‘Apple can’t leave China’ is a myth that still lures many people, including the American-Chinese scholar Doug Guthrie, who believes Apple and China’s destiny is inextricably linked. In his podcast with Chris Marquis, which was published on 7th January 2022, the scholar made a case against Apple’s recent efforts to reduce its dependence on China and propagated the myth that Apple cannot sustain without the help of China.
Dough pitted Apple’s extensive presence in China with its emergence in India and Vietnam, stating that the American behemoth would have a hard time replicating its success in the new countries, given the conditions of infrastructure, lack of skilled labour and the governance method in these countries that would practically make it impossible to churn out its devices with the same ferocious efficiency as is the case in China.
Guthrie says conditions in Vietnam and India are not conducive enough for Apple to leave China. However, he conveniently glosses over the fact that Apple has already started manufacturing line in India, and quickly expanding its India operations, including the manufacturing of its latest flagship device, the iPhone 13, whose trials have already started for the same.
Apple first entered into the buoyant Indian manufacturing space in 2015, and since then the company has aggressively expanded its market share as well as augmented its manufacturing capabilities in the country. Apple products are being assembled in India and under the ‘Make in India’ initiative, the American tech giant has been steadily developing its manufacturing capacities outside its traditional base of China.
What did the American scholar on China say?
In the podcast, Chris Marquis has asked Doug Guthrie that “Do you think that companies like Apple and Tesla are then maybe too tied to China? It’s not like they can move their production elsewhere. I mean, you mentioned it’s about the components and modules and going down the supply chain, a variety of integration that’s happening, where you really can’t replicate that. But then that gives China and Chinese companies and the Chinese government really a lot of leverage.”
Answering this question, Dou Guthrie has said that “I think that there are three levels to the complexity of that relationship. I just think China has tremendous leverage. I’ve heard leaders from Congress and the former president talk about companies like Apple should just move to Vietnam or move to India, but we don’t have the leverage that we think we do for these three reasons. The first is the floating population. There are 350 million people that are what we call “float” around the country, but they’re actually moved by the government.”
He further elaborated on the reasons why companies prefer China over others. “The second thing is the infrastructure that ties the system together. India doesn’t have the infrastructure that links the states of India together. And then the third piece is what I like to refer to as industrial clusters. So many different cities in China have developed their entire system around focus on a very specific component or module. So it’s hard for me to imagine that a company like Apple or Tesla could leave China, ” Doug said.
As Doug dismisses Apple’s transition out of China, here’s how India is scaling its manufacturing capabilities
‘Make in India’ is one of the prestigious campaigns by the Modi government to promote manufacturing in India, which will create jobs domestically, as well as reduce imports, thereby saving decreasing the country’s reliance on imported goods, and saving prestigious foreign exchange. Under Make in India, and due to the conducive ecosystem created as a part of the campaign, the number of mobile phone manufacturing units in India has gone up to 120 in 2019 as compared to just 2 before 2014.
India’s association with Apple, especially when it comes to manufacturing, dates back to 2015 when PM Modi had given the mantra to ‘Make in India’. Foxconn, the manufacturer of Apple’s iPhones had then announced plans for creating 10-12 facilities in India, which would include factories and data centres. Since 2017, Apple started manufacturing in India rather than simply running its assembly line.
Apple had entered into an agreement with Taiwanese contract manufacturer Wistron to manufacture its iconic iPhone in India. Wistron has set up a plant in Bengaluru where they initially started operations by assembling the iPhone SE and later started making the 6s model also. The plant was further scaled up to manufacture more models of the phone. This attracted a violent reaction by the indigenous ideological siblings of the Chinese Communist Party. Attempts were made to vandalize the plant and communist links in those incidents had emerged.
Expansion of mobile phone manufacturing in Modi Government 2.0
So on one hand there were attempts to demoralize aspiring India from within. While the leaders of the opposition kept questioning the mobile phone manufacturing throughout the first tenure of the Modi government, Indians had already started buying ‘Made in India’ iPhones as early as 2018. No doubt that the wings were bound to expand in the second tenure and that is what exactly has happened. Let’s see how.
Ministry of Electronics and Information and Technology had approved proposals by 16 phone makers under the Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing. The PLI scheme was notified on 1st April 2020 announcing incentives of 4% to 6% on incremental sales (over a base year) of goods under target segments that are manufactured in India to eligible companies, for a period of five years subsequent to the base year (FY2019-20).
The companies approved under Mobile Phone (Invoice Value Rs 15,000 and above) segment had proposed a production of over Rs 9,00,000 crore. The approved companies under Mobile Phone (Domestic Companies) segment had proposed production of about Rs 1,25,000 crore and the companies under the Specified Electronic Components segment had proposed production of over Rs 15,000 crore. The companies approved under Mobile Phone included Foxconn Hon Hai, Wistron and Pegatron which are contract manufacturers for Apple iPhones. Apple accounts for around 37% of the global sales revenue of mobile phones and this scheme is expected to increase their manufacturing base manifold in the country.
It is notable that all this was happening right in the middle of the first wave of the COVID-19 pandemic. Speaking at the inaugural session of the 23rd edition of the Bengaluru Tech Summit held virtually, former Union Minister Ravi Shankar Prasad had said that even during the COVID-19 pandemic period, the government was able to bring nine of their operating units along with component makers from China to India.
Doug Guthrie’s three levels of complexity were already destroyed quite easily
Doug Guthrie has spoken about the three levels of complexities involved in relocating companies like Apple from China to elsewhere – say India or Vietnam. But he seems to be ill-informed about the destruction of his claims which has taken place even before he would have made any. Let us have a look at how. The first one was about the floating population. The reason behind the Chinese government moving their labours every now and then is not only limited to skills. This floating population does not consist of 100 per cent labourers. Actually, it is more of the poor who move from one place to another because of significant income disparity. In fact, China already has an excess of labour which makes shuffling obvious.
Secondly, Doug Guthrie has mentioned infrastructures and transport and it is this part of his statement where he missed it the most. Doug Guthrie seems to have forgotten that companies like Foxconn never decide to relocate overnight. Even before finalizing Chennai as their plant location, thorough studies were made to check possibilities of setting up a factory at other places like The Five Star Industrial Corporation at Shendra near Aurangabad in the state of Maharashtra. It must be noted that this industrial cluster is a part of the DMIC that is the Delhi Mumbai Industrial Corridor. The 1500+ kilometre-long corridor ensures that various sorts of big industries and their component suppliers reside in close vicinity so that smooth production is assured. In the southern part of the country, Bengaluru-Chennai shares a similar corridor. Besides, there are many more such corridors in different parts of the country to serve different sectors of industry.
Manufacturing clusters like these and skilled labour has already been a plus point of India which proved to be one of the key attractions to the leading mobile manufacturers. The amount these companies are investing is a reflection of the trust they have shown in India, which itself destroys the third level of complexity Doug Guthrie has spoken about. Be whatever the leverage Doug Guthrie thinks China enjoys, Indians are all set to buy a Made in India iPhone13.
