Apple's Best Strategy to Compete with China Could Be India

India could become a major manufacturing hub for Apple. The country has the potential to provide the company with low-cost labor and a large market for its products.

This decade, Beijing's own missteps have much to do with the decline of the Chinese electronics industry. But New Delhi also deserves credit for a concerted push to make India an easier and more financially attractive place to build gadgets.

Many Western manufacturers are increasingly uncomfortable with their heavy reliance on China. This is especially true after China's uncompromising and unpredictable approach to public health over the past year. Violent protests at Apple supplier Foxconn's Zhengzhou factory in November further highlighted the risks of an overly concentrated supply chain.

India is set to play a bigger role for Apple. Even though its infrastructure is not great and bureaucracy can be frustrating, India has a large domestic market and the government is now supporting electronics manufacturing. This makes India a good option for a "China plus one" manufacturing strategy.

Apple assembles the iPhone 11, 12, 13 and 14 in India through three Taiwanese companies—Wistron, Foxconn and Pegatron. Thanks to new iPhone designs that are more modular, plants in India can now produce the iPhone 14 almost simultaneously with plants in China, according to Counterpoint Research. The research firm thinks 18% to 20% of all iPhones globally will be made in India by 2025—up from only around 3% in 2021.

One of the main reasons that Apple chose India as the world’s second iPhone assembly site is the potential of India’s own consumer market. Ming-Chi Kuo, an analyst with Hong Kong-based TF International Securities, believes that by the second half of the decade, India could be a significant site for not just assembling but also building iPhone components.

India’s advantages extend beyond its market potential. The country has a deep pool of English-speaking software talent, and the government has begun rolling out incentives for electronics manufacturing in recent years, which have helped attract new investment from companies like Foxconn and Samsung. With almost the same population size as China and a higher birthrate, India has a significant advantage over other up-and-coming electronics manufacturing countries like Vietnam.

India has its own set of challenges, including inadequate infrastructure and a weak electronics supply chain. According to Counterpoint data, only 14-15% of components used in smartphones are sourced locally in India, with the rest being imported, mostly from China. In addition, the Indian government is not as centrally controlled as the Chinese government, which makes it difficult to set business priorities and get local governments to comply. India also has a history of violent labor disputes, including one at an Apple supplier's factory in 2020.

Although it will be some time before India can compete with China in terms of scale and efficiency for global manufacturers such as Apple, the South Asian country has momentum on its side due to changing demographics and self-inflicted wounds in China.