Due to supply chain disruptions and rising geopolitical risks, companies are speeding up their production diversification efforts, with Foxconn and Pegatron de-risking themselves from the over-reliance on China, particularly in mobile phone manufacturing in India.
According to Counterpoint Research, China accounted for 67% of the global mobile phone production in 2021, with India and Vietnam contributing 16% and 10%, respectively. Still, according to DIGITIMES Research, India is expected to represent 25% of global iPhone production and account for 45–50% of global iPhone production capacity, putting it on par with China.
The reasons smartphone manufacturers favor India include its demographic dividend and to avoid import customs duties. These factors prompted manufacturers to increase local production in India, with Apple suppliers primarily located in southern India.
India and Vietnam have become preferences for manufacturers going after "China-plus-one" or even "China-plus-N", and the Indian plans of Foxconn and Pegatron, two of the major Apple suppliers, have been in the spotlight in the supply chain.
Vietnam is the largest production base for Foxconn outside of China. Since 2016, after Microsoft sold its Nokia feature phone business to HMD Global and FIH, and FIH's subsequent takeover of the production base in Vietnam, Foxconn has been making mobile phones in the country. In recent years, Foxconn has expanded its production in Vietnam to meet customers' needs as well as diversify its business beyond mobile phone manufacturing.
As for India, Foxconn has had production lines for smartphones for years. Driven by "China-plus-one" and Apple's focus on the Indian market, Foxconn initiated expansion and investments in the South Asian country, including FIT's facility in Telangana, which is expected to start operation in 2024. However, considering India's consumer market, Apple will initially focus on basic models, with some high-end products assembled in India to meet local demands and improve its global supply chain resilience.
Taiwan-based Pegatron has been expanding productions outside of China, including Taiwan, Indonesia in 2020, Vietnam in 2021, and Mexico and India in 2022, with India and Vietnam the primary focus of Pegatron. Indian media reported that Pegatron was talking about setting up another manufacturing facility near Chennai, which may come with a smaller production capacity than the first facility. Pegatron has never confirmed the rumor.
Jason Cheng, vice chairman and deputy CSO at Pegatron, said while the progress in India exceeded expectations, Pegatron will pursue a steady and cautious strategy for its investments in India. It is expected that Pegatron will make products for Apple in India, starting with the iPhone 12 before advancing to the iPhone 13.
Tzu Hsien Tung, chairman at Pegatron, said the 'Make in India' movement will not stop in the coming years, and compared with experiences in China, Taiwan-based companies will be confronted with cultural, legal, and language challenges. He added that assemblers will rely on component imports from China initially, with the local supplier ecosystem remaining to be developed.
Meanwhile, mobile assembly carries a low gross margin, particularly for iPhones, and the huge investments in India and Southeast Asia are expected to exert pressure on a company's profitability, leading to some suppliers selling their assets to Chinese or other interested companie
Investment plans in South and Southeast Asia | ||
Company | India | Vietnam |
Foxconn | Setting up facilities since 2006, making iPhones, Android smartphones, TVs, and E2W components | Largest production base outside of China for mobile phones and components, with plans to venture into EVs |
Petagron | PhoneFirst facility in 2022/9, reported to have up coming second facility, making iPhones | Consumer electronics production, such as Surface and Google Nest series |
Source: DIGITIMES Asia, August 2023
