Author(s): Raghu Gopal
This week, Foxconn, the largest assembler of Apple products, announced that it will begin mass-producing flagship iPhones in India. Until now, Apple has only built the lower-cost iPhone SE and 6s models in India through Wistron in Bengaluru. The announcement means that Foxconn will now assemble the most expensive models, such as the flagship iPhone X family, potentially taking Apple's business in India to a new level.
Foxconn has focussed the major portion of its activities on China because the country provides an inexpensive source of labour for smartphone manufacturing as well as a large market for the phones it produces. However, in recent years, the Chinese smartphone market has stagnated, hitting sales of Apple devices particularly hard. Customers have been holding onto their devices longer and many people in China are attracted by local smartphone brands like Huawei, Oppo and Vivo.
The desire to build a presence in India is clear. The country has the fastest-growing smartphone market in the world, and Apple has almost nowhere to go but up. Indians bought more than 135 million smartphones in 2018, but only a tiny share of them were iPhones, as consumers favoured less-expensive models, mainly from Chinese manufacturers such as Xiaomi that offer value for money. Apple isn't looking to become a low-cost brand and the premium market in India is a thin, top layer of the market.
Apple hasn't been able to compete with brands like OnePlus in India, which deliver similar features to iPhones at half their prices. The move to manufacture in India will help Foxconn avoid the 20% import duty that's levied on phones made outside India, and only assembled there from parts sourced from China. Foxconn's move will also help Apple open retail stores in India. As part of the government's Make in India initiative, Apple needs to meet a rule that says a company must source 30% of its materials locally to be able to open its own retail shops. Until now, Apple has depended on local partners to sell its phones, so by manufacturing in India, it will be able to boost its retail push there.
Amid ongoing trade tensions between China and the US, shifting more of Apple's manufacturing operation away from China to local facilities in India allows it to diversify its logistics risks. iPhones made in India will provide Apple with a production path for the future — the company wants to avoid having all its eggs in one basket. In addition to India, Apple is also looking to set up manufacturing lines in Vietnam.