The world’s most valuable company, Apple Inc., is in the process of negotiating terms for setting up a manufacturing facility in India. So far, the Indian government doesn’t appear to be in the mood to grant the tax concessions and duty exemptions the company is asking for but given the pressure to back Prime Minister Narendra Modi’s “Make in India” programme, it may eventually agree to some of them. After all, Apple manufactures its iconic phones in only two countries, China and Brazil. Joining that elite list would be a feather in India’s cap.
Or maybe not. An iPhone assembling plant may not really be such a big deal for India.
In the first place, Apple is nothing without the supply chain ecosystem it has created. This includes some 200 suppliers across the world making the chips in one place, the batteries in another and assembling all of them are integrators like Hon Hai Precision Industry, also known as Foxconn, which has already committed to investing $5 billion to assemble iPhones in India, Pegatron Corp. and Wistron Corporation. The best that could happen is for Apple to get one of these companies to set up a plant in India to assemble some more units here.
Currently, except for a rump operation in Brazil, the bulk of Apple’s iPhones are assembled in China and no matter what concessions the Indian government doles out it is unlikely that Apple will upset this balance of power.
What’s more, Apple’s best days in the smartphone business are behind it. Chinese companies like Huawei, ZTE and Xiaomi are grabbing bigger chunks of the market worldwide with their lower-priced Android-based smartphones. These phones now outsell iPhones by a factor of five according to Mary Meeker’s Internet Trends Report. In key growing markets like India and China, that difference is even more telling. Indeed, the domestic market is hardly starved for suppliers of phones. Already 40 companies have manufacturing facilities in India.
Even if the government agrees to grant all the concessions Apple is demanding, it will take anything from two to three years before the said plant goes on stream. The world of 2020 is going to bear little resemblance to the one we are seeing today as a glimpse at the mobile technologies on offer at the 2017 Consumer Electronics Show (CES) in Las Vegas reveals.
What India needs is Rs2,000 handsets that will enable consumers in semi-urban and rural markets to transact more frequently online. That’s not going to happen with Apple’s high-priced iPhones.
If concessions have to be given to persuade global companies to set up manufacturing in India, they are better off given to those at the forefront of technologies that will drive the future. Last year there was some talk of the Indian government urging the revolutionary car-maker and energy storage company Tesla Motors to set up its Asian manufacturing hub in the country and offered it strategically located land near major ports. Tesla isn’t convinced yet but said that it would evaluate the proposal depending upon the sales of its Model 3 car in India. To snag a horizon-widening company like Tesla, the government will have to rethink the tax structure on electric vehicles, on imports of fully-built vehicles to India as also on lithium, a key ingredient for its batteries.
Tesla isn’t, of course, the only one. There are many other companies pushing the boundaries of technology, which may be both easier to woo and whose multiplier effect may be far greater in the long term. As an example there is Cortex Composites, the Draper Associates-funded California-based developer of a new type of cement called Cortex which has uses like canal lining, ditch lining, slope protection, erosion control and lining ponds. It replaces expensive mixing trucks in places that need just thin layers of cement. There is also a clutch of innovative 3D printing companies like 3D Hubs, Carbon, Made in Space or Voxel8. For hardcore manufacturing there is Daijiang Innovations (DJI), the world’s most successful consumer drone-maker based in China.
Country strategies have to be based on a long-term vision. The smartest countries are now looking at building ecosystems around artificial intelligence (AI), which is expected to have the same impact on the world as the internet or electricity before that.
In a brilliant piece in the Globe and Mail the authors sum up the likely impact of artificial intelligence thus: “Over the coming years, AI will touch every industry, from finance to farming, from aerospace to manufacturing. Countries that lead in AI research and application are expected to see a doubling of their economic growth rates.”
It is unlikely that an Apple plant will give a similar pivot to Indian manufacturing. For that India needs to woo producers of the future.
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.
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