China fighting to stop Apple's supply chain exodus to India
Apple's diversification of its supply chain to India is worrying China, which has worked to make it harder for Apple to expand its production lines in the developing economy.
Apple CEO Tim Cook on a visit to India - Image Credit: Apple
Apple is midway through a process to diversify its supply chains from a China-centric model to one that operates from various different bases of operation. With Apple making considerable progress in India, China is concerned about the potential loss of investment and work for its citizens.
In a profile of Apple's supply chain expansion in India, the Financial Times writes about the struggles Apple has had in making the shift. In part, this is due to the tense political relationship between China and India, and a need to not upset Beijing.
The sensitive relationship between the two countries is demonstrated by secretive discussions between officials in Karnataka and Tamil Nadu, which substituted the Apple name for "the fruit company," including in private conversations.
Interference in progress
China understands the threat that India poses to its manufacturing dominance, and it's being proactive about the perceived problem.
In January, it was reported that China was cracking down on the export of critical materials and high-tech equipment. This is the sort of hardware used by Apple and its supply chain members to produce items for the iPhone and other products.
However, the Financial Times added that this also affected people. The movement of some Chinese technicians into India were also stalled by China, keen to prevent knowledge and skills from exiting the country and teaching workers in another.
For Apple's supply chain, these moves make it harder to quickly build up production to a level matching that of China, but in India. With restricted materials and equipment, partners such as Foxconn will have to find other suppliers who meet Apple's exacting standards, but are not affected by China's interference.
This interference isn't just affecting the supply chain, as Apple itself has faced pressure from Beijing's government. This includes a 2023 crackdown on Apple device usage by government employees.
Then there are the regulatory rules making it hard for Apple to operate in the country without abiding by tight restrictions. Its work to bring AI features to the iPhone were hampered by regulations, effectively forcing Apple to work with a Chinese tech giant on the project.
This behavior is countered by India's government, which has done a lot to help Apple set up and operate in India. This ranges from the billions provided as part of a Production-Linked Incentive program, to relaxing restrictions allowing Apple to open its own first-party stores in the country.
This courtship hasn't just been to bring Apple into India, as it's also targeted Apple suppliers for years. This included regular visits to Taiwan to woo firms such as Wistron and Foxconn to the country.
The effort, which has also brought major Indian conglomerate Tata into Apple's productions, have gone very well so far. It is predicted that India will contribute more than 20% of the global iPhone output in 2025.
There are still some barriers in India, such as its own visa restrictions for Chinese citizens. While Apple's assembly operations in China and Vietnam have a high percentage of women in them, societal pressures prevent women from doing the same in India.
Indian officials admit in private that there's a lot more work to do in order to become the high-scale supply base that Apple and other companies need, if they want to get out of China.
Multiple eggs, multiple baskets
Apple's intention in expanding into India and other countries, such as Vietnam, can be summed up by two words: mitigating risk.
After building up an expansive supply chain based in China, it's only taken less than a decade for Apple to discover the issues of the approach.
During the COVID-19 pandemic, supply chains were rocked by problems at Apple's factories. Production lines in facilities were locked down for long periods, in part due to China's zero-tolerance approach.
This signaled to Apple that it may want to try spreading out its supply chain to avoid such stoppages in the future.
Another risk factor is geo-political tensions, as demonstrated by the US-China trade war during the first Trump administration. While Apple was able to avoid the effects of tariffs on imports into the United States, it only did so thanks to a lot of discussions and negotiations between CEO Tim Cook and Donald Trump.
For the second Trump term, there have been promises of blanket tariffs, including high levels aimed at Chinese imports. If Apple had stuck to a China-only production system for the iPhone, it would've been hit hard by the tariffs when shipping iPhones to customers in the United States.
However, since it has focused on improving its India-based production capabilities, it's now plausible that Apple has come up with a way to mitigate the China-only tariffs. By simply building its products in another country, Apple automatically faces lower tariffs than its Chinese shipments.
India has already stepped in to deal with the tariffs, by preparing to cut import taxes for Apple and other firms on components and accessories.
For multiple legitimate reasons, Apple is keen to get more of its production going in India and other areas outside of China. It just has to do so while China fights to slow down the progress that could endanger its own manufacturing status on the world stage.
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Comments
My prediction for the future: If China keeps being aggressive towards Taiwan Apple will only produce devices in China that are targeted to the Chinese market.
The US (like the UK) moved away from manufacturing and more into services decades ago.
In the case of Apple specifically, it makes good sense to mitigate risks. Some risks are more likely than others.
The pandemic was entirely foreseeable. The issue was more about 'when' and not if.
Back in 1999, a panel of virologists deemed this century to be 'the century of the virus'. Early on, we had a few notable scares but it took no time for a full-on pandemic to hit us and we were woefully unprepared. It probably won't be the last so now the question is, 'how do we deal with the next one?'
That includes things like the global supply chain impacts and how to manage disruption. Disruption through pandemics, wars, natural disasters or geopolitical turbulence.
On that last point Trump is the number one provoker of turbulence and when it's aimed at China (the manufacturing centre of the world) and has a pandemic thrown in for good measure, things get out of control quickly.
Realistically, and for many reasons, India is not going to catch China any time soon. It is widely accepted that Apple (and most of the world) is China dependent and will remain so for decades to come. Yet, mitigation is wise.
The cost of labour may be increasing with regards to China vs India but China's restrictions on export of knowledge and technology has a lot to do with it not wanting to see finished or refined products easily reaching the US as a countermeasure to US unilateral sanctions. Hence the difficulties in procuring some essential metals (and the US desperately trying to pressure Ukraine into 'paying' the US in those metals).
Geopolitics can change rapidly. Look no further than what Trump is doing with Russia with regards to Ukraine and the US with the EU.
Apple also had a multi-year, multi-billion dollar agreement with China a few years ago which a lot of people gloss over but was obviously a reason to stick with China.
I don't know if a new deal has been signed in a back room somewhere but it's definitely possible. The original deal I believe was kept out of the spotlight and, IIRC, only surfaced with detail after it had expired.
India (as part of BRICS especially) is expected to gain development traction over the next two decades and may be able to leapfrog developed countries in some regards but very likely as a result of commercial tie ups with China.
The US has a 'softly, softly' approach to India but India is shoring up Russia's oil industry by becoming the world's largest importer of Russian oil in spite of 'sanctions'. Trump could change his opinion at any moment on that but the world knows Trump will be gone sooner or later and when he's gone, the damage may be so immense to its world standing that it will have to bend over backwards to heal open wounds.
Expect China to be very much in the driving seat (no EV pun intended) by then on core world issues and in the technology realm.
And Trump has made more, very questionable, claims today that even Ukraine has had to publicly call out.
The Pentagon is probably having 'all hands' meetings to work out how to stop things getting worse. Let's not forget that in his last term the Pentagon stepped in to temporarily stall a Trump EO on 'national security' grounds.
India will get there at some point in the future. It's very unlikely the US can match that pace.
Apple is striving to minimize the impact of the Trump administration’s import taxes (tariffs) on goods from China and keep consumer prices as low as possible—Apple isn’t exactly known for low prices. One can only speculate what an Apple product, 100% made in America (no imported components or parts) would cost? They would be rare as super cars.