Inside Apple’s India dream
Tech giant aims to move at least 20% of iPhone production to India as it accelerates away from China
TAIPEI/CHENNAI — Kevin, a senior manager at an iPhone assembly plant in the Indian city of Chennai, gets up before sunrise at his dormitory. He clocks in for work before 6 a.m., and most of his day is spent in hours of video conferencing with colleagues in China, usually finishing at 10 p.m.
In the year that Kevin moved to India from China, he has barely had a day off, nor does he have time to socialize with his colleagues. Indeed, he rarely leaves the factory complex.
Apple’s suppliers in India, including Kevin’s company, which makes the new iPhone 15 series, are being asked to make over 15 million iPhones in India this year — more than double the goal a year ago, Nikkei Asia has learned. It is all part of a tectonic shift in Apple’s manufacturing supply chains.
For Kevin, that means hitting several ambitious targets in time for a key product launch this autumn, as Apple tries to produce iPhones simultaneously in India and China. It once took one year longer to produce a new iPhone in India than in China, but the gap was reduced to around a month in 2022. The target this year is to narrow that to less than 10 days.
“Every day we have many meetings with our colleagues in China,” Kevin — who originally hails from Taiwan — told Nikkei Asia, on condition of using a pseudonym due to the sensitivity of the matter.
“We try to synchronize the production information we get in China to India so we can improve our work here,” he said. “And we are indeed improving.”
Expanding production in India is a massive strategic undertaking for Apple, not to mention for the hundreds of companies that make parts for Apple iPhones. Many, like Kevin’s employer, are expected to relocate on Apple’s whims.
For years, China had been the stable bedrock of slick Apple production. More than 80% of Apple’s top 188 suppliers have at least one manufacturing facility in China, a Nikkei analysis shows.
Meanwhile, China has accounted for more than 95% of global iPhone production since the handset was launched in 2007, according to Nikkei’s supply chain analysis.
“Apple and China … grew together, so this has been a symbiotic kind of relationship,” said Apple chief executive Tim Cook during a visit to China in March.
But the era of exclusive dependence on China is ending — both for political and commercial reasons. Earlier in 2023, Apple told suppliers to prepare to build at least 20% of total iPhone annual production in India in the coming years, sources briefed on the matter told Nikkei. The proportion currently stands at less than 10%.
Apple wants to broaden and deepen production in India, where it is currently weighted more toward routine tasks like assembly. Rather than snapping together already finished components in India, Apple plans to make more intermediate parts, such as metal casings, in the country.
Most important of all, Apple wants to bring crucial new iPhone product development resources to India from China. That involves thousands of engineers and the establishment of numerous new laboratories.
The longtime Apple formula of “designed in California, assembled in China” has faced unprecedented challenges with the twin crises of the COVID-19 pandemic and ongoing tensions between the U.S. and China. U.S.-China technology sector “decoupling” has seen U.S. sanctions against Chinese companies enforced since 2018. The resultant uncertainty has pressured the tech industry, including Apple, to diversify its manufacturing base to other countries.
Apple’s shift to India parallels U.S. diplomatic overtures to New Delhi, in which technology plays a key role. For example, when U.S. President Joe Biden met Indian Prime Minister Narendra Modi on June 22, they jointly announced building “an even stronger, diverse U.S.-India partnership.” A memorandum of understanding on semiconductor supply chain collaboration and critical mineral supply chains was also signed.
Politics are key to the current shifts. “We know that U.S.-China relations are not that great and India-China relations are also not that great,” said Prachir Singh, an India-based analyst with Counterpoint, a global market research company. “Apple is hedging its geopolitical risks [by] creating parallel manufacturing units in other countries, including Vietnam and India.”
But Apple has its own reasons for seeking to reduce its dependence on Chinese supply chains. A top concern is unrest at Apple’s production hub of Zhengzhou in October — the result of a COVID-19 outbreak — according to several executives with knowledge of Apple’s decision-making.
Another factor favoring manufacturing investment in India is the crowding out of alternative destinations like Vietnam and Thailand, usually the first beachheads for tech manufacturers seeking to move production out of China. In these countries, the costs of land, water and electricity have been rising recently, and supply chain companies must think twice about investing. India, with its huge population, relatively low wages, large land mass and good English skills, is an obvious alternative to consider.
Then there is India’s massive market. Deloitte, a financial consultancy, projects that India will have 1 billion smartphone users by 2026, making it the largest market after China. India’s government sees access to this market as leverage to entice Apple to make more locally, improving the reputation of India’s manufacturing sector with the coveted “Apple supplier” accolade.
“India’s attractiveness includes its massive market, cheap labor and government incentives,” said Counterpoint’s Singh. “We recognize we will see a significant shift over here.”
But Apple’s India move is taking place against the backdrop of a complicated bargaining process, and New Delhi is taking steps to ensure Indian companies get lucrative roles in the process.
“India stands to benefit greatly from the U.S. and other countries’ interests in de-risking from China, and shifting supply chains to other places,” said Lisa Curtis, director of the Indo-Pacific security program at the Center for a New American Security (CNAS) and a former U.S. official.
‘Apple freaked out’
Several people close to Apple’s decision-makers said the catalyst for its move toward India was the unrest in Zhengzhou, home to the company’s largest iPhone assembly hub and its most important single production site in the world. In October, a COVID-19 outbreak at Foxconn plants there, and the quarantine measures that followed, sparked protests among workers. Production was disrupted for more than a month at the most critical time of the year — the shopping season leading up to Christmas.
Protesters smashed windows, turned over police cars and clashed with quarantine personnel in hazmat suits. Police in riot gear had to be called in to quell the disturbance.
“Apple freaked out — we all freaked out. No one saw it coming and there was no immediate alternative elsewhere,” recalled an executive at one iPhone assembly company where production was affected.
At one point, witnesses reported bags of garbage piled up to the second story at the iPhone production site and debris from windows broken during protests on the ground. Demands to end quarantining gave way to calls for better conditions and more pay. Apple even issued a rare press statement, saying the facility was operating at “significantly reduced capacity.”
The Zhengzhou incident made clear to Apple executives that the docile workforce and efficient plants they have counted on for two decades can no longer be guaranteed. Apple decided it would need to move more of the iPhone supply chain out of China, just as India was coming into view as the alternative.
“The situation was much worse than the onset of the pandemic — much worse than the Shanghai lockdown. This was the biggest crisis ever,” a supply chain executive told Nikkei.
Jeff Williams, Apple’s chief operating officer, participated in urgent meetings with suppliers to discuss the situation in Zhengzhou, said several people with knowledge of the matter.
In light of the supply chain turmoil, Foxconn quickly gathered a task force of roughly a dozen employees and sent them to India. Apple also sent experienced staff who oversee device production. Both groups arrived in India last autumn in an effort to jump-start production there, an executive with direct knowledge of the trip told Nikkei.
By January, progress in India had already exceeded expectations.
“What we did not expect was that the Zhengzhou shocks have actually helped us make progress with India-made iPhones,” the aforementioned executive told Nikkei.
Neither Apple nor Foxconn responded to Nikkei’s requests to comment on this story.
End of an era
But the decision to move to India does not rest solely with Apple. Hundreds of suppliers make the roughly 1,500 components that go into an iPhone, and the decisions of these suppliers are crucial to the success of the move. Everything from battery packs, screens, casings and assembly are all done by third parties, who must build new capacity in India or ship their products from elsewhere for assembly if the plan is to succeed.
Companies that covet their status as Apple suppliers and are quite used to moving whenever and wherever Apple says have faced some of their biggest challenges yet in moving to India, seriously testing loyalty to their primary customer.
Negotiations between Apple and its suppliers have been prolonged and not always pleasant, according to Nikkei interviews with multiple executives. Apple has asked suppliers to keep prices of components made in India the same as those made in China, despite additional logistics and tariff costs. There is also the massive challenge of setting up plants in an unfamiliar environment. In some cases, suppliers have balked at these challenges.
“Even if labor costs in new locations such as Vietnam or India are lower than in China, to produce in a new location, the cost is definitely much higher in the first few years,” Gary Cheng, co-CEO of Taiwanese electronics manufacturer Pegatron, recently said at a supply chain forum in Taipei. “There are so many hidden costs from logistics, talent training and the operational efficiency points of view.”
“Two decades ago, we were moving from Taiwan to China,” Cheng said. “At least the language was the same and the culture similar, but this time it’s a complete change, not only in cultures and regulations. Even the tools local employees use need to be adjusted because the size of their hands [is] different from our staff in China.”
Other executives confirmed the difficulties of the new environment. Different Indian states have their own policies, regulations and even languages. “Suppliers told us that operating and communicating with different states is like dealing with different foreign countries,” said Kristy Tsun-Tzu Hsu, director of the Taiwan ASEAN Studies Center at Chung-Hua Institution for Economic Research (CIER).
An Apple supplier executive told Nikkei that finding one translator for each facility is often not enough. Three assistants speaking different languages were needed for an Indian manager at one plant to communicate effectively with everyone working there.
Another problem is visas. The issue is exacerbated by fraught relations between China and India relating to an ongoing border dispute in the Himalayas that turned violent in 2020. Engineers and managers of many non-China suppliers are Chinese, and they found it hard to obtain visas.
“We’ve spent months but could not get the visas for our Chinese employees,” said one supply chain executive. They brought up the issue with high-ranking Indian officials, and the officials then made an exception for Apple suppliers with a special class of visa.
“It is also taking very long to help our Indian employees to get a Chinese visa for training in China,” the executive said.
Nikkei reached out for comment to India’s Ministry of External Affairs and Rajeev Chandrasekhar, India’s minister of state for electronics and information technology, but received no response.
Investments have been delayed, and sometimes prevented, by the tensions. Luxshare Precision Industry, China’s preeminent electronics supplier, last summer tried to acquire smaller iPhone assembly plants in Bengaluru owned by Taiwan’s Wistron, but the bid failed, according to multiple sources familiar with the matter.
It emerged that Luxshare’s Indian rival Tata Group also wanted to bid, according to one Luxshare employee with direct knowledge. An Indian government policy to increase scrutiny of foreign investment from China started in 2020 after the border clash, and that may also have played a role.
“We almost had the deal,” said the Luxshare source. “But what can we do about it? We’ve been told the only way for us — a Chinese supplier — to get into the country now is through a joint venture with local companies. Now we just have to wait and see what Apple want us to do.”
Tata and Wistron declined Nikkei’s requests for comment on the deal. Luxshare did not respond to the request.
Meanwhile, in an effort to cultivate a local supply chain — a goal encouraged by the Indian government — Apple began allocating some orders for iPhone metal casing frames, which require precision manufacturing, to Tata. Normally such orders would only go to proven suppliers with years of experience, who have gradually worked their way up. Tata was not even among Apple’s top 200 suppliers, but it is one of India’s biggest and most politically connected companies.
Tata has been producing the metal frames for four years, but its performance is still unsatisfactory, according to a supplier executive who has done business with the company. Yet, the rise of Tata is in line with Apple’s usual strategy to nurture the local supply chain — as it did in China — and the Indian company’s entry into the Apple supply chain meets New Delhi’s ambition to elevate their electronics manufacturing capability, analysts and industry executives say.
Singh of Counterpoint said India wants to attract big global tech titans and their suppliers, and more importantly to nurture national champions to upgrade the value chain and transform the Indian economy. “We expect more Indian local companies like Tata will gradually play more roles in the Apple supply chain,” he told Nikkei.
The real prize
In April, Tim Cook traveled to India to open Apple’s first two retail stores in Mumbai and Delhi in the same week. Cook’s presence showed that in addition to diversifying supply chains, Apple also wants better access to India’s immense market.
Moving manufacturing to India has also been a strategy adopted by China’s Xiaomi, Oppo and Vivo in their efforts to lower costs and bypass the tariffs India applies to imported phones. That was all part of the Make in India campaign introduced in 2014 by Modi to encourage more local manufacturing.
Apple reckons that by pursuing the same strategy, it will have better access to the market there, more goodwill from the government, and ultimately reduce its reliance on China.
Meanwhile, the sales of top Chinese smartphones have suffered amid the border tensions, opening up a vacuum in the market. Xiaomi, which became India’s biggest handset maker in 2018, was accused of allegedly violating the country’s Foreign Exchange Management Act and tax regulations in 2022. Its market share had dropped to fourth place by shipment in the first quarter of 2023, according to Canalys, an IT and high technology advisory company.
While Samsung is now India’s smartphone market leader, Apple is poised to take a slice out of that. Runar Bjorhovde, an analyst at Canalys, said Apple ranks seventh in India by shipments — already a significant volume given the iPhone’s price is much higher than most of its peers.
“With the economy improving in India, and with more tech investment going into India, we will probably see a similar socioeconomic change there as we’ve seen in China over the last two to two and half decades,” Bjorhovde said. “That could give these smartphone makers great growth catalysts if they have access to the market just like what they did in China in the past.”
Made in India
At a government-owned industrial park in Sriperumbudur, a manufacturing zone about 30 kilometers from the southern Indian city of Chennai in Tamil Nadu, a new era in Indian manufacturing has begun.
Taiwanese contract manufacturer Foxconn, formally known as Hon Hai Precision Industry, occupies about 170 acres (68 hectares), making it the second-biggest campus in the park, among neighbors like Saint Gobain, Hyundai and Flex. No glitzy signs tower over its plant, making it easy to miss by anyone not paying attention.
Tens of thousands of workers at Foxconn’s Sriperumbudur factory are at the heart of Apple’s plans to manufacture iPhones in India. Working three 8-hour shifts from 6 a.m., they come in buses from hostels that are as far as 30 km from the factory, run by employment agencies contracted by Foxconn.
The Indian government in 2019 introduced several incentives to support its National Policy on Electronics, aiming to attract more tech investments. Some of those incentives are detailed in a table at the end of this story. The government’s goal is to build 1 billion smartphones domestically by 2025.
Foxconn continues to invest in China but has announced an investment in Bengaluru. It is also looking for a third site in India, following its capacity expansion close to Chennai, Nikkei has learned. The company is also believed to be planning to invest in production capacity for iPhone metal casings.
Despite the new interest in India, Vietnam is still the most popular country outside China to build up an electronics supply chain ecosystem, and has so far attracted the bulk of Apple’s non-China manufacturing investment. Twenty-five Apple suppliers have already set up production facilities to handle materials, components, modules and assembly. There were only 14 in 2017, according to a Nikkei analysis of the latest Apple supply chain disclosure.
The number of suppliers in India grew quickly to 14 by 2022, up from four in 2017, but unlike in Vietnam, they operate at lower levels of technology, manufacturing and assembly, and package components made elsewhere. There are still relatively few component and electronics module makers, Nikkei analysis found.
Hsu of CIER said it will take India longer than Southeast Asia to build an electronics supply chain.
“Tech suppliers took 20 to 25 years to build a mature, complete information technology supply chain in China,” Hsu said. “Suppliers also went to Vietnam in the mid-2000s after the country joined the WTO, which is more than 15 years ago. India was not part of the global electronics supply chain before and it only joined it in recent years. The infrastructure is not yet ready, and still needs some time to build.”
But Sudheer Narayan, a Mumbai-based partner of Bain & Co., a consultancy company, told Nikkei that all the necessary pieces of the puzzle — domestic demand, government incentives and investments by major companies — are in place for India to emerge as the next electronics manufacturing hub.
India’s global share in smartphone production is rapidly increasing, with 19% of global handset manufacturing in 2023, according to a forecast by Counterpoint, up from 10% in 2017. China’s share is expected to drop to 63% this year compared to 73% in 2017, before the U.S.-China tech war.
“India’s domestic electronics production is expected to grow rapidly at a 30% compound annual growth rate in the next five years to reach $400 billion,” Narayan said. “India will scale beyond just assembling the end-devices to improve upstream value addition, including device design.”
Chaney Ho, a director of tech company Advantech with decades of industry experience, said he believes in the potential of India to become another global tech manufacturing powerhouse due to its massive market size — bigger than China — and its labor resources.
“Vietnam and Thailand are ahead of India at the moment, but looking in the long term, India is a very good place to develop,” Ho said.
Geopolitics in India’s favor
Ultimately, the Apple dream for the Indian market is not just to increase market share and increase production, but to make it a sustainable alternative to China, several Apple supplier executives believe. Apple will allocate the so-called New Product Introduction (NPI) of iPhones to India in the coming years, people with direct knowledge told Nikkei.
NPI is the most important part of launching new electronic goods. It involves close collaboration between brands and suppliers, jointly developing a product from the drawing board to the factory with all the testing and verifying that this entails.
For more than a decade, iPhone NPIs were done by close cooperation between Apple’s research and development team in Cupertino, California, and suppliers’ R&D teams in China. Bringing NPI resources to India is a major step in technology development.
“NPI requires thousands of engineers, technicians, lab investments, equipment investments and countless amounts of testing,” one of the people directly involved in the plan told Nikkei. “It represents the technology prowess of a product, and Apple wants to do it in India. We can do ‘copy and paste’ to increase iPhone output in India, but what’s more important is the capability of NPI in a new country.”
“In the years to come, we will see an iPhone that is codesigned in India,” another person closely involved said.
Curtis of CNAS said it is not only the U.S. that is looking to India to de-risk from the Chinese tech supply chain. Other countries will follow suit, including Japan, Australia and South Korea, which will likely look more and more toward India.
But India still needs to prove to the world that it can be an ideal destination to house the epic supply chain shift.
“India itself will have to become competitive in terms of the economic investment environment even though it has all the geopolitical aspects in its favor,” Curtis said.