Apple contract manufacturers need more parts suppliers to move to India

Apple contractors looking to establish a robust manufacturing supply chain in India, similar to their existing operations in China, are not expected to achieve such economies of scale in the South Asian country in the near term, according to analysts.

At present, there are only a small number of electronics parts suppliers from China that have established a presence in India to support Apple’s major contract manufacturers, such as Foxconn Technology Group.

“It’s more challenging for key component suppliers to move to India, compared to how big manufacturers like Foxconn or Wistron can shift their production,” Ivan Lam, a senior analyst at Counterpoint Research, said on Tuesday. “If these component suppliers only have a single client in the country, setting up shop there might not be the most economically sound move to make.”

Lam said some of the major components suppliers in China that are now in India – including Shenzhen Huaxing Photoelectric Technology, Sunwoda Electronic Co and Sunny Optical Technology Co – had managed to develop their operations in the country because they also do business with the likes of Xiaomi Corp, Oppo and Vivo in the world’s second-largest smartphone market.

Getting more components suppliers to set up operations in India represents one of the biggest challenges for Apple’s major contract manufacturers, as Covid-19-related disruptions in mainland China prompt these companies to step up efforts to diversify their supply chain networks in Asia.

Moving out of China, where Apple has built a deep supply chain for close to two decades, will not be easy for both electronics component suppliers and the big contract manufacturers. It would take about eight years to move just 10 per cent of Apple’s production capacity out of China, where roughly 98 per cent of the company’s iPhones are being made, according to a Bloomberg Intelligence estimate.

Chinese manufacturing continues to dominate Apple’s supply chain, according to Upasana Joshi, research manager of client devices at research firm IDC India. Joshi said in November that a wholesale shift of iPhone production from China to other countries in Asia “doesn’t look like a viable solution” right now for Apple and its various suppliers.

Taiwan-based Foxconn, formally known as Hon Hai Precision Industry, has been one of the most aggressive Apple contractors to bolster its efforts in India. Earlier this month, the world’s largest electronics contract manufacturer, made a US$500 million cash injection into its Indian subsidiary, Foxconn Hon Hai Technology India Mega Development.

New Delhi is reportedly considering various ways to make it easier for major electronics contract manufacturers to bring their network of parts suppliers to the country.

India is said to be in discussions with a group of major Apple contract manufacturers on whether Chinese parts supplier should be allowed to set up joint ventures in the country, according to a report by The Times of India, which cited government sources.

While he could not confirm if such discussions had been initiated, Canalys analyst Toby Zhu said it was not far-fetched in light of “the lack of comprehensive smartphone manufacturing in the country, which leads to high production costs locally”.

“The cost of setting up certain semiconductor parts facilities [in India] would be huge and would be technically challenging,” Zhu said. South China Morning Post