iPhone Maker Foxconn’s India Approach – A Wake-Up Call for ‘China Plus One’ Strategy!

When Foxconn chairman Young Liu was in Tamil Nadu two weeks ago to discuss further investment by the iPhone maker in the south Indian state, two ministers from neighboring Karnataka sought him out for their meeting – and later produced documents that they claimed that Foxconn also intended to build two factories in their state.

While Foxconn insisted he had not committed to any projects, pressure from the Karnataka government was a sign of intense competition brewing in India to attract more investment from the world’s largest contract electronics maker, while Apple and others Tech companies are diversifying from their dependence on China.

The desire of the multinationals of a Strategy “China plus one”.following supply chain disruptions and geopolitical tensions between Washington and Beijing, it is prompting Foxconn to make a fresh push into India, where it first invested 15 years ago but where it still employs only about 50,000 of its million of global employees.

In recent months, the group broke ground for a factory near Hyderabad, the capital of Telangana state, which government officials said would produce smart headphones, and acquired land near the airport in Karnataka’s capital Bengaluru. for an iPhone factory. Another site near Hyderabad and two more in Karnataka are in the planning stages, according to an internal Foxconn presentation reviewed by the Financial Times.

Foxconn on Monday said it expects a slight decline in revenue, rather than flat growth, this year as it reported a 1% drop in second-quarter net earnings from last year.

But Liu also told investors the company plans to invest “several billion dollars” in India and start manufacturing key consumer electronics and some electric vehicle components next year in Karnataka, Telangana and Tamil Nadu. , its largest iPhone assembly center in existence.

“There has been this move since 2018 to try and have a more geographically diverse technology supply chain,” said Gokul Hariharan, head of Asian technology research at JPMorgan. “During the pandemic, we have seen some of these things delayed. But since last year, when things started to normalize a bit, diversification has increased.”

India now accounts for $10 billion of Foxconn’s annual revenue, according to the presentation. That’s 4.6% of the company’s $216 billion revenue in 2022, more than double the 2% it reported in 2021.

However, the push into India is also revealing limits to Foxconn’s willingness and ability to diversify. Foxconn executives and other observers dismiss the expectation that India it may even come close to playing China’s role as a global technology manufacturing hub.

“China can still supply the United States and many other overseas markets,” said a Foxconn executive. “In India, building a supply chain to cater to the growing domestic market is reasonable, and then it can become a manufacturing base for a limited region, nearby markets of India.”

Liu said China accounts for 75% of Foxconn’s global operations, up from 70% before the pandemic. He has not given a target for a more widespread footprint, reflecting a decidedly cautious stance towards India.

According to Foxconn’s internal presentation, it currently has nine campuses in India with 36 factories. Its operations are primarily concentrated in Tamil Nadu and Andhra Pradesh, manufacturing smartphones, feature phones — mobile phones with fewer features than smartphones — televisions and set-top boxes for customers including Sony, Xiaomi and Apple.

In a domestic market dominated by Chinese-made Android and feature phones, Indians are starting to buy high-end iPhones in greater numbers. Apple this year opened its first two stores in the country in Mumbai and New Delhi.

For Narendra Modi’s government, electronics are a key part of its “Make in India” program aimed at boosting investment in the country’s manufacturing sector, which is chronically underperforming. Seeking to secure more factory jobs that have gone to China and the export-driven economies of Southeast Asia for decades, India is offering investors billions of dollars in manufacturing related incentives (PLI).

But a person close to Foxconn said India’s subsidies are hard to come by. “Money under PLI is only disbursed based on previous year’s shipments, and even under new policies that allow subsidies to be disbursed early, such as for semiconductor initiatives, many have not qualified,” the person said. .

One example is the deal reached last year between Foxconn and Indian resource group Vedanta. The companies said they plan to set up a semiconductor and display manufacturing complex in Modi’s native state of Gujarat.

However, Foxconn ended its partnership with the heavily indebted Indian company last month after the pair failed to secure government approval for a chip manufacturing subsidy. Both companies said they plan to reapply separately under an amended call for plans from the government.

Executives said privately that subsidies were the deciding factor for any new project. If the level of budget support is right, Foxsemicon, the chip tools group’s subsidiary, could consider setting up a plant in Bangalore, said people familiar with the company’s decision-making process.

Foxconn is also exploring opportunities in India for electric vehicles. But while the company’s hopes for future growth and higher margins rest in this segment, executives believe it will be years before the market is mature enough to warrant a major move.

This leaves the group’s traditional core business of manufacturing smartphones.

Liu said on Monday that Foxconn would help bring smaller suppliers to India by developing larger industrial parks.

But people familiar with the company’s plans said that production of smartphone components in India would be largely limited to Foxconn group companies for now because so much of the China-based supply chain is made up of Chinese manufacturers, who are having trouble getting permission in India.

Another big question is to what extent Foxconn can make its operations in India more cost-effective, which is crucial in a company with paper-thin profit margins. Neither India, nor any of its newer manufacturing bases like Vietnam, can accommodate single campuses with 100,000 workers like the ones Foxconn runs in China, according to industry executives, who say most Indian workers refuse to leave their homes for a distant journey. I work and live in a dormitory.

With Apple pushing for faster production ramp-ups, Foxconn is testing the limits of those assumptions, expanding its 24 existing dormitories and building new ones. A person familiar with its operations in India said that while it was “highly unlikely” that a single Indian campus would house 100,000 employees or more, there was significant room to scale up operations with a network of bases not far apart. on the other where at least some of the staff lived on site.

However, analysts believe that this would come with high costs and even then it would have limitations.

“China will still be the primary location for high-volume consumer products,” said JPMorgan’s Hariharan. “They’ll probably add a location or two for different products, but we’re not going to have a big hub again — that might not be feasible.”