Apple replicates China manufacturing model in India: How is it working out?

This year Apple Inc vendors in India are assembling the latest iPhone 16 simultaneously with China factories — a feat the Indian assemblers achieved in only six years since Apple first started to make in India. In a few weeks, Indian factories will also roll out the more sophisticated iPhone 16 Pro and Pro Max, models that have so far been imported from China.

You could call it the maturing of Indian manufacturing. But, for the Cupertino-headquartered tech giant, it is a replication of its time-tested strategy in China, with tweaks, and ensuring India is firmly entrenched as the second biggest export hub for iPhones after China.

Replicating China means scale: Large factories, the kind of which have not been seen in India, supported by a large blue-collar workforce and flexible labour laws that have raised the maximum hours of work, especially during peak demand.

It also entails bringing to India anchor vendors, such as Foxconn, which have worked closely with Apple in China. It means nurturing in India, as in China, a local supply system that can be a part of the global value chain, with support from Apple. It also means continuous engagement with the government for concessions, financial incentives, tax benefits, and policy tweaks.

For instance, in August the Tamil Nadu government inaugurated a China-like hostel facility for housing 18,729 women employees working in Foxconn’s plant, where 75 per cent of the 45,000 workers are women. The facility, in which the state government has invested Rs 700 crore, will be given on lease to the Taiwanese company which will run it. The plan is to double the hostel capacity in the second phase.

Sources say the Tata Electronics plant in Hosur may have a similar hostel. The plant has 20,000 employees and is likely to have 50,000 once the fourth iPhone assembly unit comes up.

Not as big as China

That said, the Indian factories are smaller than in China, where the Shenzhen factory alone has 300,000 workers living in dormitories. In India, state governments have been chary to go beyond 50,000, ostensibly apprehensive of how an unrest might pan out. The dorms here do not have bunk beds or attached bathrooms.

Apple’s India assembly entry strategy has been led by Taiwanese giant Foxconn, along with Wistron — taken over by the Tata Group — and Pegatron, though the latter two are much smaller.

In April-July this year, Foxconn sold 95 per cent of its production value as exports from India, the highest among the three vendors, playing a key role in exceeding the target under the government’s production linked incentive (PLI) scheme. It accounted for 50 per cent of production value of iPhones in the country; Pegatron did 13 per cent and Wistron 33 per cent.

In China, Foxconn won orders for making both iPhones and iPads, according to the Financial Times, after founder Terry Gou told Apple CEO Tim Cook that he was underestimating the demand and offered to build two new mega campuses with the Chinese government as the partner and underwriting the investments. But he would build the products if they could be built in large volumes. By 2010, the volumes zoomed.

According to estimates, 80 to 85 per cent of all iPhones are produced by Foxconn in China.

Anchoring at home

But Apple Inc is also betting on a home grown anchor vendor in Tata Electronics, with which it began making enclosures for the iPhone three years ago.   Analysts say it is part of Apple’s strategy to inculcate more vendors, especially indigenous ones, and deepen relationships with them by offering them more contracts. 

In China, for instance, Luxshare, an important supplier of Air Pods, also assembles iPhones and has bought Pegatron’s iPhone plant in the country. It is already Apple’s second largest vendor after Foxconn. 

In India, the Tata Group has quickly become number two after Foxconn. After its acquisition of Wistron and its iPhone assembly plant in Hosur expected to get on steam by November, the equation could change in a few years, especially as the Tata Group is believed to be interested in buying Pegatron.

India’s policy stance has compelled Apple to look for non-Chinese and especially Indian companies to build the local supply chain. It is working closely with the Tata Group to reduce rejection rates. The other way would be for Indian players to form a joint venture with Chinese companies which already have the expertise, but that would depend on government policy. 

Govt vs govt

Getting incentives from the government has been a key for Apple Inc to be more profitable. But it is one area where the approach of communist China is different from democratic India’s. 

In China, according to reports, in the initial years Gou of Foxconn used his political clout to push for concessions that were not publicly disclosed. Later on, Cook became a frequent visitor to China despite the growing trade tensions between the United States and China.

A New York Times report lists some of the benefits of setting up an assembly plant by the Zhengzhou government, which included support for building the complex, $1 billion to build housing, discounted price for electricity, concessions on corporate tax, loans from the municipal treasury, subsidies for new hires, and even a bonus for meeting export targets.

Cook has visited India only twice. In this country, Apple has built its own team that leads these discussions. It works through industry bodies such as the Indian Cellular and Electronics Association. The attempt is at consensus building in critical areas such as import tariffs on components not manufactured in the country in sufficient quantities. 

The key PLI incentive of 4 to 6 per cent on incremental sales is based on a transparent policy where all stakeholders participated. It is designed to reduce the cost gap in production between India and its competitors: China and Vietnam. It is available to all. The proposed electronics component PLI is also being led by the industry associations.

Except that, Apple has bet on replicating its China model in India. So far, it seems to be working.

China model in India

> Setting up large dormitories near factories, started with the Foxconn plant in Tamil Nadu

> Brought in trusted Apple Inc vendors to India, such as Foxconn 

> Forging tie-ups with Indian entities, with Tata Electronics the first big one

> Apple Inc vendors receive financial incentives under PLI

> Engagement with the government has helped cut tariffs on some components

> More flexibility in labour laws in some states for Apple Inc vendors