Foxconn may build Apple iPhone plant in India, could reduce local costs

Posted:
in iPhone edited June 2015
Apple manufacturing partner Foxconn is reportedly in talks to open a new iPhone assembly plant in India, potentially allowing the handset to achieve lower prices and boost sales in the growing market.

India


In addition to iPhones, Foxconn is also said to be looking to build iPads and iPods in India, for both local and international sales, according to Reuters. Details on Foxconn's alleged plans were shared by Subhash Desai, Industries Minister of the state of Maharashtra in India.

Publicly, Foxconn has said it plans to build up to a dozen facilities in India by the year 2020. But on the subject of an Apple-specific plant in the nation of over a billion people, the manufacturer declined to comment.

Foxconn has historically built devices in China, but in recent years has shown interest in strategically expanding around the world, to better serve certain markets. For example, the company expanded to Brazil in 2011 and does build some iPhones there, though ramp-up in the South American country has been slower than anticipated.

An expansion to India would be a key strategic move for both Apple and Foxconn, allowing the companies to offset rising wages in China. With lower production costs, Apple could also get more aggressive with iPhone pricing in the country, where it trails behind South Korea's Samsung and local Indian manufacturers like Micromax.

In recent years, Apple has boosted sales in India through a variety of different strategies, including payment plans to mitigate the up-front costs of buying an iPhone, as well as partnering with resellers for retail storefronts. The debut of the larger-screened iPhone 6 and iPhone 6 Plus are also said to have boosted interest in India, though costs are believed to remain a prohibitive factor.

Despite a population that tops 1.2 billion, India remains one of the poorest countries in the world -- its nominal per-capita GDP of just $1,509 is far below China's $6,959 and barely outpaces that of war-torn nations like South Sudan, according to data from the International Monetary Fund.

Comments

  • Reply 1 of 20
    robin huberrobin huber Posts: 3,214member
    Apart from sales opportunities, any reduction in China's leverage over Apple is a welcome development.
  • Reply 2 of 20
    el3v3ntyel3v3nty Posts: 20member
    This article is misleading about important economic numbers:

    India's per capita/PPP was revised by IMF recently @ $5427.7 in 2013 and growing at 10.7% (which BTW outpaces China by 2.9%). Link: http://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD
    Also, India's GDP is en route to outpace china by end of 2015.

    So, No. India's GDP isn't close to worn-torn countries, its beating Apple's favorite country China as far as growth is concerned.
  • Reply 3 of 20
    I admit I don't understand the costs of their supply chain, but if final assembly takes place in India, assuming labor costs are similar to China's, where does cost savings take place? I assume there is a cost reduction in shipping to customers (or resellers in local markets in India). The parts and materials entering the factory still come from their manufacturing sources, presumably in China, Korea, maybe Japan.
  • Reply 4 of 20
    zoetmbzoetmb Posts: 2,378member
    Quote:

    Originally Posted by Suddenly Newton View Post



    I admit I don't understand the costs of their supply chain, but if final assembly takes place in India, assuming labor costs are similar to China's, where does cost savings take place? I assume there is a cost reduction in shipping to customers (or resellers in local markets in India). The parts and materials entering the factory still come from their manufacturing sources, presumably in China, Korea, maybe Japan.



    Labor costs are lower than China's.   In any country or region, once businesses mature, economies improve or inflation takes hold, wages naturally go up.   Manufacturing will almost always follow to where labor costs are lowest, providing it doesn't also raise transportation costs.   I think many companies will move from China to India and 20 years from now will probably move from India to African countries, at least those where there's political stability (Tanzania is a possibility).  And as manufacturing becomes more automated (current iPhone production doesn't seem to be much automated), it won't matter where a company manufactures - it could even come back to the U.S. if there aren't high labor costs.   

     

    Another approach and the one that I believe is the most ethical is that you manufacture where your markets are so that the economies who are your customers also benefit from the jobs and associated business investment.   And Apple's volumes are so high, they might be one of the few companies where it makes sense to do this.    This is especially true if they start making different models for different markets - i.e. a much lower priced model for the Indian and/or African markets.   

     

    Personally, if Apple does build a plant in India, I would have preferred to have seen it built by someone other than Foxconn.   I don't like seeing Apple place all their eggs in one basket.  

  • Reply 5 of 20
    Quote:

    Originally Posted by zoetmb View Post

     

    ...

    Personally, if Apple does build a plant in India, I would have preferred to have seen it built by someone other than Foxconn.   I don't like seeing Apple place all their eggs in one basket.  


     

    Very good point. Do we know if Apple has some other contract manufacturer? I am sure Apple is not foolish enough not to do that - Having a secondary CM also allows them to have some negotiating powers too.

  • Reply 6 of 20

    I'd like to see iPhones destined for US market assembled in the US. And yes, I would be prepared to pay more.

  • Reply 7 of 20

    Obviously you have not in this business to comment. It is very costly to manufacture in India, other than the "assumed" low cost of labor. Supply chain is going to take time to build. Personally I don't expect India can ever compete with China is logistic management at all. India is not a friendly territory.

     

    It is a headline news for Foxconn to squeeze more benefits from media.

  • Reply 8 of 20
    flaneurflaneur Posts: 4,483member
    radster360 wrote: »
    Very good point. Do we know if Apple has some other contract manufacturer? I am sure Apple is not foolish enough not to do that - Having a secondary CM also allows them to have some negotiating powers too.

    Yes, Pegatron, which has been the obect of more worker and safety scrutiny than Foxconn, but then they are not as experienced yet, are they?
  • Reply 9 of 20
    flaneurflaneur Posts: 4,483member
    gregquinn wrote: »
    I'd like to see iPhones destined for US market assembled in the US. And yes, I would be prepared to pay more.

    So you would be in favor of Foxconn building facilities in the US? Because you aren't going to get the process engineering done locally, as Steve Jobs said. It would be much more difficult than setting up in Brazil, for example, which is still an industrial country. The US is post-industrial, according to decades-old economic theory.

    Edit: took out contentious language.
  • Reply 10 of 20
    afrodriafrodri Posts: 190member
    Quote:

    Originally Posted by gregquinn View Post

     

    I'd like to see iPhones destined for US market assembled in the US. And yes, I would be prepared to pay more.


     

    I wouldn't be against US assembly, but I'm not sure it matters much. The final assembly is a very small part of the overall cost (4-5%), but it gets a lot of attention. The biggest "value add" parts of the phone come from Japan, South Korea, and the US, so that is where most of the money is going. The ~$10 or so for the final assembly is pretty miniscule.

     

    From a US economic standpoint, I'm much more interested in where the processor (9%), screen (22%), or wireless components (17%) are made than where the final assembly occurs.

     

    Cost breakdown:

    http://topforeignstocks.com/2013/02/20/breakdown-of-an-apple-iphone-5-component-costs/

  • Reply 11 of 20

    Seems to be the strategy for those countries that have have import taxes or other penalties for goods not manufacturer/assembled in country (as they did in Brazil).

  • Reply 12 of 20
    tzeshantzeshan Posts: 1,847member
    Quote:

    Originally Posted by gregquinn View Post

     

    I'd like to see iPhones destined for US market assembled in the US. And yes, I would be prepared to pay more.




    If you are so convinced that assembling Apple products in the US can make money why don't you start a business contracting the assembly?  I do not think Apple dare to reject you politically.  

  • Reply 13 of 20
    tzeshantzeshan Posts: 1,847member

    Does Foxconn make good money assembling iPhone in Brazil? 

  • Reply 14 of 20
    anantksundaramanantksundaram Posts: 18,812member
    Quote:

    Originally Posted by mervynyan View Post

     

    India is not a friendly territory.


    Huh?

     

    Care to explain?

  • Reply 15 of 20
    Quote:

    Originally Posted by anantksundaram View Post

     

    Huh?

     

    Care to explain?




    Been there for other contracted manafacturer business, not able to reach the agreement in India for many reasons., mostly financial and red tapes, not investment friendly place, let alone any deep labor pools.

     

    One also forgets, that China is the largest market for Apple products, no one else will outside US is willing to pay for US-Made price tag. If you are an European, do you care where the iPhone is made? Country of manufacture is irrelevant.

  • Reply 16 of 20
    zoetmb wrote: »

    Personally, if Apple does build a plant in India, I would have preferred to have seen it built by someone other than Foxconn.   I don't like seeing Apple place all their eggs in one basket.  

    There's a big advantage for Apple to use Foxconn ... Foxconn also builds products for nearly all other electronics companies, not just Apple. So when people start jumping out of windows, or something else happens, all the media don't just tie Foxconn to Apple when they do their reporting... and ... uhh ... never mind ...
  • Reply 17 of 20

    I see 2 advantages of this, if it happens:

     

    Firstly, since they are manufactured in India, the products will not have the 30-35% import duty levied on them. I paid a little over $1300 for my 128GB iPhone 6+. That will dramatically fall in price.

    While it may have little impact on the higher priced models, the saving will really help the low-end ones, thereby driving more sales.

     

    Secondly, if the phones are manufactured here, then Apple can actually open retail stores here. There is a law that requires manufacturing of at least a part of the product to be done in India to qualify for retail space.

     

    It is a matter of time. While the rapture may not be as much as it is in China, there is a lot of appeal and desire for Apple products here.   

  • Reply 18 of 20
    mervynyan wrote: »
     
    Huh?

    Care to explain?


    Been there for other contracted manafacturer business, not able to reach the agreement in India for many reasons., mostly financial and red tapes, not investment friendly place, let alone any deep labor pools.

    One also forgets, that China is the largest market for Apple products, no one else will outside US is willing to pay for US-Made price tag. If you are an European, do you care where the iPhone is made? Country of manufacture is irrelevant.

    Emphasis are mine. This is more true every year. It is truly a world economy. For example, a Toyota truck, made in America, has more USA parts in it than a similar Ford truck. While Apple's products are assembled in China, Apple employes hundreds of thousands of USA employees to manage marketing and the Apple infrastructure (a higher skilled workforce than Foxconn's). Where final assembly occurs is but a tiny part of a much larger picture in today's world.
  • Reply 19 of 20
    MacProMacPro Posts: 17,835member
    I admit I don't understand the costs of their supply chain, but if final assembly takes place in India, assuming labor costs are similar to China's, where does cost savings take place? I assume there is a cost reduction in shipping to customers (or resellers in local markets in India). The parts and materials entering the factory still come from their manufacturing sources, presumably in China, Korea, maybe Japan.

    My guess it's all about producing/assembling product in India, to sell in India, to get around import taxes. Simple as that maybe?
  • Reply 20 of 20
    Quote:

    Originally Posted by mervynyan View Post

     
    Quote:
    Originally Posted by anantksundaram View Post

     

    Huh?

     

    Care to explain?




    Been there for other contracted manafacturer business, not able to reach the agreement in India for many reasons., mostly financial and red tapes, not investment friendly place, let alone any deep labor pools.

     

    One also forgets, that China is the largest market for Apple products, no one else will outside US is willing to pay for US-Made price tag. If you are an European, do you care where the iPhone is made? Country of manufacture is irrelevant.


    First, if did not make sense, Foxconn or Apple would not do it. Second, I am sure their ability to make things happen in India is better than yours by a long shot, so one can't really extrapolate or generalize from your experience. Third, as I understand it, things are changing rapidly under Modi. Fourth, it'll probably be only assembly and shipping, not manufacture. Fifth, it makes sense to make in a country that might be a potentially huge market. Sixth, I don't know much about 'Europeans,' but if you're Apple, you do care where the iPhone is made, and the country of 'manufacture is indeed relevant for its costs and hence Apple's margins.

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