Apple and Foxconn are getting together to fulfill one of the dearest wishes of Modi’s government in India – they’re going to start manufacturing up to date iPhones in the country. That this announcement comes at the beginning of the vast voting exercise that is an Indian general election, well, why not time such announcements for their maximum value?
The thing is that the move isn’t going to make all that much difference. Sure, there will be some dodging of import tariffs but even then it’s not a certainty that Indian iPhone prices will fall:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]India has become the fastest-growing smartphone market in the world, while China stagnates and Apple loses share to local competitors such as Huawei Technologies Co. and Xiaomi Corp. Apple has been a minor player in India, in part because of its high prices, but local manufacturing would help the Cupertino, California-based company avoid import duties of 20 percent.[/perfectpullquote]
Components are duty free, finished handsets pay the duty. So there is that, yes. But this looks pretty weak:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]“For Foxconn, the China market for iPhones is saturated, and labor costs are three times higher compared with India,” said Karn Chauhan, a Gurgaon-based analyst at Counterpoint Research.[/perfectpullquote]
The local labour content of an iPhone – as opposed to in the imported components – is perhaps $10. Not a number that drives decision making. It also doesn’t quite solve Apple’s other desire, to be able to run its own stores:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Producing iPhones in India will give Apple some regulatory advantages in the large and fast-growing Indian market. According to Bloomberg, it will allow Apple to dodge 20 percent import duties and enable Apple to open its own stores in India.[/perfectpullquote]
That local production requirement is better thought of as a precondition for haggling than a certainty of gaining permission. The Indian government really, really, doesn’t like foreign capital owning retail outlets. On the basis that the current local incumbents are numerous in terms of voting habits and also well aware that they’d be swept away by any modern logistics chain equipped foreign competition.
There is also a problem with local manufacturing as Apple found out in Brazil:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Foxconn has created only a small fraction of the 100,000 jobs that the government projected, and most of the work is in low-skill assembly. There is little sign that it has catalyzed Brazil’s technology sector or created much of a local supply chain. The iPhones now rolling off an assembly line near São Paulo, the only ones in the world made outside China, carry a retail price tag of nearly $1,000 for a 32-gigabyte iPhone 5S without a contract – among the highest prices in the world and about twice what they sell for in the U.S. [/perfectpullquote]
And:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]I am about to employ hyperbole – there’s your trigger warning. Essentially, they’ve created a large shed within which they assemble imported components. And the actual assembly of an iPhone, in those Chinese factories, carries a labour bill of about $8 or so. Moving that activity to Brazil while importing all of the parts being assembled just doesn’t make much difference to the Brazilian economy at all – nor to the Chinese one either.[/perfectpullquote]
Or now the Indian one. Except, of course, giving up the mass production efficiencies in China for the lower productivity in India might well make the locally assembled phones more expensive again. As the process does in Brazil. It’s not entirely obvious that Indian iPhone production is going to be a winner for anyone at all. Other than perhaps Modi’s Make In India campaign and come on, it is election season, isn’t it?