Apple is looking at a potentially $8 billion revenue loss in the June quarter, thanks essentially to supply disruptions in China, where the government adopts a zero-Covid strategy and shuts down entire regions, if any. It breaks out where it breaks out, if not the whole city, to prevent infection. Apple Do not like to play helpless victim of ethical fun. It has begun to reduce the risk of shutdowns in China by moving some production away from the country where an estimated 90% of the company’s production, excluding intellectual property development, takes place.
The supply disruption, already in Vietnam, leads to production of Apple’s Bluetooth earphones. Now, Apple has decided to move some production of iPads to Vietnam as well. The question is why not for India, or at least not, given that India already accounts for about 1.3% of Apple’s production base, even as much of Apple’s production in Southeast Asia. There is only 1% share, why not that much for India? What can India do to make it more appealing to Apple’s FATP, which is short for Final Assembly, Test and Pack, Operation?
China’s average manufacturing salary doubled between 2012 and 2020, according to China’s National Bureau of Statistics, cited by TradingEconomic.com. Still, that hasn’t dampened the enthusiasm of high-end manufacturers to continue production in China. According to data provider CEIC, labor productivity growth in the decade 2010-2019 has been over 7%, excluding 2019. When it was 6.42%. A constant average growth of 7% for ten years doubles a unit in 10 years. Therefore, wage growth has been neutralized by productivity growth in China.
But that is hardly the whole story. It’s not just FATP that is done in China. China also produces a lot of the components that go into Apple products. In order to move FATP to India on a large scale, it would be necessary to move some of that component manufacturing to India as well. If Apple wants to diversify its geographic location of production, Apple vendors should be more than happy to follow in its footsteps. This is where India’s policy becomes a hindrance. After the border conflict between India and China in 2020, the government has made it difficult for Chinese companies to invest in India on grounds of national security. So, what is the way?
The optimal solution for Indian companies is to manufacture components according to the standards that Apple requires. This includes technology that is not supplied by Apple. Indian candidates will have to procure the technology from interested partners or develop it themselves. It’s not impossible, especially with the help of Apple. However, it will take time. In the meantime, Apple will set up new production sites in Vietnam, Malaysia, Brazil and so on. Therefore, India should drop its strictures on Chinese FDI, while promoting local development for the production of related components.
Some worry that trade union activity in India will hinder the growth of large-scale manufacturing in India. After all, India is not like China, where the party of the working class is the ruling party and does not allow workers to form free unions, free opinions or take independent action. The workers here expect a fair deal and can resort to industrial action to get it.
This is a problem that is exaggerated. Both Japan and Korea, the two manufacturing Goliaths of post-war Asia, have strong, active associations, particularly in manufacturing. General Douglas MacArthur, who led the American occupation of defeated Japan and oversaw the creation of Japan’s post-war constitution, not only placed restrictions on offensive military capability (as a result of which, Japan has only one self-defense force, not only a single self-defense force). that an army could deploy overseas) but also the basic right to collective bargaining for Japanese workers. General MacArthur wanted to ensure that Japan would have a vibrant trade union movement, which would act as a counterpoint to its longstanding tradition of militarism and samurai culture. Korea’s labor movements suffered a setback during the dictatorship of Park Chung-hee, but continued with power restored after the restoration of a de facto democracy. Unions have not hindered Japan nor Korea from turning into manufacturing powerhouses. The point is to manage labor relations in a way that instills confidence in all stakeholders.
India’s startup ecosystem and a large workforce trained in science, technology, engineering and mathematics (STEM) represent the potential for Apple to grow an indigenous vendor base. The point is to encourage people to develop an incentive not only to manufacture under a production-linked incentive scheme, but to develop the technology and processes needed for participants in the PLI race.
If India gets this right, it can attract not only Apple’s production but a whole range of value-added activities to India. Commentators can only explain the problem, however, the point is that it has to be solved through action, with the government working with startups, venture funds and all large companies to diversify their geographic base of production. .