April 24, 2024

India’s silent attempt to steal more Chinese iPhone business

India is quietly sourcing more production of Apple’s iPhones and other electronic equipment from China.

It happens in southern Indian industrial areas on muddy plots that were once agricultural land.

In Sriperumbudur, people call Apple “the customer” and are afraid to utter the name of a company that prizes its secrets.

But some things are too big to hide. Two gigantic dormitory complexes rise from the earth. Once completed it will be a sleek block of 13 buildings with 24 rooms per floor around an L-shaped corridor. In all those pink-painted rooms there will be beds for six workers, all women. The two blocks will each house 18,720 employees.

It’s a ready-made scene from Shenzhen or Zhengzhou, the Chinese cities famous for their iPhone manufacturing prowess. And that’s no wonder.

Sriperumbudur, in the state of Tamil Nadu, is home to the growing Indian fortress Foxconn, the Taiwan-based company that has long played the biggest role in iPhone production. And in 2019, about 99 percent of it was made in China.

India, as part of a national manufacturing drive, is chipping away at this dominance, as many companies look to spread their work to countries other than China. It’s estimated that 13 percent of the world’s iPhones were assembled in India last year, and about three-quarters of them were made in Tamil Nadu. Next year, the volume produced in India is expected to double.

But despite nearly a decade of a ‘Make in India’ initiative promoted by the country’s powerful Prime Minister Narendra Modi, manufacturing as part of the economy has stalled. At about 16 percent, it is a shade lower than when Modi came to power in 2014, and much lower than that of China, or Japan, Taiwan and South Korea when those Asian tigers took flight.

India desperately needs more skilled jobs, and factory work creates them like no other. Last year, India overtook China as the world’s most populous country, and its working-age population is growing rapidly. But turning that demographic bulge into an actual advantage means making India’s workers more productive. Half of them still depend on small farms.

Tamil Nadu could show the way forward. The state of 72 million people is now achieving success in ways that have eluded India as a whole. The national government began subsidizing electronics manufacturing across the country in 2021, sparking a gold rush in places like Noida, in addition to New Delhi.

But for Tamil Nadu, that incentive is not an essential lure. TRB Rajaa, Tamil Nadu’s Industries Minister, can list the state’s built-in advantages: schools, transport, engineering graduates.

“We never compare our growth with other Indian states,” he said. “We are mapping ourselves to the growth of the Nordic countries and how we can beat it.”

Mr Rajaa and other Tamil Nadu boosters are proud of the human capital their state has built, especially its women. Many of them have formal jobs, while in other states few women do so: 43 percent of all Indian female factory workers work in Tamil Nadu, where 5 percent of the national population lives.

Parts of Tamil Nadu are already acting as industrial champions. A long belt of car and car parts manufacturers stretches along the coast from the capital Chennai. In the western Coimbatore Valley, factories specialize in injection molding and pump manufacturing. There is a knitwear cluster in Tiruppur, and the country’s largest matchstick manufacturer is in Sivakasi.

It is striking that India is focusing on high-value goods such as the iPhone. India never became internationally competitive by making things like T-shirts or sneakers and having its clock cleaned by smaller and previously less developed countries like Bangladesh and Vietnam.

This is not the first time this century that India has been expected to move up the rankings in high-end electronics manufacturing. Also not the first time that Tamil Nadu seemed to be the best launching pad for it. In 2006, Finland’s Nokia, then a mobile phone giant, built a large factory in the center of the government-planned Sriperumbudur industrial estate. It had to make millions of phones a year, for India and the rest of the world. The smartphone and the global financial crisis of 2009 crushed those dreams.

But the roots never died. Sriperumbudur was initially attractive because of its experience in car manufacturing. Hyundai had launched in 1996, soon after India opened its economy to more foreign investment and Tamil Nadu established its first state development agency. Glass production and basic electrical goods followed. After a hiatus, the old Nokia site was rebuilt by Salcomp, a local company that makes high-quality chargers, now for companies like Apple. The factories of a dozen other known and rumored Apple suppliers have sprung up around it, along with Samsung, Dell, and most other major multinational electronics companies.

On Friday, India’s Republic Day, Foxconn CEO Young Liu was in New Delhi to receive the Padma Bhushan, the country’s third-highest civilian honor. “Let us do our bit,” he said, “for manufacturing in India and for the betterment of society.”

A thriving network of small, medium and large businesses contributes to Tamil Nadu’s success. One of these is Sancraft Industries in Sriperumbudur, a company with a turnover of about $5 million that makes molded plastic parts for a handful of companies that power the iPhone machine.

Company founder Amit Gupta said Nokia “brought the ecosystem here” and its Finnish engineers have done a lot to usher in global standards. His experience with an early customer, Schneider Electric, a French company, taught him how to integrate his operations with more recent customers from South Korea, Taiwan and China.

Host to an international supply chain, Tamil Nadu has attracted restaurants and supermarkets that cater to Western and East Asian tastes. “It’s like a small version of China here,” said Mr. Gupta, who worked in Shenzhen 15 years ago.

In India and beyond, there is no shortage of excitement about the prospect of India displacing China in at least some of the global supply chains. Last year, Apple CEO Tim Cook appeared in India with his palms pressed in namaste and a vermillion mark on his forehead to inaugurate the country’s first Apple stores.

All told, more than 130 Fortune 500 companies do business in Tamil Nadu.

The electronics campuses in Sriperumbur are strikingly similar. Gardens and parking lots filled with dozens of white buses separate low-slung assembly plants. The buses transport thousands of workers to and from their homes in villages 50 to 90 kilometers away.

Inside an Apple supplier, blue-smocked workers in surgical masks walked along the banks of white aluminum-clad machines on paths marked by yellow arrows taped to the floor. Low ceilings, long, clear sight lines and signs encouraging good behavior in English and Tamil completed the effect.

There are more to come. Corning, the American glass maker, is setting up a factory that could produce the iPhone’s Gorilla Glass screens, and Vietnam’s VinFast Auto has announced a $2 billion factory to make electric vehicles.

Mr Rajaa, the Minister of State for Industry, is also not stopping at $1,000 smartphones. He and other officials in Tamil Nadu are trying to attract more companies that also make cheaper things in higher volumes. If the rest of the country could follow Tamil Nadu, India might be able to produce enough of the less-skilled jobs that its young and growing population needs.

Mr Rajaa spent the first week of January treating foreign investors to plans that include a burgeoning new industrial cluster focused on non-leather footwear. About 230 kilometers south of Sriperumbudur, Nikes, Adidases and Crocs are just starting to roll off the lines in Perambalur.

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