Supply Chain Matters highlights unfolding developments pointing to actions toward positioning India as a secondary global hub of Apple iPhone production.

Background

Within our research arm’s previously published industry and global supply chains predictions advisory published at the start of this year, we predicted that manufacturers would up their efforts this year in restoring more direct control and added resiliency in their direct materials component and outsourced manufacturing strategies. Such actions were to include mitigation of risks related to China based sourcing, which is now commonly referred to as a China Plus sourcing strategy.

As the year draws to a close, there is ample evidence that China Plus sourcing actions have indeed occurred and they have involved multiple industry sectors, especially that of high tech and consumer electronics focused supply networks.

By far, the most high tech industry supply network influential player remains that of Apple.

The genesis of Apple’s reliance on China stems from both company co-founder Steve Jobs, and CEO Tim Cook’s supply chain perspectives that Taiwan and China based contract manufacturers and suppliers would provide the company the most flexibility and agility in annual on-the-fly new production introduction cycles and volume production ramp-up needs.

Securing the literal millions of factory workers required to produce high volumes of product hardware in rather short periods of time, only to shed workers when not needed for surge manufacturing cycles, often the Q4 holiday fulfillment period, were always attractive to Apple’s breakthrough engineering design and product development strategies.

China’s national and local government officials had actively nurtured a relationship with Apple recognizing its worker employment potential. Asian and China based component suppliers and manufacturing services providers came to depend on a healthy portion of revenues and cash flow being solely dependent on Apple supply contracts.

The culmination came in November 2022 with persistent Covid-19 infection rates across the many high-tech manufacturing centers within China, especially the massive Foxconn ZhengzhouiPhone city” facility that at times can employ over a million production workers.

That subsequently led to Apple having to issue a press release informing customers of unanticipated shipping delays of the then newly released iPhone14 models which were later reflected in Apple’s iPhone revenue shortfalls that year.  At the time, business media had speculated that the production shortfall amounted to between 6 million to 10 million iPhones that were delayed.

That was followed by a public acknowledgement from CEO Tim Cook that the company’s 60 percent sourcing of various production within the country was too much.

Over the last three years Supply Chain Matters has highlighted various published reports of Apple instructing its contract manufacturers to begin evaluating and seeking out new hardware sourcing outside of China, specifically India and Vietnam. What apparently was missing is what specific challenges that entailed.

Throughout 2023, we continued highlighting for readers the various indications of Apple’s China Plus sourcing moves, with the prime countries being considered, especially India.

Major Announcements Related to India

Over the last several days published reports point to a major investments in iPhone related component and final assembly production underway related to various regions of India.

Last week The Wall Street Journal published a report indicating that Apple Aims to Make a Quarter of the World’s iPhones in India. (Paid subscription)

The report opens with the sub headline that Apple and its suppliers aim to build more than 50 million iPhones in India annually, accounting for upwards of a quarter of global output within the next two to three years.

Citing informed sources, the WSJ report indicates that both Apple and manufacturing partner Foxconn believe that the initial sourcing of production in the country has performed according to plan and thus this added effort is to move forward with capacity expansion.

The report outlines the first phase of a Foxconn plant being constructed in the southern state of Karnataka, which is expected to begin production in April 2024.

A further large Foxconn facility is reportedly in the planning stages which will be similar to the Karnataka facility.

These, coupled with expansion plans focused on the Foxconn facility in Chennai, and an existing production facility recently acquitted by India based conglomerate Tata are equated in the report to the eventual capacity to ultimately produce 50 million to 60 million iPhones.

However, in spite of these investments, the WSJ report points to China as remaining the largest producer if iPhones in this longer term period.

Related Development

A separate report by Bloomberg published today, cites informed sources indicating that Foxconn has won approval “to invest at least $1 billion more” in the facility being constructed in a 300-acre site close to the Bengaluru airport in the southern tech hub of Karnataka.

With this latest incremental $1 billion investment, Bloomberg indicates that Foxconn has set aside upwards of $2.7 billion for this particular production site with the aim of becoming “the centerpiece its (Foxconn) manufacturing capabilities in India.” This is quite a significant sum in terms of Asia based capacity investment.

In addition to Apple iPhone production, the Bengaluru facility will reportedly produce devices and components for other Foxconn customers including those seeking electric powered vehicle parts. The former remain an ongoing supply network concern for global based auto producers since China currently controls the bulk of EV vehicle component supply capacity.

Neither Foxconn nor Apple representatives declined to comment to the WSJ or Bloomberg regarding their reporting.

 

Additional Perspectives and Thoughts

As our supply chain management focused readership is aware, strategic sourcing decisions are often driven by either of two focused strategies.

One relates to the localized support and consequent supply network agility aspects of a major attractive market segment. The other is the constant quest for nurturing production capabilities where direct labor costs are more attractive.

In the case of China, Apple was able to leverage both strategies from a single region.

China was not only the prime source of cost effective transportation, logistics and highly responsive iPhone production but it further represented a significant market growth and profitability opportunity.

All of that changed with the increasing trade tensions built up between the U.S. and China and the building geo-political risk landscape involving conflict between Russia and Ukraine, the threat of a potential China invasion of Taiwan. The desire of China’s own smartphone industry’s desire to have access to the latest semiconductor processor technologies is an obvious added factor.

In the case of India, labor costs are definitely attractive and the lure of being designated a major production source of iPhones has motivated government agencies to pave the way for massive investments in production and consequent manufacturing focused job growth.

India’s current and future smartphone growth prospects are rosy.

As the WSJ observed in its report, the country’s logistics and supply chain infrastructure remains challenging and are coupled with deemed restrictive labor laws and labor union presence. Many of these challenges are being addressed and factored.

Thus, these series of announced India focused investments and added executive visits are paving the roadway for a volume manufacturing presence that can meet both lower cost and attractive growth market needs.

Some Added Hindsight

In our November 2022 commentary, we cited a then published commentary by Bloomberg market intelligence analyst Tim Culpan.

Culpan argued that Apple’s revenues related to Europe (23.5 percent) and the Americas (41.5 percent) at that time, were bigger contributors to the company’s revenue growth than China had been. The implication implied was that the company’s overall sourcing strategy was not so much influenced by regional market demand but rather supplier capability and lower costs than other regions.

Hindsight is what it is, and history serves as the ultimate judgement of a company’s business and supply chain sourcing strategies.

That aside, hindsight does remind us that the clock speed of today’s changing markets and geopolitical landscapes definately calls for added agility and resilience actions related to strategic and tactical sourcing.

These unfolding strategies related specifically to what has been universally recognized as one of globe’s most admired supply chains, that being Apple, serve to reinforce that notions of a China de-coupling strategy having to take-on a multi-year strategy.

Further, any notion of not exercising China Plus efforts for deemed critical supply provides a risk that senior supply chain leaders need to adequately justify to C-Suite and boardroom executives. While CEO’s and boardrooms tend to focus on what the upcoming quarter’s revenues and profits will be, chief procurement or supply chain officers have to balance short-term with longer term business and supply continuity strategy actions.

Welcome to the new, new normal. 

 

Bob Ferrari

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