Apple's Strategic Shift and Challenges in Diversifying Manufacturing to India

Key Insight

The severe disruptions from China's 'zero-COVID' policies, particularly the Shanghai lockdown and the Foxconn Zhengzhou crisis in 2022, served as a major catalyst for Apple to accelerate its diversification of iPhone manufacturing. Prior to these events, only minimal iPhone production had moved out of China, despite Apple diversifying other products like AirPods ('70 percent'), Apple Watch ('a third'), and iPad ('a quarter') to countries like Vietnam and Thailand. India was identified as a key strategic alternative due to its democratic governance and 'China-like trajectory' for economic growth, with a 'consuming class' projected to triple to '~90M households by 2025.'

Under the leadership of Priya Balasubramaniam, VP of iPhone operations, Apple has made tangible progress in India since 2017. Production expanded from entry-level iPhone SE models to flagship models by 2020, with Pro models being made in India by September 2024. The lag time for 'made-in-India' iPhones to reach the market on the same day as those from China has been eliminated. However, by mid-2023, India still accounted for only about '7 percent' of global iPhone shipments, significantly slower than China's ramp-up from zero to '153 million units' between 2006 and 2013.

The diversification effort faces substantial challenges, including India's less developed manufacturing ecosystem, a lack of 'whatever it takes' operational urgency compared to China, and a different culture regarding internal migration and labor. Most 'made in India' phones involve 'final assembly, test, and pack out' (FATP) using components largely flown from China, leading some engineers to describe it as 'ass-backwards' compared to China's component-first development. The process is projected to take 'a minimum of five to ten years' to establish full capabilities, with Beijing also actively influencing the landscape by, for instance, suspending Chinese equipment exports and worker visas to India, underscoring the delicate balance Apple must maintain.