A bigger piece of the Apple pie
A critical milestone is set to be reached in consumer electronics, with most of Apple’s iPhones meant for the US to be sourced from India in the April-June quarter this year. This does not mean that China will cease to be the dominant player in the Apple ecosystem. But it does mean there is a window of opportunity for this country to develop into a consumer electronics hub for the world.
The rate of production and exports of iPhones has been rising exponentially in recent times. Latest data shows that exports of these devices have virtually doubled from Rs 28,500 crore in the January-March quarter of 2024 to Rs 48,000 crore during the same period this period. The aim is to source iPhones meant for the American market primarily from India, leaving China to supply to the rest of the world.
The tech giant’s anxiety to diversify the supply chain is a result of several unexpected developments over the past few years. The first was the altered environment in China during the pandemic as a fallout of the zero-Covid policy. Ties with the US had also become strained due to economic issues and tensions over Taiwan. Apple, which had placed its bets entirely on China till then, recognised the need to identify alternative investment sites in order to resume hassle-free operations. Like many other multinationals, it went ahead to implement a ‘China Plus One’ policy in the post-Covid era. The new strategy resulted in a spate of investments in India and Vietnam.
The second unforeseen event that brought about a renewed urgency in shifting operations is the tariff policy unleashed by Donald Trump after taking over as US President. As of now, it seems that countries other than China would have a tariff advantage in the American market. Apple CEO Tim Cook has categorically stated that most iPhones delivered to the US in future would come from India. Other devices like the iPad, Mac and AirPods would be supplied from Vietnam. Yet India looks set to become the tech leader’s second major manufacturing hub, after China.
What is interesting is that till recently, Apple had little interest in investing in India or even exploiting the enormous domestic market for smartphones. The outlook is now diametrically opposite as production is not just for the export market but also for the Indian consumer. Sizeable investments have been made by the tech company’s collaborators Foxconn, Pegatron and Tata Electronics in the southern states of Karnataka and Tamil Nadu. At the same time, sales volumes in the domestic market are crossing quarterly records.
These moves to expand the footprint of one of the biggest tech giants could turn out to be a tipping point for the Indian electronics industry. It merits a comparison with the sea change witnessed in the 1980s when Japan’s Suzuki Motor Corporation ventured into car production here in the face of warnings from other auto majors. The gamble by the relative minnow in the global automobile sector paid off handsomely. Other foreign brands entered the market, but none could match the first-mover advantage that Suzuki gained and has retained till now in the Indian market.
It was not just the entry of Suzuki that revolutionised the car industry in this country. It was the creation of the network of auto ancillary manufacturers that sprung up to provide components for the new Japanese-Indian joint venture, Maruti. These component enterprises laid the basis for an automobile industry that now has a commanding 50 per cent share in India’s manufacturing sector.
Ultimately, it was the success of Maruti-Suzuki that gave an impetus to other global auto majors to invest here in the 1990s. This happened despite continuing concerns over complex regulatory systems even after the launch of the 1991 economic reforms. It was the viability and profitability of Suzuki that became a catalyst for others to make the leap of faith to enter the Indian market. The expansion of the auto ancillary sector also made it possible to make more components for the new foreign car ventures indigenously instead of merely importing them in CKD (completely knocked down) kits.
Apple’s newfound commitment to investments in smartphone production could be the trigger for a similar effect, making India an investment hub for consumer electronics. It could have an even greater impact since Apple is not a minnow, as Suzuki was, but a big fish in the global tech order. It is one of the Magnificent Seven that tower over American stock markets. Other tech companies are thus likely to follow its lead.
What must give even greater comfort to investors is the fact that Korean tech conglomerate Samsung has also invested heavily in India’s electronics manufacturing industry. It ranks second only to Apple in terms of exports and is a much bigger player in the domestic market.
The interest expressed by Big Tech comes amid the launch of a $2.7-billion production-linked incentive scheme for the consumer electronics industry. This is aimed at removing the biggest lacuna in this segment, the slow pace of making components indigenously. The unveiling of the scheme in April is timely as it comes just as Apple is expanding its presence in the Indian economy.
India’s role as an international hub for consumer electronics especially phones has remained at the level of mere potential for quite some time. Things may change now. Even so, one must make the usual caveats. China continues to be a world leader by many lengths, and smaller countries like Vietnam are also attracting new investments in this area. Yet it is possible for India to play catch-up over the next few years, especially given the pace at which Apple has been ramping up output and exports. The regulatory system will have to be simplified much more. The country cannot afford to let red tape bog down an industry that could become a manufacturing powerhouse. Policies need to be crafted in a liberalised framework, thus enabling the sector to bloom without any hindrance.
Sushma Ramachandran is senior financial journalist.
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