Apple faces 10-15 percent tariffs that will be levied on everything that comes from China, from smartwatches and headphones to phones, tablets, and Macs. Reuters recently took a look at the company's supply chain and found a dangerous dependence on China that is going to be very difficult to overcome. In the case of the iPhone, it has until mid-December to figure out a way to avoid the implications of the tariffs imposed by the Trump administration.
So far, Apple has looked into Brazil and Vietnam as possible places to shift production for its top-selling product, but it turns out that India would be a more lucrative investment. The other two countries don't meet all the standards and can't supply some of the essentials in the bill of materials, such as plastics and screws. Last week, Foxconn explained its ambitions to gradually make more iPhones in India, where it has already built two factories and is seeking approvals to build another two in the next few years.
Bloomberg says that India's appeal is easily explained through the large and low-cost workforce that is almost comparable to that of China. The Indian government has previously been reluctant to let manufacturers capitalize on its country but has come around to the idea of taking advantage of China's trade war with the US. Josh Foulger, head of Foxconn's India operations says "it’s a good business principle not to put all your eggs in a single basket," and explains that the company can't "put a factory in Mexico for manufacturing mobiles. It might have worked 10 years ago, it just won’t work today."
To its credit, India is taking all the right steps in emulating China's appeal by making it easier to set up shop and at the same time reducing the unemployment rate in the country, which is over 6 percent. Prime Minister Narendra Modi has made it his mission to adapt the government policies and to offer manufacturers incentives to open factories. Foxconn chose to open its first Indian facility in Sri City, where "goods can be imported and exported with limited red tape and foreign companies make everything from diapers to train carriages."
To put things in perspective, the plan is to take India from being a $25 billion manufacturing center to a $400 billion hotspot by 2024, most of it geared towards export. That said, there are several things that need to happen before reaching those ambitions. First, there's the need to replicate China's extensive network of component suppliers for things like batteries and semiconductors. Second, India's infrastructure has to transform to accommodate large-scale supply chains for major major firms - everything from roads to rail systems and ports.
Anshul Gupta, senior research director at Gartner India, believes "things are beginning to fall in place. India can bolster its manufacturing capacity and help the world cut its reliance on China." It took 30 years for China to get where it is today in terms of efficiency, but several big companies like Amazon, Apple, Google, Dell, and others have a renewed interest to spearhead India's development
Perhaps more worrying is that Foxconn's current plants employ mostly women who are paid $4 per day to assemble things like the iPhone X and XS as well as Xiaomi's alternatives. That said, women typically do household and farm work, so this would be a small step-up from that. Foulger, a "two-decade veteran of supply chains in India," says the working conditions have also been adapted to keep them comfortable at work.
Foxconn has been subject to a lot of criticism as of late for questionable practices involving children at its China factories as well as difficult working conditions. Bloomberg says a visit to Foxconn's India factories has revealed "no visible sign of sweat-shop conditions" and that workers are mostly complaining about the repetitive nature of their job. Still, the pay is a paltry $130 per month which keeps these workers just above the extreme poverty line. Chances are the next iPhone you buy will be made by Indian women that have few other opportunities to choose from.