New iPhone SE to be assembled in India, Apple to shift 20% of production capacity from China

According to foreign media reports, Apple has informed at least one Chinese supplier to start shipping parts for the 2020 iPhone SE to its Indian manufacturing partners, initiating the process of assembling new iPhones in India. It is revealed that Apple made this decision to bypass India's high import taxes.

Prior to this, the iPhone SE had always been produced in China. The 2020 iPhone SE, which is produced locally at a low price, is of great significance to Apple's increase in shipments in the Indian market. In fact, there have been rumors that Apple will transfer part of the production capacity of the Chinese industrial chain to India, and all walks of life in India have continued to call for taking over the industrial chain transferred from China. But even when the Chinese supply chain was hit by the new crown epidemic, Apple continued to increase its investment in China. If the news that the 2020 iPhone SE is produced in India is true, it may mean that this time the "wolf" is really coming.

Apple's supply chain shift?

Over the past decade, Apple has already formed a relatively stable supply chain system, with chips from the United States, screens from South Korea, and parts from China eventually becoming products on display in Apple stores. Products made at low cost eventually generated huge profits.

In recent years, due to factors such as rising labor costs in China and Sino-US trade frictions, there have been frequent reports that Apple's industrial chain has moved part of its supply chain to India. As early as April last year, Bloomberg reported that Terry Gou, chairman of Hon Hai Group, said that Foxconn will mass-produce iPhones in India, which will mainly serve the local Indian and export markets. However, less than a year later, Foxconn's plan to set up a new factory in India came to nothing. In January this year, Subhash Desai, Minister of Industry of Maharashtra, India, said that the plan to cooperate with Foxconn to build an electronic product manufacturing plant in the local area had been canceled.

In March this year, the COVID-19 pandemic hit China's manufacturing industry. It was reported that many of Apple's Chinese production partners were considering building factories abroad, with India, Vietnam and Mexico becoming their destinations. For example, Wistron plans to adjust its production in India, Vietnam and Mexico, allocating $1 billion for expansion this year and next; Pegatron, another iPhone assembler, said they hope to set up a new factory in Indonesia and start manufacturing in Vietnam by 2021; Inventec, the main assembler of AirPods, said the company is preparing to open a production line in Vietnam.

On May 11, India's Economic Times reported that Apple is considering transferring about one-fifth of its existing manufacturing capacity in China to India and expanding its supply chain capacity in India to US$40 billion in the next five years.

“Made in India”

In order to attract foreign investment to set up factories in the local area and build a local industrial chain, the Indian government has adopted a "soft and hard" approach in recent years and has continuously introduced relevant policies. On the one hand, it has raised import tariffs year by year, "forcing" mobile phone manufacturers to build factories locally. In February this year, India once again raised import tariffs on electronic products and other commodities, including an increase in the tariff on imported smartphones to 20%.

On the other hand, incentive policies were introduced. In April this year, the Indian Ministry of Electronics and Information Technology announced that it would launch a production-linked incentive plan totaling 480 billion rupees to promote the development of the local electronics manufacturing industry. Starting from August this year, the Indian government will give a 4% to 6% reward for incremental sales of mobile phones and designated electronic components, such as printed circuit boards, photosensitive polymer films and components. Mobile phone manufacturers with a total investment of more than 10 billion rupees within four years can receive an additional 6% reward in the first two years, a 5% reward in the next two years, and a 4% reward in the fifth year.

Just in early June this year, the Indian government just announced that it would provide fiscal incentives and supporting facilities worth about 500 billion rupees (about 6.6 billion U.S. dollars) to attract global smartphone and related component manufacturers to invest in India. The Indian Ministry of Electronics and Information Technology said that the Indian government will initially target five global suppliers and extend the fiscal incentive policy for five years.

Difficulty

It is not easy for Apple to transfer its supply chain to India. India lacks supply chain and infrastructure. Even though it has a large number of cheap laborers, roads, railways, water supply facilities and complete supply chains cannot be built in a day or two.

A Foxconn executive once told The Wall Street Journal, "India's roads, ports and infrastructure lag far behind China. The supply chain is not in place, and Indian workers are not ready to produce high-end organic light-emitting diode (OLED) models." Wistron Chairman Lin Xianming also admitted that Wistron has already made a layout in India, but there are bound to be difficulties, including on-site manpower, language communication and government execution.

However, it seems that despite numerous difficulties, Apple's efforts to diversify its industrial chain are already underway.