Apple suppliers, Foxconn, Wistron and Pegatron are planning to invest nearly $900 million in India in the next five years. The move is masterminded by a new production-linked incentive (PLI) that is designed to encourage Indian export.
Reuters reported that the PLI scheme has $6.65 billion cash incentives that encourage companies to increase sales of locally-made smartphones over the next five years, compared with 2019-20 levels. According to sources who spoke to Reuters on anonymity, the three Apple suppliers are planning to invest under the scheme.
The sources said Foxconn has applied to invest about 40 billion rupees ($542 million), while Winstron and Pegatron are investing about 13 billion rupees and 12 billion rupees respectively.
The initiative will be a big boost for Apple, though it’s not clear if the deal will involve other smartphone makers. Foxconn and Winstron make devices for other companies globally, while Pegatron makes for Apple only.
India is planning to transform into an export manufacturing country through the PLI scheme, and sources said the vast majority will be focused on expanding iPhone manufacturing.
According to one of the sources, Wistron is planning to double the assembling of second-generation iPhone SE from 200,000 to 400,000 monthly in India. Under the PLI scheme, it will cater to export demand of iPhones from India. The move is expected to create 10,000 jobs.
While there are Chinese companies to contend with, Apple seems to be the focus. One of the sources explained that Foxconn, which also assembles devices for Xiaomi in India, already has the manufacturing capacity that fits any export plan, meaning that the PLI will be largely about Apple.
One of the sources said Pegatron is yet to start operation in India but is in talks with several states, with Tamil Nadu in the south emerging as a frontrunner for a planned plant to manufacture Apple devices.
The PLI will help Apple to take a position beside Xiaomi and Samsung in the Indian market, and diversify its supply chain beyond China. In China, Foxconn is Apple’s main iPhone assembler and has been largely responsible for Apple’s iPhone production in Zhengzhou. The Chinese city has come to be known as “iPhone city” because half of the world’s iPhones are made there.
As Apple is working to meet the deadline on the release of iPhone 12 and three other editions, Foxconn appears to have Indian operations in mind to boost Apple’s supply chain from India. Apple is preparing its supply chain for 75 million iPhones this year, which is in tandem with the orders of last year’s iPhone 11.
But it could be more than that, with its record of yearly increment in sales, orders for iPhone 12 could go far higher than expected despite the impact of COVID-19 pandemic, and that means a need to operate another large manufacturing hub away from Zhengzhou.
Local manufacturing has become a strategy for smartphone producers to cut the cost of devices, and a large market like India deserves a manufacturing plant for Apple.
“India is key to Apple’s global ambitions as it expands beyond China. It offers a strategic market to them where skilled labor is cheaper as compared to other manufacturing destinations, the size of the internal market is huge and the export potential is enormous,” said Tarun Pathak, an associate director at tech researcher Counterpoint.
Local manufacturing helps companies to avoid import-based taxes and produce more affordable smartphones. Apple started to assemble a low-cost phone in India in 2017, through Wistron’s local unit in the tech hub of Bengaluru. In 2019, it involved Foxconn and Wistron as it started to assemble iPhones.
The PLI has thus opened a new wave of local production competition between smartphone manufacturers. Samsung has a mega mobile phone manufacturing plant in New Delhi, where it tests new devices and assembles them for export.
With the smartphones giants taking on online stores in India to maintain sales in the face of the pandemic, the Indian market competition is about to take a new turn.