March 30, 2023

The process of supply chain decoupling from Apple and China is acceleratewith the iPhone maker pressuring its partners to open a store elsewhere.

The technical industry walks the Silk Road

While there are other major players, Hon Hai Precision Industry/Foxconn is Apple’s largest partner as of now plans to invest $700 million in a new factory in India to boost production there.

This will be built on a huge 300-hectare site near the airport in Bengaluru, Karnataka and should create around 100,000 jobs. In contrast, Apple’s main iPhone factory in China currently employs 200,000 people. Foxconn has also committed to another plant in a neighboring state.

The new facility means India may produce 10% to 15% of the world’s iPhones. Given previous reports setting that target at 25%, you expect more from this type of investment. Apple’s contract manufacturers are already exporting for more than $2.5 billion in iPhones from India.

That decision follows literally dozens of accounts from Apple’s partners set up shop in Indiayears of work on Apple’s part to get business going in the country, and the appearance of some big names from the Indian manufacturing industry in Apple’s supply chain.

Apple insists on this

Most manufacturers don’t put all their eggs in India’s basket. Foxconn recently announced a $300 million investment in Vietnamjust like AirPod maker GoerTek.

“We receive requests from our customers almost every month. ‘Do you have any plans to expand to India?’” GoerTek Vice Chairman Kazuyoshi Yoshinaga said.

Although the name of the customer is not mentioned, it is not difficult to speculate on the identity given the rapid news from Apple’s supply chain to India.

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I’ve been following Apple’s India journey from the beginning. The nation has a lot to offer – but there are too numerous challenges to overcome before realizing Apple’s ambition to secure its supply chain based on Indian manufacturing.

Challenges and opportunities

There are challenges ahead. India is bureaucratic complexand while the government has made major changes In recent years, regional problems persist.

Traditionally, this has hindered the evolution of manufacturing, although India offers financial incentives to entice major manufacturers to move there.

Can it become a powerhouse in the tech industry? India has many advantages.

India is one Anglophone Democracy that has traditionally been friendly to the West not eternally in sync. And while English is the primary language, so is the country dozens of additional languages in use and a caste-based class system to challenge diversity and management goals.

It also has one large populationwith another big advantage — the population trends young. That is important, as so many countries – including China – are now grappling with problems created by aging demographics. from China National Bureau of Statistics tells us that the country’s population will drop by 850,000 by 2022. The point is that as the number of people available decreases, the the cost of hiring them is rising. And that’s before you consider the disastrous human cost of COVID-19 to the nation.

Regional complexities

Apple and its partners face another challenge: the Indian pricing system. Not every part will or can even be made in India, and finding a fair solution for tariffs poses an additional challengeespecially if you zoom in on regional arrangements.

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Infrastructure – energy, communications, roads and railways – is also possible pose a challengeespecially when intra-regional rivalry gets in the way.

An Apple partner may want to build a road between two regions and is even willing to pay for it. But without permits the project will not proceed. This may be why Foxconn is locating its new factory near the airport.

Education for everyone?

We know that India has a great education system. Just look at the list of CEOs of Indian descentincluding Sundar Pichai at Alphabet and Satya Nadella at Microsoft. You really don’t have to dig deep to find high-ranking, highly effective leaders – but factories not only need leaders, they also need skilled workers.

The problem is that, unlike in China, access to education in India is not evenly distributed. Compare literacy rates: 74% in India versus around 97% in China.

In other words, Apple’s supply chain will have to raise a boat or two to find the quality and quantity of employees it needs. I expect this will require a combination of deep investment in quality on-site training for employees and their familiessupplemented with extended production line automation.

Quality control

Apple customers are critical. They expect and receive high-quality devices. We know Apple takes quality control seriously.

Early in the pandemic, we learned that the company was sending staff to China at a rate of about 50 flights a day maintain quality control. A more recent one Bloomberg report saw a manufacturer complain that iPhone production required 12 times as many quality control personnel as opposed to Android.

Raising standards while Apple and its supply chain do business in India clearly poses problems. That big fire at Foxlink was discovered recently failures in fire control systems, which got out of hand. We also heard reports that Apple had to refuse almost half of the production from one partner in India for not meeting standards.

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Since the pandemic, some quality control systems may also have been replaced by automation, telepresence and remote collaboration systems. I predict that these challenges in India will be partly solved by more automation. Foxconn already operates and has operated so-called “lights out” plants have won awards for this.

What’s next?

So, can Apple or any other tech company successfully base production in India?

As I’ve explained here, I think it will eventually get there. I also suspect that one of the reasons Apple wants to establish a critical mass of its manufacturing partners there is so that it can gain a stronger voice as a group in dealing with administrative and bureaucratic challenges.

I have no doubt that the nation will also benefit from Apple’s investments, from clean energy production to advanced manufacturing support. (As I write this, Apple in India announced a plan to improve water management in Bengalaru with NGO Frank Water.)

This shows that even despite the complexities of migrating its supply chain to a new continent, Apple is not about to give up on its effort to build a 100% carbon neutral supply chain. But it’s going to take time, dedication, and a lot of lateral thinking until that chain navigates to where it’s going.

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