Owing to China's strict anti-Covid measures, Apple Inc has told some of its contract manufacturers to ramp up production outside China. Apple has been seeking to expand its production in India and Vietnam for some time to reduce its dependency on China. The two countries already contribute to Apple's manufacturing and were recently on the list of beneficiaries of Apple's $50 million supply chain workers upskilling fund.
Plans to diversify the production base outside China were already being considered before the onset of the Covid pandemic, in early 2020, but the pandemic changed the plans for Apple. As the pandemic recedes, the diversification plans are being revived again by Apple.
Tim Cook, Apple's CEO, told the Wall Street Journal, Our Supply Chain is truly global, and so the products are made everywhere. To add to this, Apple said that the lockdowns in Shanghai and other Chinese cities, as part of China's anti-Covid policy, have caused major supply chain issues for many western companies including itself. Apple, in an earnings call in April 2022, had stated that the rebound of Covid again threatened to slow down sales by as much as $8 billion in the current quarter.
This move by Apple, being the largest US company by market capitalisation, has the capacity to influence other Western companies which have been considering possibilities of reducing their dependency on China for manufacturing of key materials as Beijing indirectly continues to indirectly support the Russian invasion of Ukraine. According to analysts, over 90 per cent of Apple products including iPhones, iPads and MacBook laptops are manufactured in China by outside contractors.
China's strict anti-Covid rules have stopped Apple from sending its executives and engineers into the country for the past two years, making it hard for them to check the production sites in person. Except for India, China was the one which has a pool of qualified workers that exceeds the entire population of many alternative countries in Asia.
Apple also sees India as an alternative to China as it has a similar population size and offers low costs as well. Apple is in conversation with some existing suppliers about expanding in India, including production for export.
India's produced 3.1% of the world's iPhones last year and the proportion is forecast to increase by 6-7 per cent this year. The iPhones are now being produced at a local plant of Apple's Taiwanese contract manufacturer Foxconn, situated in the town of Sriperumbudur in Tamil Nadu, according to a source.
Apple has been adamant in shifting the areas of production outside China to other markets, including India, the world's second-biggest smartphone market and is also planning to ramp up production of the iPads in India.
Incidentally, India has been quick in emerging as a viable option for Apple to boost production outside China. Currently, most of Apple's manufacturing happens in China. In terms of Apple’s production elsewhere in the world, India is a significant contributor. The country has been earmarked to produce INR 47,000 Cr worth of iPhones this fiscal year.
Also, made-in-India iPhones contribute about 70% of Apple’s phone sales in India. The Production Linked Incentive scheme for mobile manufacturing, introduced by the Government of India is an important contributor to the rise in production in India. Apple has already shipped about 1 million ‘Made in India’ iPhones in Q1 of 2022, representing a 50% growth YoY.
The factors above have propelled India to emerge as the next big manufacturing hub for Apple, acting as a counterweight to China's manufacturing base. India is being seen as the next best destination in terms of manufacturing and production.
