China has been forcibly deprived of its “technological treasures” by an Asian adversary: a bitter and humiliating defeat caused by the very weapons that once brought this nation its renowned reputation.

The main pillars in China’s technological production have been shaken amid the height of the tense situation. Meanwhile, the strongest competitor in Asia has seized the opportunity without hesitation.

China is facing “a headache”

As Apple has had to look outside of China for new supply chains due to the impact of Covid-19 and escalating geopolitical tensions, India has emerged as a potential attractive alternative for the world’s second-largest economy. And Beijing’s major regional competitor is not missing out on this opportunity.

For years, Apple has relied on China’s vast manufacturing network to produce a range of iPhones, iPads, and the company’s iconic tech products, becoming a leading global phone manufacturer.

The production of iPhones also became a technological cornerstone for China throughout nearly 25 years of collaboration with the American company.

However, that close relationship was challenged last year by Beijing’s strict non-Covid strategies.

Troubles began in October 2019 when workers started leaving the world’s largest iPhone manufacturing plant operated by Foxconn due to the outbreak of the Covid-19 pandemic.

In an attempt to address the labor shortage, Foxconn resorted to offering incentives to entice workers back to its facilities. However, tensions flared when workers accused the company of failing to fulfill its promises, exacerbating an already delicate situation.

While operations in Zhengzhou, located in central China, have now returned to their regular state, the repercussions of production issues have been felt keenly, particularly concerning the availability of iPhone 14 Pro and iPhone 14 Pro Max models during a critical shopping season.

Adding to the complexities, relations between the United States and China have grown increasingly strained. The previous year saw the Joe Biden administration imposing a ban on Chinese companies purchasing advanced chips and chip-making equipment without obtaining a license.

As a result, Apple finds itself contemplating a significant shift in its strategy, contemplating a departure from its long-standing market in China and focusing its investment endeavors on the promising landscape of India.

“I think they will continue to rely on China for a significant proportion of their production,” said Willy Shih, a professor at Harvard Business School, speaking about Apple.

“But the company is trying to increase diversification in its supply base so that if something goes wrong in China, they have some alternative options.”

Shih referred to this strategy as “China +1 or China + more than one.”

China+1= India?

According to the India Cellular and Electronics Association (ICEA), mobile phone exports from India surged past $11 billion in March 2023, with Apple claiming a significant share of over 40%. This notable achievement can be attributed to Apple’s assembly of iPhones within India, carried out by three prominent contract manufacturers: Foxconn, Wistron, and Pegatron. Encouraged by government initiatives, these manufacturers have played a pivotal role in Apple’s production operations.

India stands as the world’s second-largest smartphone market and has long been a prime target for Apple’s expansion efforts. However, the company has faced its fair share of challenges in successfully selling iPhones within the country. This is primarily due to the prevalent preference among Indian consumers for more affordable smartphone options.

Despite the hurdles, Apple’s CEO, Tim Cook, has consistently emphasized the importance of India as a key market for the company, recognizing its potential for growth and opportunity.

“India is an incredibly exciting market for us and a key focus. Looking at our business operations in India, we have achieved record quarterly revenue and strong double-digit growth year after year, so we are very pleased with the effectiveness of our operations,” he said.

India is on track to surpass China this year as the world’s most populous nation, a milestone that underscores its appeal to manufacturers due to its abundant and cost-effective labor force as well as skilled technicians.

As the third-largest economy in Asia, India boasts a burgeoning domestic market. In the midst of persistent concerns regarding a global economic recession in 2023, India is expected to maintain its position as the world’s fastest-growing major economy.

Should this growth trajectory be sustained, India is poised to join the ranks of only two other nations with a staggering GDP of $10 trillion by 2035.

Experts believe that India’s expanding consumer base could grant it an advantage over Vietnam, another country that is experiencing a surge in investments within the electronics manufacturing sector.

To foster investment in mobile phone manufacturing, the Indian government has implemented favorable policies. As per Pathak, an analyst at Counterpoint, India presently accounts for 16% of global smartphone production, while China retains a significant 70% share.

In a notable move, Samsung, the leading smartphone brand globally, has taken a significant stride ahead of Apple by ramping up its manufacturing operations in India.

The South Korean tech giant has strategically diversified its production away from China, driven by mounting labor costs and fierce competition from domestic players such as Huawei, Oppo, Vivo, and Xiaomi.

At present, Samsung manufactures a considerable portion of its smartphones in Vietnam and India, with India alone contributing to 20% of Samsung’s global production volume.

In 2018, Samsung made headlines when it inaugurated what has been hailed as the “world’s largest mobile factory” in Noida, a city near the capital, New Delhi. Industry analysts believe that this significant investment by Samsung has set a precedent and paved the way for other manufacturers to explore similar opportunities in India.

Notably, some of Apple’s major contractors have also recognized the potential in India and increased their investments in the country. For instance, Foxconn, one of Apple’s key manufacturing partners, announced a substantial $500 million investment in its Indian subsidiary last year, showcasing the growing significance of India as a manufacturing hub for the global tech industry.

Will there be India’s Shenzhen?

However, manufacturing in India comes with numerous challenges.

“One of the things that China has done is they’ve built the best infrastructure they possibly can. And I don’t think India has built infrastructure in the same way,” said Shih, referring to highways, ports, and transportation routes that allow smooth movement of goods.

“Can India replicate a version of Shenzhen?” Tarun Pathak, Research Director at market research firm Counterpoint, questioned, referring to China’s renowned manufacturing hub.

“Apple’s dependence on China is a result of nearly two and a half decades that China has invested in developing their entire electronics manufacturing ecosystem.”

He further stated that building such “hotspots” would not be easy and would require India to think about issues ranging from logistics and infrastructure to the availability of skilled labor.

“In theory, it can be done, but it’s not going to happen overnight.”

Nevertheless, it is still a success. “I think that would be a big, big win,” said Pathak, noting that increasing manufacturing ties with a giant like Apple would subsequently attract other global brands to India’s electronics manufacturing ecosystem.

“You invest in the big one, and the others will follow.”

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