If you haven’t noticed, there has been an evolving shift in manufacturing trends over the last two years. In part, this reflects the setbacks in supply chain operations related to the pandemic. But this isn’t the only factor encouraging change. In fact, foreign relations and risks linked to a lack of diversification also are playing role. Understanding this, it’s perhaps not too surprising that Apple is making moves for its iPhone 14 production in India. Instead of relying on China, the company is hoping to mitigate potential future setbacks. Thus, Apple manufacturing in India reflects a pattern that many companies are considering as of late.
For many years, China has been the go-to place for manufacturing operations. Inexpensive labor with skilled workers has led to an increasing number of firms adopting outsourcing strategies there. In this regard, Apple has been no different. But the company now finds itself in the middle of several political developments that impose potential risks. Plus, choosing iPhone 14 production in India offers the opportunity to make gains in low-penetration markets. The recent announcements related to Apple’s decision regarding its iPhone 14 are just a hint of what’s to come. And on a larger scale, it is likely that other manufacturers beyond electronics may follow suit.
“The new iPhone 14 lineup introduces groundbreaking new technologies and important safety capabilities. We’re excited to be manufacturing iPhone 14 in India.” – Apple company statement
Apple’s Recent Shifts in Manufacturing
Apple recently made the announcement that 5% of its iPhone 14 assembly would take place in India. Foxconn, Apple’s partner in manufacturing, will head the assembly process in a factory just outside of Chennai. Of course, this isn’t the first time for Apple manufacturing in India for its products. Since 2017, Apple has assembled older iPhone versions in both Brazil and India. But it will be the first time for iPhone 14 production in India as the company looks to reduce reliance on China. Though the percentage of iPhone 14 assembly is small, Apple hopes to advance this to 25% by 2025. This would naturally reduce its reliance on Chinese manufacturing significantly.
Interestingly, an increase in Apple manufacturing in India is well-aligned with other recent decisions. Within the last few months. Apple also indicated it would be manufacturing products in Vietnam as well. Specifically, Apple plans to manufacture 20% of its iPads and Apple Watches there by 2025. It also will be producing half of its Apple Air Pods there by then as well. All of this shows that concerns exist for the company in the aftermath of the pandemic. China’s continued anti-COVID restrictions have perpetuated manufacturing and supply chain problems. And this, combined with other developments, are likely why the company is choosing greater iPhone 14 production in India.
“Apple has a strong momentum in India. India is among the 20+ countries in the world where the premiumization trend has just started.” – Tarun Pathak, Research Director at Counterpoint Research
Market Motivations for Change
Given the pressures of the pandemic, it isn’t surprising that diversification strategies aren’t leading to Apple manufacturing in India. However, moving to Apple iPhone 14 production in India from China is being encouraged by other variables as well. One of the most notable ones involves Apple’s desire to tap into India’s smartphone market. Despite Apple’s prominence elsewhere, it has only acquired about 4% of India’s market. China’s Xiaomi and Samsung continue to be the market leaders in the country. It’s also worth noting that India is the second largest smartphone market to China. These two statistics alone would prompt companies like Apple to have a greater presence in the country for local manufacturing. If Apple could advance its market share there, it has tremendous potential to advance sales and revenues.
Of course, simply boosting Apple manufacturing in India isn’t necessarily going to improve the company’s market share. However, there is one important trend that suggests it might. Over the last 2 years, there’s been a premiumization trend in many nations where consumers opt for quality and brand. Consumers are increasingly choosing to pay extra for a brand that offers better features and is a status symbol. Certainly, Apple fits that category, and India is among the top 20 nations experiencing this premiumization trend. That’s another reason why iPhone 14 production in India might be a very good idea for Apple.
“Even as Apple pushed ahead with plans, the company was careful not to antagonize China’s ruling Communist Party since the vast majority of its products are still made there…Apple reminded its Taiwanese suppliers to label components destined for China as made in ‘Chinese Taipei’ or ‘Taiwan, China’,” – Daisuke Wakabayashi and Tripp Mickle, The New York Times
Political Pressures Also Driving Shifts
Pandemic effects and market incentives are not the only reasons for Apple manufacturing in India. In addition to these drivers, there have also been political pressures as of late. It is well known that U.S. and China relations have been increasingly tense. This certainly has encouraged greater diversification with the iPhone 14 production in India being one solution. High export tariffs from China imposed by the U.S. as well as increased shipping costs increase production costs. Likewise, Chinese domestic policies continue to cause problems. Frequent shutdowns within China of manufacturing plants due to COVID continue to occur creating delays in manufacturing. Without a means to change such policies, the only good option is to look elsewhere.
More recently, however, Apple faces additional political challenges related to its manufacturing in Taiwan. Relations between China and Taiwan have worsened as of late, and China insists its governance of the island. As such, Apple has required its vendors in Taiwan to label manufactured products there with the required “China Taipei” label. In addition, Apple has also removed Taiwanese flags from their emoji options for Chinese and Hong Kong users. All of this shows how China’s political stance combined with Apple’s manufacturing alliances pose risks. As a result, the decision for Apple manufacturing in India seems like a smart one. By choosing iPhone production in India, even partially, it begins to give Apple options for the future. Such a diversification strategy is not only smart for business but for politics as well. In considering whether India or Apple is the beneficiary presently, it’s likely Apple will be the winner in the long run.