Apple’s release this month of its iPhone 16, new Apple Watch, and AirPods, is creating a buzz among consumers. This year’s lineup also marks something else that’s new — the role India played in Apple’s global rollout as a manufacturer of the iPhone Pro for the first time.

That milestone comes as global corporations are seeking to diversify their production away from China and as competition between the two Asian rivals heats up, analysts say.

Apple first began making iPhones in India in 2017, beginning with the iPhone SE. The move signaled Apple’s intent to diversify its supply chains away from China, a move that other tech conglomerates, such as Microsoft and Amazon, made as well, shifting manufacturing away from China to countries such as India and Vietnam.

Foxconn expands to India

Apple’s supply chain diversification gained steam during the COVID-19 pandemic when a Foxconn factory unexpectedly closed in China, following clashes between Chinese workers and security personnel over wages and Beijing’s strict COVID lockdowns, which impacted factory operations.

Foxconn is Apple’s largest contractor and produces more than two-thirds of Apple’s iPhones, according to Thibault Denamiel, an associate fellow and Scholl Chair in International Business at the Center for Strategic and International Studies.

According to Denamiel, the Taiwan-based contractor currently produces around 80% of its iPhones in Zhengzhou, known as “iPhone City,” and recently opened a new $138 million headquarters in China. However, it has also expanded its operations abroad with significant investments in manufacturing hubs in India.

In 2023, Foxconn made a $1.5 billion investment in the southern Indian state of Tamil Nadu, built a $600 million plant in Karnataka, and built a $500 million plant in Telangana. These investments were made in preparation for the assembly of the new iPhone 16 lineup.

Multinational welcome mat

Jonathan Ward, a senior fellow at the Hudson Institute, noted that India has been receptive to investments and promoted efforts to attract business from large multinational companies.

“It remains a huge opportunity for them [India] and there have been strategic initiatives such as Sagar Mala and Make it India, in particular, that show, I think a directional desire to gain from this opportunity,” he explained to VOA.

New Delhi has offered subsidies to companies in order to boost the manufacturing of IT hardware domestically under India’s PLI 2.0 Scheme for IT Hardware. Foxconn is one of the companies that received benefits from these subsidies, which include revenue-based annual payouts to manufacturers.

Monish Tourangbam, director at the Kalinga Institute of Indo-Pacific Studies, said India possesses several key advantages as it seeks to expand its manufacturing sector. He said India has political predictability, an appetite for structural economic reforms, a competitive level of market forces and domestic consumption.

‘Entering the game’

However, Tourangbam said India lags behind China in terms of labor skills and maturity, as Beijing has a long history of mass producing high quality electronic goods.

“Yes, in India’s case you have a very big demographic dividend, a young workforce, but that young workforce has to be skilled in the right way,” he told VOA. “India is entering the game right now, but the Chinese have a longer experience of a workforce which is required for this kind of job [producing electronics] and I think we are just seeing the beginning of this.”

Ward agreed but added there is a big gap between India and China’s manufacturing experience.

“At this point, China has spent 30 years building an enormous industrial base, which is larger than that of the United States, and they’ve invested very specifically in key strategic industries and have become a critical part of today’s electronic supply chain,” he said. “Whereas India has not done that, it does not have that history, and … therefore the workforce, services, all of that … has been, I think, built accordingly.”

Ward said that even though India may be behind China in terms of their industrial base, companies’ fear of geopolitical risks with China “bode well for India’s future.”

“The geopolitical risks of commercial engagement with China or China-based supply chains are becoming so large that both at a government level and at a national strategic level as well as at a corporate level, people have to go and look for future manufacturing opportunities, particularly in electronics, because that’s where the bulk of China’s trading value is concentrated,” he said.

Denamiel also said geopolitical factors will play a role as to where companies will decide to manufacture.

“Geopolitical factors play an increasingly large role on where companies choose to invest – because their ability to grow their operations and access customers is increasingly tied to geopolitical developments, which are currently complicating the global trade landscape,” he said in an email to VOA.

Tourangbam said geopolitical factors will be included in companies’ manufacturing strategies. But he said companies’ diversification should not be thought of as leaving China, but rather as a “China plus one strategy.”

“It’s not … we are finding this alternative like India and Vietnam, we are totally moving out of China,” he said. “A lot of headlines seem to make it like that, but I don’t think that’s the case. So it’s a China plus one and not a minus China strategy.”

Source: voanews.com