A whole new cup of chai for iPhone supply chains

iphone india

There is no doubt that air cargo supply chains have benefited substantially from the manufacture of Apple’s iconic iPhones in China, but a serious wake-up call may be coming as high-end iPhone production diversifies to India.

While not clear at least at this point that this represents a major shift of production out of China, certainly it represents a significant diversification to the emerging giant economy of India, where not only labour costs are lower than China (estimated to be three times lower, in fact), but geo-political trade risks are currently much lower.

One thing is very clear – the move will help diversify Apple and Foxconn’s manufacturing footprint away from China amid ongoing trade tensions with the US.

Foxconn Technology group chairman Terry Gou says the iPhone will go into mass production in India this year, in time for the US company’s major product launch in September this year. Foxconn has said it will invest USD 300 million in the new facility.

While Apple has been producing older phones at a plant in Bangalore for several years, the tech giant – through its key manufacturer Foxconn – will expand manufacturing to more recent and high-end models in a new manufacturing facility outside of the southeastern city of Chennai.

Foxconn is no new-comer to India as it already has two assembly sites in the southern Indian states of Andhra Pradesh and Tamil Nadu, where it makes devices for Xiaomi and Nokia.

iphone india production

Likely there is a two-pronged strategy to this move by Apple. India has become the fastest-growing smartphone market in the world, while China stagnates and Apple is continually losing not just China, but global market share to Chinese competitors such as Huawei Technologies and Xiaomi.

In India, Apple has struggled, in large part because of its high prices with Apple selling only 1.7 million out of the total 140 million smartphones sold in India last year, according to Bloomberg. But with local manufacturing, the US company would become much more competitive by avoiding onerous 20 per cent import duties. That’s one thing.

The move to India would also help Apple diversify its production away from its sole production base in China, where costs are higher. In light of the ongoing trade war between the US and China alongside competitive cost pressures, this would seem a very logical step.

In this regard the move also follows, belatedly, its Korean competitor Samsung, which first diversified away from scattered production facilities in Southeast Asia and China into Vietnam and then India, with a major production and research facility recently opened in Delhi.

What this means for the air cargo supply chain that has benefited significantly from uplifting Apple’s production from Zhengzhou (largely) in China to the rest of the world, remains to be seen. Certainly it’s unlikely to be a wholesale relocation, but the writing is clearly on the (Great) wall.

For those carriers and forwarders that already have a presence in India, this will be some icing on the cake. For many others this may pose a more serious challenge.

If we look at the example of Korean Air Cargo, a serious chunk of their business comes from Korea’s industrial giants. Samsung’s concentration on Hanoi, Vietnam for their smart phone production required a rejigging of their lift, but that has become a very major cash cow for the carrier.

The diversification to Delhi in India saw the carrier following in their footsteps, of course. For Korean, that worked well. Delhi was never much of sterling cargo origin point in terms of rates, but suddenly Samsung put it front and centre on Korean Cargo’s map.

And with the Indian-manufactured hand sets destined for Europe and the Middle East, it worked very well, with the carrier quite happily running its freighters at high yield, high load factors from Incheon to Delhi to London.

As for Apple’s (at least partial, for now) shift to Chennai, it’s less clear what it will mean for the Cathay Pacifics, AirBridgeCargos and a whole swath of other carriers that bank on the transpacific iPhone trade every product launch to boost their earnings. That demand will still be there, but certainly this shift west changes things a bit.

Should this be a small taste of bigger things to come, well then… that’s a whole different cup of chai.

Summary
A whole new cup of chai for iPhone supply chains
Article Name
A whole new cup of chai for iPhone supply chains
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There is no doubt that air cargo supply chains have benefited substantially from the manufacture of Apple's iconic iPhones in China, but a serious wakeup call may be coming as high-end iPhone production diversifies to India.
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AsiaCargoBuzz.com
AsiaCargoBuzz.com
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