India looks to move up tech value chain with iPhone factory deal

As a symbol of India’s climb up the industrial value chain, it has been strong: Apple recently announce It started assembling its iPhone 14 in India, just weeks after the launch of its latest model.

Two people familiar with the US company’s clandestine operations said that three Taiwanese companies already working for Apple in India – Foxconn, Pegatron and Western – would combine 14 at their locations in the south of the country.

Apple did not provide any details of its operations in India, other than to say that it is “excited” to make the new phone in India. But JP Morgan He said In a recent research note, Apple said Apple could manufacture one in four of its iPhones and other devices in India by 2025, as lockdowns and Covid-19 geopolitical friction have pushed it to diversify away from China.

Speaking to the Financial Times a few days later, Ashwini Vaishnau, India’s minister of railways and information technology, said the country’s government was “actively encouraging and supporting” Apple’s investment and efforts to build a supply chain in India. He also emphasized that, at least to start, iPhone operations in India will largely be an assembly – presumably based mostly on imported components.

“All industries start with product assembly,” Vaishnau said. “In the next stage — two to four years — this goes even deeper, when components and modules begin to be manufactured and an entire local ecosystem is created.”

If this happens in reality, it will fulfill a long-standing political ambition of the Narendra Modi government, which wants to boost Indian industrialization to the point where it results in 25 percent of GDP by 2025, up from just 15 percent now.

The government’s goal, backed by incentives for investors in sectors such as electronics and pharmaceuticals, is to create new jobs, boost India’s exports and reduce technology imports, largely from China, that are helping to fuel the current account deficit.

Vishnau and other officials are confident that a golden moment has come for India, when multinational manufacturers hedge their dependence on China. A person familiar with the prime minister’s thinking said, since the start of his first term in 2014, “Modi trained on the fact that India did not industrialize.”

India is not alone in seeking to acquire some of China’s business: vietnam, Also, it is already garnering investment from Apple and others to diversify its supply bases in what policy makers and consultants are calling a “China Plus One” push. India’s unique selling point is its huge domestic market – even if most consumers are still buying cheap Chinese Android devices instead of Apple’s iPhones.

Still, persuading component suppliers to take root, Vaishnau says, will be critical to achieving India’s goals — as well as ensuring investors like Foxconn survive even after government incentives run out.

Some are already warning that India’s ambitions may be constrained by policymakers. protectionism instincts.

“The Indian approach to supply chains is that the entire supply chain should be in India and ideally managed by Indians,” says Mihir Sharma, director of the Observer Research Foundation, a think-tank. “But other countries in China plus one like Vietnam would say, ‘Let’s identify the parts of the supply chain where we have an advantage,’ and then focus on them.”

Sharma said India’s efforts to develop a viable supply chain for iPhones could also falter, due to the government’s tensions with China, which produces many of the components that go into it. Against the backdrop of a very serious border dispute and a deep mistrust of Beijing in New Delhi, the Indian authorities have done it forbidden Chinese apps and Regulatory actions have been taken against Chinese mobile phone makers.

“If the goal is to reduce dependence on China, that does not align well with creating a manufacturing sector here,” Sharma said. “You’re entering into a supply chain that is already dominated by China.”

Indians wonder if their suppliers will be able to come forward. Ashish Dhawan, CEO of the Convergence Foundation, a non-profit group focused on economic development issues, points out that India has a positive precedent in the auto industry. Early producers such as Maruti Suzuki began assembling cars from imported parts, then built deep supply chains and a large, viable industry with painstakingly deep roots.

“The whole value chain came to India and then became competitive,” he says. “But it takes time.”

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