As Apple seeks to relocate its manufacturing supply chain from China to India, decision-makers face a complex task of navigating the contract electronics manufacturing sourcing landscape in the sub-continent. This article delves into the challenges and opportunities associated with this endeavor, shedding light on the evolving Indian business and social structure, labor practices, and the need to address semiconductor manufacturing challenges.
India’s business landscape
Mumbai, known as India’s financial sector, takes center stage as Apple aims to establish its manufacturing presence in the country. The Indian government’s support for attracting big businesses, including marquee names like Apple, Samsung, and others, has created a favorable environment.
However, the Indian business landscape combines elements reminiscent of both Turkey and Russia, with characteristics such as censorship, limited press freedoms, and concentrated power among a few large businesses. This context shapes the complexities of contract electronics manufacturing sourcing in India.
Indian labor practices and worker rights
Relocating Apple’s manufacturing supply chain to India requires careful consideration of labor practices and worker rights. While labor conditions in India differ from those in China, it is crucial to acknowledge that India has limited social security provisions. Consequently, worker rights cannot be ignored, and politicians cannot overlook labor concerns indefinitely. Past labor unrest, such as incidents at contract manufacturers like Foxconn, has underscored the need to address labor demands and improve working conditions.
Digital manufacturing factory myth
Relocating a manufacturing supply chain from China to India is indeed a complex process that comes with its own set of unique challenges. One concept that has garnered attention in the realm of manufacturing is the idea of digital twin factories. The notion of digital twin factories involves creating virtual replicas of physical manufacturing facilities, enabling real-time monitoring, simulation, and optimization of production processes.
While the concept of digital twin factories holds promise in theory, it faces practical limitations that extend beyond the Indian context.
One of the key challenges is the inherent variability in manufacturing costs between different factories.
Each manufacturing facility has its own set of capabilities, efficiencies, and cost structures. Factors such as labor costs, overhead expenses, raw material availability, and infrastructure can significantly impact the overall manufacturing cost.
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The idea of a digital twin factory assumes manufacturing costs can be accurately replicated and predicted across different locations. However, the reality is manufacturing costs can vary widely between regions and even between individual factories within the same region.
Factors such as wage disparities, regulatory requirements, logistical considerations, and local market conditions can influence the cost dynamics in each location.
Moreover, manufacturing cost is not a static figure but subject to fluctuations based on various factors, including market demand, input prices, and economic conditions. This dynamic nature of manufacturing cost further challenges the feasibility of implementing a uniform digital twin factory model across different regions.
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Instead of relying solely on the concept of digital twin factories, decision-makers should focus on developing robust financial modeling strategies tailored to specific, and detailed, manufacturing capabilities and targeting cost structures of each geography. This approach requires thorough analysis, understanding of contract electronics industry and local market dynamics, and effective collaboration with local partners and various suppliers. (View some successes for several Venture Outsource clients in these areas, here.)
Fabless semiconductor capacity
Additionally, when it comes to manufacturing supply chain decisions at Apple, there are additional concerns that specifically revolve around India’s current semiconductor landscape. Despite several attempts in recent years, India has not yet successfully established a private sector fabless semiconductor offering. This absence of a robust private sector presence in semiconductor manufacturing poses a significant challenge for any nation or region intent on building a comprehensive ecosystem capable of meeting the global electronics supply chain design and manufacturing needs.
Semiconductors and components play a crucial role in the production of electronic devices, serving as the foundation for various component types and technologies. They are the building blocks that enable the functionality and performance of modern electronic devices. For a country like India to establish itself as a prominent player in the global electronics manufacturing, having a strong semiconductor industry is imperative.
Take, for example, a typical supply chain as it might pertain to a desktop PC in the image below.
The absence of a private sector fabless semiconductor offering in India means the country heavily relies on public sector government and foreign semi-technology for its semiconductor manufacturing capabilities. While the Indian government’s public sector’s contributions are valuable, a thriving private sector presence is essential to foster innovation, competition, and rapid technological advancements.
The lack of a robust private sector fabless semiconductor industry in India poses multiple challenges for decision-makers at Apple and other companies considering relocating their manufacturing supply chains to the country. Firstly, it limits the availability of local semiconductor suppliers, potentially leading to increased dependence on imports and higher costs. This can impact the overall competitiveness of manufacturing operations.
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Secondly, without a private sector fabless semiconductor offering, India may struggle to keep up with the rapidly evolving technology landscape. Semiconductor manufacturing technology is, typically, 18 to 24+ months ahead of electronics original equipment manufacturing (OEM) companies (and 36 to 48+ months ahead of technology in the risk-averse, global contract electronics manufacturing industry), and requires significant investments in research and development, advanced fabrication facilities, and specialized expertise. Without a thriving private sector, India may face limitations in terms of technological advancements and the ability to meet evolving market demands in her electronics services and design manufacturing (ESDM) and ‘Make in India’ initiatives.
To address these concerns, it is crucial for decision-makers at Apple and other companies to engage with the Indian government, industry stakeholders, universities and potential partners to continue to foster the development of a private sector fabless semiconductor industry. This could involve initiatives such as incentivizing private investment, supporting research and development activities, and facilitating collaborations between global semiconductor companies and local entities.
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By actively working toward the establishment of a private sector fabless semiconductor offering, India can create a comprehensive ecosystem capable of meeting the global electronics supply chain design and manufacturing needs. This would not only benefit companies like Apple but also contribute to the overall growth and competitiveness of India’s electronics manufacturing industry.
India’s opportunities and the path forward
Despite the challenges above, relocating Apple’s manufacturing supply chain to India can be accomplished, but in what time frame and at what cost? The Indian government’s support for large-scale investments and industrial development, coupled with its recognition of the importance of the working class as a vote bank, does create an environment conducive to progress.
Decision-makers must leverage these opportunities by balancing industry-friendly policies with addressing labor concerns and by fostering semiconductor manufacturing capabilities in the private sector. This approach will contribute to building a true regional ecosystem capable of servicing global, regional and local electronics supply chain requirements.
The task of relocating Apple’s manufacturing supply chain from China to India entails navigating a complex landscape. By understanding the Indian business and social structure, addressing labor concerns, and tackling semiconductor manufacturing challenges, decision-makers can chart a successful course.
India’s evolving business environment, combined with the government’s support for large-scale investments, offers immense potential. By adopting comprehensive strategies and investing in the necessary infrastructure, India can emerge as a prominent player in global contract electronics manufacturing sourcing.
Read additional articles about India’s electronics industry here and here.
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