Big Labor Is a Big Barrier to Apple’s India Ambitions

Apple plans to assemble more than 50 million iPhones in India annually within the next two to three years.
Apple plans to assemble more than 50 million iPhones in India annually within the next two to three years.

Summary

India’s moment as a manufacturing hub is here but to truly capitalize on that, it needs labor market reforms.

India is front and center of Apple’s plans to diversify production away from China. But shaky infrastructure isn’t the only obstacle. There is another crucial complicating factor: a powerful and independent labor movement.

That is a major difference from China where, for better or worse, labor unions don’t exist as a political force independent of the ruling Communist Party. And with India’s contentious general elections coming up in early 2024, nascent labor reforms that are important to Apple’s plans could get caught up in the political crossfire.

Apple plans to assemble more than 50 million iPhones in India annually within the next two to three years, The Wall Street Journal reported Friday. That would be equal to around a quarter of 2022 global shipments—and an enormous step up from the 6% assembled in the nation last year, according to consulting firm Canalys.

Foxconn, the world’s largest contract electronics manufacturer and a key Apple supplier, has rapidly increased investment in India, and in late November announced it was investing the equivalent of more than $1.5 billion in the country.

Still, China remains far and away the top destination for phone assembly—and there are good reasons to expect that to continue for a long time, despite heavy pressure from Apple and others to diversify.

India’s southern Tamil Nadu state, home to Foxconn and Pegatron factories churning out iPhones, shelved a contentious bill permitting 12-hour factory shifts in April. The rule doesn’t change weekly working hours but would have helped Apple suppliers run two long daily shifts, instead of the current shorter three. That would have brought Tamil Nadu in line with China—where 12-hour workdays are allowed, bringing more efficiency to the factory floor, especially ahead of crunch periods like holidays or new product launches.

The bill faced stiff resistance from labor unions and opposition parties and there is a risk of something similar happening in the neighboring state of Karnataka, another site for assembling iPhones. The Indian National Congress party, which has controlled the state government there since May, campaigned partly on reversing a similar measure.

So far, that hasn’t happened—but political pressure on all of India’s major political parties will be ramping up ahead of general elections next spring.

Labor reforms are important because building all those new factories is already going to be very expensive. Foxconn’s 2021 operating margin in India was still about negative 1%, according to Goldman Sachs, and its operations in Vietnam took years to become profitable after it began opening factories there.

India itself also has an enormous amount at stake. The time is ripe, geopolitically and demographically, for it to become a manufacturing powerhouse: Its population is younger and now larger than China’s, but unemployment is high and labor-force participation is low. If it squanders its chance to build a manufacturing jobs machine now, all those young people could become a political problem rather than an economic asset. More than 40% of the nation’s population is under 25.

Regional competition is one reason for optimism—if Karnataka ends up attracting more investment and creating more jobs because it holds the line on labor reforms, other states will presumably take note.

Big multinationals like Foxconn and Apple will also need to be flexible and recognize the trade-offs that India presents. Foxconn and Wistron have both faced protests over poor labor conditions at their factories.

Manufacturers in India may never face inflexible nationwide policies like China’s strict Covid-19 lockdowns—India’s courts and local governments have much more autonomy than their equivalents in Xi Jinping’s China. But multinationals will have to make their peace with the cacophony of a rough-and-tumble democracy housing 1.4 billion people, too.

That will continue to present its own challenges.

Write to Megha Mandavia at megha.mandavia@wsj.com

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