For several years Apple is mulling shifting its production outside China. The trade war between U.S.-China and the coronavirus outbreak seems to have forced Apple to think about decentralizing its supply chain. The Cupertino company was looking towards establishing a supply chain in India. However, Apple was dismayed with the results and seems to have put India plans on the backburner. An extensive report by TheInformation sheds light on Apple’s quest for setting up a supply chain in India.
Apple knew that its reliance on China was not healthy. As the trade war with China escalated, Apple started looking out for setting up the supply chain in countries other than China. In this case, Apple either had to absorb the increase in price due to newly imposed tariffs or pass it on to customers. Either way, it would eat into companies’ profit. Now the coronavirus outbreak has further dampened Apple’s prospects as many factories in China are shut down. Apple also went on to say that it will miss revenue guidance for Q1 2020.
Stepping into India
Apple started out in India by assembling older models like the iPhone SE and now the iPhone 7. The assembly of older iPhone models in India was assigned to Taiwanese supplier Wistron. In 2019 Foxconn agreed to assemble iPhone XR in a factory situated on the outskirts of Chennai, India. Even after a year most of the parts needed for iPhone XR assembly are still procured from China. Whereas Indian suppliers are mostly tasked with packing materials, batteries, and phone chargers.
Apple’s India plan seems to have not gotten too far. The company has 135 suppliers operating in China as opposed to just 7 in India.
The Cupertino company cites a slew of challenges that stopped it from ramping up production in India. Apparently it realized that the manufacturing sector in India was underdeveloped as opposed to China. Furthermore, bureaucratic hurdles and protectionist trade policies further played spoilsport. According to the report, a majority of smartphone component manufacturers in India have Asian or European roots.
The report also mentions how India has failed repeatedly when it comes to establishing a smartphone manufacturing ecosystem. Nokia had set up a manufacturing plant in Chennai and had lured many foreign component makers. However, in 2014 the company closed its plant amidst a tax dispute with the Indian government.
Smaller suppliers have an interesting perspective. They claim that the government offers incentives to larger suppliers like Foxconn while smaller component manufacturers don’t receive any support. That apart, Apple is not doing a great job when it comes to convincing suppliers about moving to India.
What next for Apple in India?
Apple has had its own share of problems in India, especially with the Indian government. In the past, it has absorbed additional tariff that was imposed on printed circuit boards with chips. Adding salt to the injury, the Indian Government is apparently thinking of increasing tax on PCB-A’s.
Despite all the bottlenecks, Apple is continuing to assemble the iPhone in India. The local manufacturing has allowed the company to cut back on the cost due to import tariffs. Lastly, the first Apple Store in India is expected to be opened by the end of 2020.[via TheInformation]