Amid still lingering supply chain disruptions and geopolitical uncertainty, electronics manufacturers are considering new locations to make critical components for their products. India is emerging as a popular choice for these moves, with large technology companies announcing new projects in the country.
A major example is Apple, which is doubling down on manufacturing in India. Apple supplier Foxconn is following suit, with plans to invest in the country and boost its production of iPhones. Trade Minister Piyush Goyal stated at a conference in January that Apple hopes to eventually produce 25% of its products there.
And it’s not just Apple’s supply chain. In May, Cisco announced plans to begin manufacturing in India, with a goal to drive more than $1 billion in combined domestic production and exports in the coming years.
India-based conglomerate Vedanta Group, meanwhile, recently signed agreements with 20 South Korea-based display glass companies to create a manufacturing hub in the country, too.
As a result of these high-level investments, there’s more attention on India as a potential location for contract manufacturing, particularly in electronics.
“What has happened during the pandemic is companies, now, have started looking at alternate places just to hedge their risk,” explained Hanish Bhatia, an associate director at Counterpoint Research, a technology market and research firm.
“They have started looking at more places,” he added. “India obviously has an advantage over other countries because of the large domestic market itself.”
Bhatia highlighted that in India, in particular, policies and investment incentives have helped its domestic electronics manufacturing industry grow over the past five to seven years.
The India government has started offering financial incentives through its National Policy on Electronics, a multi-pronged government strategy for boosting electronics manufacturing, added Patrick Penfield, a supply chain professor at Syracuse University.
India’s potential as a growing smartphone consumer market is also an advantage to companies looking to establish manufacturing operations in the country.
“[After China], India is the second largest smartphone market, even with the current numbers,” Bhatia said. “But if you look at the overall outlook five years or 10 years down the line, the overall penetration of smartphone users in India is still comparatively very low.”
Top 10 countries by share of global manufacturing output, 2019
China has long been a favored country for electronics manufacturing. Companies were drawn to the country beginning in the early 2000s because of lower labor costs, said Harvard Business School management practice professor Willy Shih.
There’s also been heavy investment in industrial parks in China that can support high-volume electronics manufacturing, as well as government support for export infrastructure.
“China had the advantage. They started a lot of development along the coastal cities, they invested a lot in port and road infrastructure, the world’s largest container ports and some of the very large container operations” Shih said. “They were really geared to supporting export markets to North America and Europe.”
But there are several reasons why India is now emerging as a potential location for contract manufacturing electronics. Labor is available at relatively low costs, and the India government has started offering financial incentives meant to woo companies to the country, said Patrick Penfield, a supply chain professor at Syracuse University.
Geopolitical tensions between the U.S. and China in recent years have also introduced new challenges with contract manufacturing in China, which has made working in other regions more appealing, Penfield said.
“The last issue that is benefiting India is the acrimonious relationship between the US and China,” said Penfield. “IPO theft, tariffs and military tensions are all impeding businesses who are trying to work in China. These issues are helping India attract global electronics manufacturers.”
This transition towards India could shift the global electronics supply chain. India, argued Bhatia, could become a balancing force in the worldwide manufacturing landscape.
Theoretically, China could lose its upper hand in electronics production, added Penfield. Suppliers tend to cluster in particular geographic areas, so the transition of some companies to India-based manufacturing could have a cascading effect.
Still, India’s pivot to contract manufacturing faces hurdles. Other countries are also competing to welcome business from companies planning to pivot from China.
And there are challenges with building new infrastructure needed to support the manufacturing investments, including expansions of ports and making sure that pick-up points line up with existing trade routes, too, explained Shih. Those adjustments will take time.
But there’s a bright spot: India is seeing rising demand for cell phones and smartphones. As a result, the country has a major incentive to boost domestic manufacturing of electronics, Penfield said, especially since the market still has significant room to grow, making India even more exciting to foreign companies.
“Many of these individuals use cell phones as their main mode of communication and this is making it very attractive for phone manufacturers to produce in India,” said Penfield. “This is one reason why Apple is now producing cell phones in India.”