from the ground what works and what doesn’t. . . It will scale up in three years.
Wadhwa admitted that India’s fragmented and bureaucratic government was something Apple would need to adapt to. He suggested that its engineers learn jugaad, a method of “making do” and transcending obstacles. He said, “Because every obstacle in India is a problem.”
Apple’s recent job ads make it clear that the company has big ambitions for the country. It is currently on track to surpass China this year as the world’s most populous nation.
One advertisement reveals that prospective employees will be “growing nascent operations to service all product lines at Apple while simultaneously building a factory of the future”.
Apple’s earnings call this month also included India 15 times. Chief executive Tim Cook said he was “very bullish” on India. He described the Indian market as “hugely interesting” and “a main focus”, and confirmed plans for opening the first Apple Stores.
According to sources in India, Tata is pursuing ambitious plans to be a full-service Apple supplier, like the Taiwanese.
Indian conglomerate, Wistron, is in negotiations to purchase an iPhone assembly plant in Bangalore, Karnataka. Wistron is a Taiwanese competitor to Foxconn and is looking to exit following labour unrest in 2020.
According to a source familiar with the discussions, Apple was helping Tata take majority ownership instead of a 50/50 joint-venture structure. Bloomberg reported the first news about the talks. Tata declined to comment. Wistron didn’t respond to a request for comments.
The Indian government has granted preliminary approval to Apple’s Chinese component suppliers for them to start operations in joint ventures.
This is significant because the Indian government still has a border dispute with China. Since a clash at the northern frontier of China in 2020, which left at least 24 people dead, it had already banned numerous Chinese apps and initiated tax and other regulatory proceedings against manufacturers of phone handsets.
In an attempt to “defend domestic values addition in the manufacturing of mobile phones”, Nirmala Sitharaman, India’s finance Minister, stated earlier this month that India would provide customs duty relief for certain parts and inputs.
Tamil Nadu’s electronics industry executive said that Apple is late to this game. He said, “They should have started the exercise five years ago.” They should have diversified earlier to reap the benefits.