Wistron’s exit indicates India not the preferred substitute for China

At a time of heightened US-China rivalry and de-risking of supply chains from the dragon, the Tata Group’s entry into assembling iPhones in the country is a seminal moment. It is the first Indian company to join Apple’s exclusive list of vendors for this smartphone such as Foxconn, Wistron, Pegatron, and Luxshare. The steel-to-software Group’s big bets in electronics manufacturing services (EMS) have paid off after it acquired Wistron Corporation’s operations near Bengaluru for an estimated cost of $125 million. The Tatas are also into manufacturing components for iPhones near Hosur in Tamil Nadu. Currently, iPhones are assembled by Apple’s preferred Taiwanese contract manufacturer Foxconn from its facility on the outskirts of Chennai. Pegatron also is in Tamil Nadu. All these companies are availing of (or are eligible) for incentives under the production-linked incentive scheme. Wistron, in fact, was the first to assemble iPhones in the country since 2017 and is the second-largest exporter of these smartphones after Foxconn. Although Apple still depends heavily on suppliers in the mainland for its smartphones and other products, the Tata Group’s foray into iPhones is the most substantive evidence of the US tech giant’s efforts to shift some of its production to India.

Although the Tata Group’s making of iPhones is definitely a feather in the cap of the government’s PLI scheme, an intriguing question is that why did Wistron cede its place as one of Apple’s exclusive iPhone vendors in India? Did it have something to do with its bitter experience with local work culture three years ago—with workers violently protesting against unpaid wages and arduous hours—in its plant near Bengaluru? Wistron’s exiting the world’s second largest smartphone market contrasts with the experience of Foxconn which is being aggressively wooed by southern states to set up EMS facilities. However, Foxconn’s not-so-successful joint venture with Vedanta for semiconductors may have sent a negative signal to relatively smaller Taiwanese electronics firms. While Taiwanese companies are positive regarding the policy environment for business in India, they prefer options elsewhere in South-east Asia which are more open and export-oriented. Amita Batra of Jawaharlal Nehru University has recently written that India’s huge market is also not necessarily an attribute for attracting FDI as potential Taiwanese investors feel that is difficult to attain a permanent customer base, ensure profits and a reasonable margin as the country is a price-sensitive market.

To be sure, there are enormous opportunities with Apple deepening its footprint by shifting 18-20% of its iPhone global production to India by FY26 up from 7% currently. While that is the good news, there is warrant to dampen expectations that India will be the preferred choice of supply chains, especially Taiwanese, diversifying out of China. Foxconn is in no tearing hurry to do so despite the current raids by Chinese tax authorities on its subsidiaries in two Chinese provinces. The bulk of its spending on production facilities will continue to be in the mainland alongside investments in Vietnam, India and Mexico. For India to be a preferred destination for supply chains, it will have to be more competitive vis-a-vis Asian rivals with a manufacturing ecosystem, better infrastructure, land and labour reforms. There is a need for a more open trading regime and participation in mega regional free trade agreements like the Regional Comprehensive Economic Partnership and Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Financial Express