India helps Apple supplier diversify from China

China may have scrapped its zero-COVID policy — three years of strict lockdowns that caused supply chain delays and stymied economic growth — but that hasn't stopped Apple's top supplier from seeking out alternative production sites, including in  India.

Foxconn, which makes iPhones for the US technology company, was forced to cut production during the peak season last fall when many Chinese workers at its factory in Zhengzhou went down with the virus. The company locked thousands of staff inside the facility to avoid a government shutdown, which fueled angry protests.

Geopolitical issues, including concerns over a possible Chinese invasion of Taiwan, are also a growing concern for many manufacturers in China, including Foxconn, as firms could be vulnerable to any future Western sanctions imposed on Beijing.

"Technology vendors are looking to diversify their supply chains out of China and reduce the risk of having all production reliant on one country, where relationships with the US are problematic," Ranjit Atwal, research director at Gartner, told DW.

Why India?

India has many advantages. The country is on course this year to be the world's fastest-growing economy. It also has a huge young workforce — around 44% of the population is aged between 18 and 25. Indian minimum wages are a third or half of that in China.

Foxconn, which first entered India before the pandemic to produce lower-end iPhones, is now stepping up plans to expand into the South Asian country, according to media reports.

The Wall Street Journal said last week that the Taiwanese electronics giant is set to triple the number of workers to as many as 100,000 at its facility in the southern state of Tamil Nadu to help ramp up iPhone production to around 20 million units.

New factory in Bengaluru

The state minister of the neighboring Indian state of Karnataka told local media this week that Foxconn will also set up a new facility employing a similar number of people in the tech hub of Bengaluru, formerly known as Bangalore. The new plant is rumored to be costing $700 million (€664 million).

While Foxconn says it has yet to enter into any formal agreement about the new plant, Indian officials said the factory will be spread over 300 acres (121.4 hectares). Local media said the plant will likely include some production for the firm's nascent electric vehicle (EV) business. Other plans in India include a possible site near Hyderabad in neighboring Telangana state.

Ivan Lam, senior research analyst at Hong Kong-based Counterpoint Research, told DW that Foxconn's production in India is still on a small scale, with just eight assembly lines running to date.

"That compares with more than 90 assembly lines at Zhengzhou alone," he said, referring to the world's largest iPhone factory in China.

Lam added that Foxconn wants India to account for up to 25% of iPhone production over the next five to 10 years, up from the current 5-7%.

Modi's subsidies attract manufacturers

Foxconn's expansion into South Asia is a major coup for Indian Prime Minister Narendra Modi, who is keen to close the technology gap with China. His government has created incentives worth billions of dollars to encourage global manufacturers to invest in the country.

Foxconn's chairman Liu Young-way has met with Modi twice over the past year. During the most recent talks last month, he underscored the firm's plans to "continue to build an ecosystem in India allowing all our stakeholders to share, collaborate and thrive."

But with Foxconn's supply chain so reliant on China, where most of the iPhone components are produced, some analysts are wary of too quick a shift to India.

Several stumbling blocks

India's prowess is in software, not hardware, and while state governments are keen to steal clients away from China, poor infrastructure and bureaucracy could slow progress. 

"India is many things, but providing large-scale efficient and effective technology products is not its expertise. So we would expect many teething issues," Atwal said.

China's two-decade advantage was illustrated last month when the Financial Times (FT) reported that only half of the components made at a casings factory in southern India were good enough to be forwarded to Foxconn to help build iPhones.

A separate FT report described how Apple engineers and designers have recently been spending weeks or months at Indian factories to oversee manufacturing and iron out faults.

A report by China's Caixin in December wrote of worker competency issues that were presenting challenges for Foxconn in India.

Although China's geopolitical risk is creeping higher, the Asian powerhouse is set to remain Foxconn's main global manufacturing hub. Last month, Chinese media reported that the iPhone manufacturer has leased a new near-300-acre plot in Zhengzhou to build smart warehouses.

Lam told DW that as well as enhancing its relationship with Apple, Foxconn has promised investors an aggressive expansion into new areas. 

"[These include] high-end wearable products, XR [extended reality] products, high-precision modules, semiconductor modules, automotive products," he said.

Most of these new products will, for now, still be produced in China, where Foxconn's Lui said the largest portion of capital investment for this financial year is headed.

Edited by: Ashutosh Pandey