Clash of titans: Samsung in Vietnam and Apple in India race for market lead

Apple Inc exported iPhones worth $10 bn from India in FY24, a fifth of what Samsung achieved last year in Vietnam

Samsung last year exported over $52 billion worth of mobile phones and spare parts across the world from Vietnam, accounting for 9 per cent of the country’s overall trade. The South Korean giant now produces more than half of its mobile phones in this country.

  In striking contrast, the Cupertino-based Apple exported iPhones worth $10 billion from India in FY24, a fifth of what Samsung achieved last year in Vietnam. And it shifted 12 per cent of the iPhone production value from China to India, only a fourth of what Samsung has been able to achieve in Vietnam last year.

  The two global tech giants, however, have had one thing in common —their identical search for a new low-cost hub for assembling their phones and moving away from their dependence on China. Samsung’s tryst with China started 16 years ago, but labour costs in the country gradually went up and homegrown mobile companies gave the South Korean giant tough competition. Samsung closed their last mobile factory in China in 2019.

  But for Apple, which churned out 95 per cent of its iPhone production in China, the decision to hedge their bets and look at an alternative base emanated from growing US-China tensions and trade wars. And in 2020, it chose India, bringing in their three global vendors under the production linked incentive (PLI) scheme for assembling mobile devices.

  The gamble has clearly paid off. Apple has beaten its export targets, provided direct jobs, and invested what was committed to the government. The question is whether Apple can do to India what Samsung has done to Vietnam, transforming the small State into a powerhouse of electronics just after China? Last year, Vitenam’s electronics exports touched $142 billion, which is nearly five times what India was able to achieve in FY24 at $29.2 billion.

  But the Indian government has ambitious plans — it is targeting $500 billion in electronics manufacturing by 2030 (industry estimates at least $200 billion has to come from exports), and the hope is that a large part of it will be on the back of Apple’s success. Its commitment to the government was shifting 10 per cent of the value of iPhone production by FY26, the final year of the PLI scheme. It has surpassed that target in three years (FY24) and has hit 12-14 per cent.

  But its future game plan is more ambitious. According to Minister of Commerce and Industry Piyush Goyal, the US tech major is looking at shifting 20-25 per cent iPhone production to the country. And a WSJ report goes further, projecting that they will move a quarter of iPhone production in the next two-to-three years and assemble over 50-60 million phones per annum in India.

 

  What will it take Apple to reach its ambitious goal? Investments, of course. Samsung has cumulatively invested a staggering over $22.4 billion in Vietnam. And it wants to do more. Samsung announced in May this year that it would invest $1 billion every year from now on in Vietnam. And to back up their manufacturing hub, they are setting up their largest R&D centre outside of South Korea with an investment of $220 million in Hanoi. 

The total investment that Apple’s three vendors had to commit for assembling phones in India under the PLI scheme was a mere Rs 3,000 crore. While no overall estimates of the investment of Apple (the company does not manufacture themselves unlike Samsung) and its vendors are available, ICEA (India Cellular and Electronics Association) executives say that the three vendors have already put in more than Rs 10,000 crore. And if the ecosystem, which includes the Tata investment in mechanics and a brand new iPhone plant, is taken into consideration, the aggregate would be over Rs 25,000 crore ($2.97 billion), still a long way off from Samsung. And Foxconn, the largest player, has promised to invest an additional $2 billion in India. Apple vendors have 15 factories to support them while Samsung has 28 factories of its own in Vietnam.

  In India, the big contentious issues are the uncertainty of the tax laws and changing tariffs leading to lack of stability required for making fresh. “The frequent tax changes do not make any difference if one is not exporting but selling only in the domestic market, as you can pass on the increase to customers. But that is not possible when you export, it plays havoc on assemblers and component makers. It’s a big minus,” said a top executive of a mobile firm.

  Also the incentives of 4-6 per cent under the PLI scheme does not neutralize the cost disadvantage of making phones in India vis-a-vis Vietnam, which still remain 7-9 per cent. And one key reason is high tariffs on imported electronic components. The FTA weighted average tariffs of Vietnam is a mere 0.7 per cent compared to 6.2 per cent in India. And mind you, 80 per cent of Vietnam’s electronic imports are from countries with which it has an FTA compared to 25 per cent of India, according to an ICEA study for the government.

  Most firms that work in both countries point out that the ease of doing business in Vietnam is at a different level. There is a taskforce comprising officials from all key ministries to take care and resolve all issues related to Samsung. “All big global investors meet the Prime Minister every month. That is the level of interactions,” said one of the global players. 

Samsung’s other big success has been to integrate Vietnamese firms in their global supply chain. That clearly helps in improving efficiency, ensuring quality, saving costs, and increasing local value addition. For instance, the Koreans have been able to bring on board over 306 Vietnamese Tier-I and Tier-II suppliers and make them part of their global suppliers list. The number was 25 in 2014, and the increase has been 12-fold. And, according to estimates, there are now 52 Tier-I suppliers in the list compared to 4 in 2014.

  In contrast, the Apple  has a long way to go. Its global suppliers’ list has only 13 companies in India. Of them, only one is an Indian company — Tata Electronics — and six to seven are Chinese players, which, if the current FDI policy continues, will not be able to expand capacity. Apple is, of course, pressing the pedal here — it is in advanced negotiations with more homegrown companies to expand the list. These companies include automaker Motherson group and Karnataka-based Aequs. It is also looking at non-Chinese players like Jabil and Flextronics for partnerships.

  The challenge for the Apple  has been accentuated by the fact that, unlike in Vietnam, a government FDI rule has been baulking at giving clearance to Chinese global manufacturers to set operations in India on their own or through JVs since the Galwan border clashes.

  On the other hand, Vietnam has been encouraging Chinese component players to come into the country to hedge their bets either on their own or through JVs.

  Bulk of the global suppliers for Apple are Chinese players that offer far attractive price and quality compared to other competing country sources. Yet, this road is not available to Apple in India. Apple has had to take the more difficult route, which they had not envisaged when they signed up for India before Galwan clashes — take time and build Indian vendors, or go for non-Chinese partners.

  It could slow down the pace of Apple’s growth. But the recent thaw in the Indo-China relationship could be a big kick-up for Apple.

  The other question is how much of its iPhone production does CEO Tim Cook want to shift from China to India. Unlike Samsung,  Cook recently visited the country  and announced they will increase investments. 

For Cook, China is still their dominant production hub and a huge domestic market. In India, Apple might have hit impressive revenues of over $6.9 billion from domestic sales in FY24, but that pales into insignificance when compared with China’s figure, which is more than 10 times bigger.

  The other pushback could be insistence on value addition — a sticky point for the government, which had expected that Apple would be able to hit 35 per cent to 40 per cent by the end of PLI. 

  That, most analysts say, is an impossible target.

 

After all, building a local supply chain takes time. And in the initial phase, just like in China, scaling up is the name of the game which, while increasing the import bill initially, will reduce cost of production and make it attractive for companies to make components in the country, after which the import bill will also come down. The ball is clearly in the government’s court.