Apple will begin assembling its iPhones in India through a local unit of Foxconn as early as 2019. This is the first time the Taiwanese contract manufacturer will make the product in the country, according to a source familiar with the matter.
Foxconn will assemble Apple’s most expensive models, such as devices in the flagship iPhone X family, the source said, which could potentially boost Apple’s business in India. The work is said to have begun at Foxconn’s plant in Sriperumbudur town in Tamil Nadu, the source told Reuters.
Foxconn, which already makes phones for Xiaomi Corp. in India, will invest Rs 25 billion ($356 million) to expand the plant. The infusion will include investment in iPhone production, Tamil Nadu’s Industries Minister M.C. Sampath told Reuters. The investment may create as many as 25,000 jobs, he added.
Apple spokeswoman Trudy Muller has refused to comment, while Foxconn said it did not comment on matters related to current or potential customers, or any of their products.
At a Cabinet meeting chaired by Tamil Nadu Chief Minister Edappadi K. Palaniswami, it was announced that Foxconn will start manufacturing various models of the iPhone, depending on demand.
State Electricity Minister P. Thangamani managed to persuade Foxconn’s management to stay the course in Tamil Nadu instead of moving to other Indian states, sources said, the Hindu reported.
iPhones in India
Apple began commercial production of its iPhone 6s in India in June this year. Apple commenced production at the Bengaluru facility of its Taiwan-based contract manufacturer Wistron that has set up a new line for the handsets.
Apple was undertaking trial production for the second iPhone model in the 6 series since April and chose iPhone 6s due to its sales potential, the executives said.
Earlier, Apple made its first “Assembled in India” model in June 2017. It has been going back and forth with its iPhone production in India but it finally managed to put up “Indian” iPhones.
Apple’s assembly process
Apple buys many of the components for iPhones — such as the memory chip, the modem, the camera module, the microphone, and the touch-screen controller — from more than 200 suppliers around the world.
Foxconn, the Taiwanese company that runs Apple’s Zhengzhou facility, produces some smaller parts, such as metal casings. Apple orders many of the components from global suppliers, and then sells them, en masse, to one of its contract manufacturers in China. In Zhengzhou, that means Foxconn.
The newly assembled iPhone is then transported a few hundred yards beyond the factory gate, where China built a large customs facility. The customs operation is situated in a so-called bonded zone, which allows Apple to sell the iPhones more easily to Chinese consumers.
As the final point of assembly for the iPhone, China also serves as a starting point for Apple’s global tax strategy. In Zhengzhou, Foxconn sells the completed iPhones to Apple, which then resells them to Apple affiliates around the world.
The process, a large part of which takes place electronically, allows Apple to assign a portion of its profits to an affiliate in Ireland, a tax-advantageous region.
Phone manufacturers in India
Reports from April stated that India was the second largest mobile phone producer in the world after China, as per information shared by Indian Cellular Association with Telecom Minister Manoj Sinha and IT Minister Ravi Shankar Prasad.
India replaced Vietnam to become second largest producer of mobile phones in 2017. With the rise in mobile phone production, imports of the devices in the country also reduced to less than half in 2017-18. India’s domestic mobile phone production received a shot in the arm after Samsung opened the world’s largest mobile phone factory in Delhi.
Furthermore, driven by the government’s “Make in India” initiative, the mobile handset manufacturing eco-system in India has helped the country save Rs 3 trillion by replacing imports of completely-built units (CBU) with locally manufactured and assembled handsets during the past four years, as per a report released in August.
In 2017-18, more than 225 million handsets were assembled/manufactured in India — which was approximately 80 per cent of the total market requirements, according to a report by the India Cellular and Electronics Association (ICEA). The net foreign exchange savings were estimated to be over Rs 600 billion, the report said.
Chinese mobile phones in India
Chinese brands Xiaomi, Vivo, and Oppo, which have captured a big share of India’s mobile phone sector, have not showed any signs of slowing down despite a market contraction. With its competitive market and significant consumer demand, experts feel that India still offers a promising future for Chinese mobile phone companies.
Xiaomi shipped more than 12 million smartphones in India in the third quarter. It grew by 32 per cent on a yearly basis, making it the largest smartphone vendor in India.
Chinese brands have for long offered low prices, and they continue to do so. However, the market has also changed. The low pricing of devices is indicative of the level that others have to compete against.
According to an industry source involved in smartphone sales, Oppo and Vivo sell phones in India at a margin of about 12 per cent. These two companies have traditionally sold phones at higher prices than Xiaomi, since they plied their trade in an offline-centric model in India.
Foxconn’s fraught history with labour laws
In June 2018, a US-based rights group said there had been “a number of rights violations” at a Foxconn factory in China which manufactures products for Amazon. It was noted that temporary agency workers were underpaid and overworked at the Hengyang Foxconn factory, according to China Labor Watch.
In its statement, Amazon had said that it took the reported violations “extremely seriously”, and had asked Foxconn for a “corrective plan”.
The report also showed that so-called dispatch workers were underpaid and made up a far higher percentage of the overall workforce than permitted by Chinese law. As per the report, dispatch workers were earning 14 remnibi ($2.18) per hour and were not paid a higher rate when working overtime.
The investigation found that workers put in more than 100 hours of overtime a month during peak production season — this was in violation of Chinese law, which says monthly overtime cannot exceed 36 hours.
Dispatch workers, who are not paid sick leave, constituted around 40 per cent of the workforce — this was far higher than the 10 per cent that is permitted by Chinese regulation.
Amazon said it immediately asked for an action plan after identifying “two issues of concern” at the plant in March.
Foxconn said that it was “carrying out a full investigation of the areas raised by that report”. The company added that it “works hard to comply with all relevant laws and regulations” in the markets where it operates and that “if infractions are identified, we work to immediately rectify them,” as per a report in the New York Times.
Apart from this, Foxconn’s employees have been known to work excessive hours, often under hazardous conditions. In 2012, Foxconn was accused of underpaying its employees and having them work excessive hours.
Earlier, in 2011, one Foxconn worker was left brain damaged after being electrocuted. In the same year, an explosion in one factory killed four people and injured 18. In 2012, Foxconn admitted to having hired teenagers as young as 14 at one of its factories.
In another instance in 2012, three to four thousand employees walked out of Foxconn’s Zhengzhou factory, as per rights group China Labor Watch. It said Foxconn and Apple had “raised overly strict demands on product quality” without providing adequate training.
The strike came weeks after Foxconn was forced to close a plant in Taiyuan, when a brawl involving as many as 2,000 workers left several people needing hospital treatment.
The Taiwanese company, however, denied all such reports and said that its production was on schedule. Foxconn said the plant suffered only two brief and small disputes.
“Any reports that there has been an employee strike are inaccurate,” the company said in an emailed statement, adding that “there has been no workplace stoppage in that facility or any other Foxconn facility and production has continued on schedule”.
Foxconn said the quarrels happened on the first two days of October, and were “immediately addressed and measures taken, including providing additional staff for the lines in question,” Reuters reported.
Given Foxconn’s tepid history in terms of complying with labour laws, its presence in India to manufacture one of the most popular phones in the world will presumably be under intense scrutiny.
Elton Gomes is a staff writer at Qrius.
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