Shulou(Shulou.com)11/24 Report--

Beijing, February 14 (Xinhua) Apple is currently seeking to diversify its production and increase iPhone production in India, but this effort has encountered a stumbling block.

Apple has been sending product designers and engineers from California and China to factories in southern India to train locals and help set up production, according to people familiar with Apple's manufacturing problems in India. Apple's manufacturing business in India is just beginning, and the company is building a manufacturing business in India in line with a long-overdue diversification strategy, following the blueprint it developed in China 20 years ago. Apple engineers and designers often spend weeks or months in factories overseeing production.

Although Apple has been producing low-end iPhone in India since 2017, it only reached an important milestone in September last year, almost synchronizing with the production of flagship machines in China. Last year, a few weeks after the launch of the flagship iPhone 14 made in China, Indian suppliers also began producing the phone. Previously, almost all iPhone and other Apple hardware were made in China.

However, Apple's experience in recent months shows that it still has a lot of work to do in India.

Poor yield Tata, an Indian conglomerate, is one of Apple's suppliers, which runs a mobile phone shell factory in Hosul. At the plant, only about one of the two components coming off the production line is of good enough quality to be sent to Foxconn, an Apple assembler, according to people familiar with the matter.

Compared with Apple's zero defect goal, this 50% "yield" is difficult to meet. The factory is planning to improve its proficiency, but there is still a long way to go, according to two people who have worked in Apple's overseas operations.

Jue Wang, a consultant at Bain, a consultancy, said Apple was in the early stages of expanding into India at almost the same time as China's production on the iPhone 14. "We are not talking about the size of the Zhengzhou plant, everyone agrees that the efficiency of the Indian factory will be different, but this is happening." She said. The Zhengzhou factory is a factory center in China, known as the "iPhone city", and employs about 300000 workers.

Lack of urgency in China, suppliers and government officials have adopted a "do whatever it takes" approach to win iPhone orders. For example, former Apple employees said: they estimated that a task might take several weeks to complete, but when they came to work the next morning, they found that the task had been done at an incredible speed.

By contrast, a former Apple engineer with knowledge of operations in India says Apple's business in India is not running at this rate: "it's just a lack of urgency."

One person involved in Apple's operations said Apple's expansion into India had been slow, in part because of logistics, tariffs and infrastructure. This person said that thanks to the Regional Comprehensive Economic Partnership Agreement, Apple's diversification in Southeast Asia has been more smoothly. The agreement is a free trade agreement signed by 10 regional countries.

Mark Zetter, president of Venture Outsource, an electronics contract manufacturing industry consultancy that accounts for less than 4 per cent of Apple's Indian handsets, says this inertia has been a problem for years. Five years ago, Zetter did research for Gateway House, an Indian think-tank, and found that Indian contract manufacturers often claimed that they could meet "any needs" of electronics customers. But in fact, they were "slow to respond to customer concerns" after the agreement was signed and "inflexible" in responding to changes.

Apple engineers sometimes stay in a hotel in downtown Chennai, the capital of the southern Indian state of Tamil Nadu, two hours from the factory where they work. This requires a four-hour daily commute and occasionally encounters a poor WiFi network along the way. Apple declined to comment.

There are obstacles everywhere despite these initial problems, analysts say India has great potential for Apple. Bain estimates that India's manufacturing exports could more than double from $418 billion in 2022 to more than $1,000bn in 2028, driven by policy support and low costs. The company estimates that India's electronics exports alone will grow by as much as 40% a year.

Vivek Wadhwa, a Silicon Valley entrepreneur and scholar, met with government officials, including Indian Prime Minister Narendra Modi, last month. The Indian central government encourages companies to seize Apple's diversified demand opportunities, he said. The provincial government is "doing its utmost to bring in industry and they will follow China's example", he said, "but these are still in their infancy. Apple is now down-to-earth, learning what is useful and what is not... in three years, you will see its scale expanding.

Mr Wadwa admits that the fragmentation and bureaucracy of the Indian government is something Apple needs to adapt to. He advises engineers to learn the art of Jugaad, a way to "make do with" or surmount obstacles. "because in India, everything is an obstacle." He said.

Apple's recent job ads make it clear that the company has big ambitions in India. This year, India is expected to overtake China to become the world's most populous country. One of the ads told future employees that they would "develop new businesses in India, serve all Apple's product lines, and build future factories at the same time".

The word "India" was mentioned 15 times in an Apple earnings call held by Foxconn in India earlier this month. Tim Tim Cook, CEO of Apple, said he was "very bullish on India". He called the market "very exciting" and "a big focus" and confirmed plans to open the first Apple store in India soon.

Tata is ambitious and plans to become a full-service Apple supplier like its Foxconn counterparts, according to people familiar with the matter. Tata has the approval and support of the Indian government, and the Indian conglomerate is in talks to buy an iPhone assembly plant near Bangalore from Witronix, a Foxconn rival. Willon is seeking to withdraw from the Indian market after labour riots and protests in 2020.

One person familiar with the plans for Tata to contract iPhone said Apple was pushing ahead with negotiations to allow Tata to take a majority stake rather than the 50:50 joint venture structure. Tata declined to comment on its plans. Willoun has no comment. Meanwhile, the Indian government has initially approved Apple's Chinese parts supplier to set up a joint venture with an Indian partner to start operation, according to a person familiar with the matter.

Earlier this month, Nirmala Sitharaman, India's finance minister, said India intended to provide tariff relief on imports of certain components and components used in mobile phones, such as camera lenses, to "defend the domestic added value of mobile phone manufacturing".

An electronics executive in Tamil Nadu said Apple was late in the game. "they should have started doing this five years ago," he said. "they should have started diversifying earlier so they could benefit at this time."

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