Foxconn, the world’s largest contract electronics manufacturer and a key supplier of Apple, is expanding its presence in India as part of its strategy to reduce its reliance on China. However, the company’s cautious approach also reflects the challenges and limitations of finding an alternative to the world’s factory.
Foxconn plans to invest over $1.2 billion in India
Foxconn has announced that it plans to increase its investments in India to more than $1.2 billion in the next two years, adding two new component factories in the southern state of Karnataka. One of the factories will produce parts for iPhones, while the other one’s location and product line have not been disclosed yet. The company also signed an initial agreement with the Tamil Nadu government to set up another component plant with an investment of $195 million, creating about 6,000 jobs.
These new projects are in addition to a $700 million facility that Foxconn aims to build on a 300-acre site near the airport in Bengaluru, the capital of Karnataka, which is expected to assemble iPhones and employ about 100,000 workers. The company already operates iPhone assembly plants in Tamil Nadu and Andhra Pradesh.
Foxconn’s expansion in India is part of its efforts to diversify its production base away from China, where it faces rising labor costs, trade tensions with the US, and supply chain disruptions due to the Covid-19 pandemic and geopolitical conflicts. The company has also invested in other countries such as Vietnam, Indonesia, and Mexico to reduce its dependence on China.
India offers incentives and opportunities for manufacturers
India has emerged as a popular destination for manufacturers looking for an alternative to China, thanks to Prime Minister Narendra Modi’s initiatives to boost local manufacturing and attract foreign investment. The government has offered various incentives such as tax breaks, subsidies, and simplified regulations for companies that set up factories in India, especially in sectors such as electronics, automobiles, and pharmaceuticals.
India also offers a large and growing domestic market for consumer products such as smartphones, TVs, and laptops. According to a report by Counterpoint Research, India surpassed the US to become the second-largest smartphone market in the world in 2019, with over 450 million users. The demand for smartphones is expected to grow further as more people access the internet and digital services in India.
Moreover, India has a young and skilled workforce that can provide cheap and quality labor for manufacturers. According to the World Bank, India has a median age of 28.4 years, compared to 38.4 years for China. The country also has a large pool of engineers and technicians who can support the development and innovation of products.
Foxconn faces challenges and limitations in India
Despite the advantages that India offers, Foxconn’s expansion in the country also faces several challenges and limitations that prevent it from replicating its success in China. One of the main challenges is the lack of infrastructure and logistics support in India, which hampers the efficiency and reliability of production and delivery. India ranks 63rd out of 190 countries in the World Bank’s ease of doing business index, while China ranks 31st. India also ranks 44th out of 160 countries in the World Bank’s logistics performance index, while China ranks 26th.
Another challenge is the complexity and diversity of India’s political and regulatory environment, which varies across different states and regions. Foxconn has to deal with different rules and regulations regarding land acquisition, labor laws, taxation, environmental protection, and other issues that affect its operations and profitability. The company also has to navigate the political sensitivities and social issues that may arise from its presence and impact on local communities.
Furthermore, Foxconn’s expansion in India is limited by the scale and scope of its product portfolio and customer base. The company mainly focuses on assembling iPhones for Apple in India, which accounts for only about 2% of the smartphone market share in the country. The company has not been able to secure contracts from other major smartphone brands such as Samsung, Xiaomi, Oppo, Vivo, or Realme, which dominate the Indian market. The company also has not ventured into other product categories such as laptops or tablets in India.
Foxconn’s India strategy is a balancing act
Foxconn’s expansion in India shows that the company is trying to balance its risks and opportunities in a changing global landscape. The company recognizes the potential of India as a market and a manufacturing hub, but it also acknowledges the challenges and limitations that it faces there. The company is not abandoning China completely, but it is also not putting all its eggs in one basket.
Foxconn’s strategy reflects the reality that there is no easy or perfect substitute for China as the world’s factory. The company has to adapt and adjust to different environments and conditions in different countries and regions. The company has to find a way to leverage its strengths and capabilities while overcoming its weaknesses and vulnerabilities. The company has to strike a balance between efficiency and resilience, between cost and quality, between speed and stability.
