Foxconn’s Cautious Pivot to India iPhone Industry Shows Limits of ‘China Plus One’

Foxconn's Cautious Pivot to India iPhone Industry Shows Limits of 'China Plus One'

When Foxconn chief Young Liu was in Tamil Nadu two weeks ago to discuss further investment by an iPhone maker in the southern Indian state, two ministers from neighboring Karnataka sought him for their private meeting — and later produced documents alleging that Foxconn also planned to build Two factories in their state.

While Foxconn insisted it had not committed to any project, the pressure from the Karnataka state government was a sign of the intense competition brewing in India to attract more investment from the world’s largest electronics maker, as Apple and other tech companies diversify away from their dependence on China. .

Multinationals’ appetite for a “China plus one” strategy, in the wake of supply chain turmoil and geopolitical tensions between Washington and Beijing, is prompting Foxconn to make a renewed push into India, where it invested for the first time 15 years ago but where it still employs only about 50,000 of its force. global workforce of 1 million.

In recent months, the group has embarked on construction of a factory near Hyderabad that government officials said will make smart headphones, and acquired land near the airport in Karnataka state, Bengaluru, to set up an iPhone factory. Another site near Hyderabad and two others in Karnataka are in the planning stage, according to an internal Foxconn presentation reviewed by the Financial Times.

“Since 2018, there has been this move to try to have a more geographically diversified technology supply chain,” said Gokul Hariharan, head of Asian technology research at JPMorgan. “During the pandemic, we’ve seen some of these things get delayed. But since last year, when things started to normalize a little bit, diversification has picked up.”

Foxconn investment in India

According to the presentation, India now accounts for $10 billion in Foxconn’s annual revenue. That’s 4.6 percent of the company’s $216 billion in 2022 revenue, more than double the 2 percent recorded in 2021. Liu, who has visited India at least twice in the past year, is expected to brief investors on his plans there when It delivers second-quarter results on Monday.

However, the rush into India also exposes a limitation to Foxconn’s desire and ability to diversify. Foxconn executives and other observers refuse to expect that India can even come close to matching 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 up the supply chain to satisfy the growing domestic market makes sense – and then that can become a production base for a limited area, the neighboring markets of India.”

China accounts for 75 percent of Foxconn’s global operations, Liu said, up from 70 percent before the pandemic. It did not give a target for more distributed footprint, which reflects a cautious attitude towards India.

According to Foxconn’s internal presentation, it currently has nine subsidiaries in India with 36 factories. Its operations are mainly in Tamil Nadu and Andhra Pradesh, where it produces smartphones and feature phones – mobile phones with functionality less than a smartphone – TVs and set-top boxes for customers including Sony, Xiaomi and Apple.

In the domestic market which is dominated by feature phones made in China and Android devices, Indians are starting to purchase high quality iPhones in greater numbers. This year, Apple opened its first two stores in the country, in Mumbai and New Delhi.

For Narendra Modi’s government, electronics are a key part of the “Make in India” program aimed at boosting investment in the country’s chronically weak manufacturing sector. In its quest to secure more factory jobs that for decades went to China and the export-led economies of Southeast Asia, India is offering investors billions of dollars worth of production-linked incentives (PLI).

But a person close to Foxconn said India’s support is hard to come by. “Money is being disbursed under PLI based solely on last year’s shipments, and even under new policies that allow subsidies to be paid up front, such as semiconductor projects, many did not qualify,” the person said.

One such example is the agreement struck last year between Foxconn and Indian resource group Vedanta. The two companies said they plan to set up a semiconductor production and display complex in Modi’s home state of Gujarat.

However, Foxconn severed its partnership with the heavily indebted Indian company last month after the pair failed to secure government approval for a chip industry subsidy. Both firms said they intend to submit a separate application under the government’s revised call for projects.

Private sector executives said that subsidies were the deciding factor in any new venture. If the level of budget support is right, Foxsemicon, the chip tools subsidiary of the group, could consider setting up a factory in Bengaluru, people familiar with the company’s decision-making process said.

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

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

“Currently we only do assembly, but everyone hopes we can make components and modules, such as casings and displays,” said one of the executives.

People familiar with the company’s plans said these steps will be largely limited to Foxconn group companies for now because a large part of the China-based supply chain is made up of Chinese producers, who are having difficulty getting them into India.

The other big question is how much more cost-effective Foxconn can make its India operations, which is key in a company with very slim profit margins. Neither India — nor any of the newer production bases such as Vietnam — can accommodate a single campus of 100,000 workers like the one Foxconn operates in China, according to industry executives, who argue most Indian workers refuse to leave their homes for a remote location. Work and live in a dormitory.

With Apple pursuing a faster ramp-up of production, Foxconn is testing the limits of those assumptions, expanding its existing 24 dormitories and building new ones. A person familiar with its operations in India said that while it was “highly unlikely” that any one campus in India would have 100,000 employees or more, there was plenty of scope to expand operations through a network of bases not far from each other where part Of which at least one of the staff lives on site.

However, analysts believe this would lead to huge costs – and even then it has limits.

“China will continue to be the primary location for high-volume consumer products,” said Hariharan of JPMorgan. “They’ll probably add one or two locations for different products, but we’re not going to get one big position again — that may not be possible.”

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