Now less than 3 million, disappearing Chinese phones: Ten years ago, India imported 180 million Apple | China | phones

The birth of an iPhone often went through a process in the past: it was designed at Apple's US headquarters, using the main chip provided by American chip manufacturers and key components including display screens provided by Japan and South Korea. The remaining parts were then supplied by Chinese manufacturers, and finally assembled at a Foxconn factory in Zhengzhou, Henan, and shipped by air to various parts of the world.

As the world's largest production base for Apple, China assembles and produces over 90% of the world's iPhone products. According to data provided by Counterpoint to First Financial, in 2022, the Chinese market share in the production and assembly of Apple phones was 96%, followed closely by India, accounting for about 4%. But since September last year, more and more consumers have found that the packaging of their iPhone 14 series is printed with the words "Assembled in India". This means that the latest Apple phones are being manufactured in India. Apple plans to transfer 25% of its production to India by 2025.

Chinese mobile phone manufacturers Xiaomi, OPPO, and vivo have all achieved production and manufacturing in India. Meanwhile, Samsung is currently able to manufacture all flagship smartphones in India, which was not the case two years ago. "Apple and Samsung have achieved significant growth in the past two years," Counterpoint senior analyst Shilpi Jain told First Financial reporters. The Indian government is pushing smartphone manufacturers to increase local value, including manufacturing localization.

This trend has disrupted the mobile phone trade pattern between China and India in the past decade. In 2014, China exported 180 million mobile phones to India annually. But in recent years, as India's industrial ecosystem in mobile phone manufacturing has become increasingly complete, it has almost no longer needed to import complete mobile phones from China.

Starting of "Made in India"

Billions of dollars are pouring into India's manufacturing industry, with a large number of young Indian people gathering in industrial parks such as Noida and Haryana, starting to work for employers from mainstream global smartphone brands. After completing the assembly process, these phones will be shipped directly to multiple countries including the United States, the United Kingdom, and others for sale.

According to data from the Indian Ministry of Commerce and Industry, from April to June this year, India's electronic product exports grew by over 56%, reaching 572.2024 billion rupees, compared to 3653318 million rupees in the same period last year. Electronic products have become the only growing industry among the top five categories of export products.

In the latest official data released, electronic products have become India's fourth largest export product in the second quarter, with the fastest growth in this category among the top thirty export products.

Indian Minister of State for Electronics and Information Technology Rajiv Chandraseka stated in March this year that Indian Prime Minister Modi has put forward a clear vision that India will play an important role in the global electronic supply chain and set a goal of manufacturing $300 billion in electronic products by 2026.

Chandraseka predicts that mobile phones will become one of the top ten categories of exports from India starting next year.

In recent years, driven by the Modi government, the proportion of the consumer electronics industry in India's manufacturing industry has shown an upward trend. The Modi government, attracted by India's vast consumer market, has introduced support plans while increasing import tariffs on complete machines, aiming to create upstream and downstream industries in consumer electronics manufacturing and cultivate a complete local industrial chain.

According to data released by the Indian Cellular Communications Association, in 2014, India only accounted for 3% of the world's mobile phones. However, in the second year of Modili's promotion of "Made in India", which was 2015, India's proportion of mobile phones in the world had reached 11%, surpassing Vietnam and becoming the second largest mobile phone manufacturing country after China. In May 2020, India launched a production related incentive plan to support the development of the electronic manufacturing industry, in order to stimulate the economy, infrastructure, market demand, and the development of the electronic manufacturing industry.

Shilpi Jain told reporters that Made in India policies, such as the PLI program, have greatly benefited manufacturers such as Apple and Samsung. However, from the government's perspective, this plan has also increased employment opportunities for senior management in India and further strengthened the commitment of these companies to the Indian market by attracting local equity partners.

A data provided by Counterpoint Research to reporters shows that in 2020, Indian made iPhones accounted for only 1.3% of its global production, and by 2021, they had risen to 3.1%. In 2022, Apple's production of iPhones, AirPods, Macs, and iPads in China accounted for 96%, 95%, 98%, and 98% respectively, while India's figures were 4%, 0%, 1%, and 0%. However, this year, the agency predicts that the share of Indian manufacturing in the aforementioned Apple products will change to 7%, 2%, 3%, and 3%.

From the perspective of growth trends, orders from Apple in "Made in India" this year will even exceed analysts' expectations at the beginning of the year.

According to data released by the Cellular Communications Association of India, benefiting from the PLI program, India's smartphone exports more than doubled in the first two months of the 2023 fiscal year, with smartphone exports reaching INR 200 billion, far higher than INR 90.66 billion in the same period last year. Among them, the export order value of smartphones reached 120 billion rupees in May, with 50% contributed by Apple.

Compared to two years ago when India could only produce outdated iPhones, the latest iPhone 14 series phones have begun to be shipped from India to the global market. Among the major smartphone export countries officially announced by India, the United States, the United Arab Emirates, the Netherlands, the United Kingdom, and Italy account for over 70% of India's smartphone exports.

According to statistics from the US Department of Commerce, in 2022, the import of mobile phones from China by the US decreased by 2.2% year-on-year to 151 million units, accounting for 79.9% of its import sources. Although it has increased from 71.2% before the pandemic in 2019, it has decreased by 5% compared to the peak of 84.9% in 2014. In 2022, the import volume of the United States from Vietnam and India accounted for 15.3% and 2.2% respectively, which is more than 10 times larger than in 2014.

Ivan Lam, senior analyst at Counterpoint Research, told reporters that in 2022, Apple's smartphones will mainly be assembled in China and India, with a market share of 96% in China and around 4% in India. By 2023, this number will become 93% and 7%.

"The growth of exports depends on the local supply of the industrial chain and the controllable rate of local production ramp up," Ivan Lam told reporters.

China's supply chain presence

Although India has strong ambitions for domestic manufacturing, its production is currently mainly focused on the assembly of loose parts. From the perspective of the overall maturity of the supply chain development, India does not yet have the production supporting capacity for components, molds, and other products domestically.

It is reported that Foxconn had planned to transfer 30% of its production capacity to India within five to ten years. However, a reality is that 90% of Apple's components still come from China, including phone holders, industrial adhesives, screws, mesh, pressure-sensitive adhesives, and metal parts, all of which need to be shipped from China according to Apple's requirements.

According to the CMA statistics of the China India Vietnam Electronics Association, by the end of 2020, the total number of Chinese funded mobile phone supply chain factories investing in India reached 200, with 500 trading companies and tens of thousands of Chinese people supporting the development of Chinese funded mobile phone factories. The number of Chinese mobile phone companies traveling to India each year reaches 100000.

Wang Gang is a member of the China India mobile phone supply chain who travels back and forth year-round.

Starting from Hong Kong International Airport, after a six-hour flight, Wang Gang landed at Delhi Airport in India. After a brief rest, he drove east for 1 hour, a 20 kilometer journey to reach Noida in India's New Okra Industrial Development Zone. Since 2016, business trips spanning between China and India have become commonplace for mobile phone enthusiasts like Wang Gang.

The Development Report of Chinese Enterprises in India shows that Chinese electronic enterprises in India mainly invest in India in three stages.

The first stage was from 2015 to 2016, when Chinese mobile phone brands Xiaomi, OPPO, vivo, and Transsion successively entered India and gained one-third of the market share in India. At the same time, mobile phone assembly factories such as MCM, Haipai, and Yude have invested in India. The second stage is from 2017 to 2018, mainly involving Chinese mobile phone supply chain and accessory supporting service providers investing in India, as well as manufacturers of batteries, chargers, data cables, etc. such as Xinwangda, APSC, Xiaolin Electronics, Yutong, etc. The third stage is from 2018 to 2019, when small and medium-sized enterprises in the mobile phone supply chain enter India, such as module, die-cutting, packaging materials, and auxiliary materials enterprises. Representative enterprises include Lianchuang, Tongxingda, and Liujia Packaging Materials.

These supply chain manufacturers from China are mainly located in Noida, Gulgang, and around Chennai in southern India. In addition to investing in the mobile phone supply chain in India, there are also nearly 500 trading companies serving mobile phone enterprises, such as equipment suppliers, material suppliers, weak and strong current installation companies, purification engineering companies, hotel and catering service providers, human resources companies, logistics companies, tax registration service companies, legal consulting service companies, etc.

Yang Shucheng, Secretary General of the Chinese Mobile Phone Enterprise Association in India, once stated in an interview with First Financial reporters that Noida in India currently has the most mobile phone industry chain manufacturers. In the past, Xiaomi, Transsion's OEM factories, and upstream supply chains around these mobile phone giants have all set up factories in India, including A-share listed companies.

The mobile phone market space in India is the core reason for attracting Chinese mobile phone and its supply chain enterprises to invest in India.

Compared to other regions around the world, India is the only country showing an accelerating trend in the frequency of replacing new phones, which is somewhat similar to the Chinese market in the era of 2G to 3G. In the eyes of any brand phone manufacturer, the population dividend of 1.4 billion is an indispensable "fat". In addition to market reasons, the tariff adjustment of Chinese mobile phone manufacturers in the Indian market is also a key factor that forces manufacturers to build factories.

Starting in 2016, Modi launched a "phased manufacturing plan" aimed at leveraging India's huge smartphone market to drive local production. The plan includes not only tariffs on mobile phones, but also tariffs on phone chargers, batteries, headphones, and pre installed printed circuit board components.

According to industry insiders, starting from December 2017, the Indian government raised the basic tariff on smartphones from 10% to 15%, and then rose to 20% in February 2018. In April, it also imposed a 10% tariff on electronic components including circuit boards and camera modules. This policy promotes the local production of electronic components and complete machines upstream of mobile phones. By 2020, the average tariff for Indian brands was 28%, and the average tariff for other spare parts was 15%.

In other words, entering the Indian market in the form of spare parts can result in lower tariffs and lower overall costs. A set of data from Counterpoint shows that in 2018, half of the Indian mobile phone market was imported in the form of SKD, while CKD was 34%. However, by 2019, CKD had accounted for more than two-thirds of the proportion.

"The speed of laying out the Chinese mobile phone industry chain is astonishing." An analyst who has been tracking domestic mobile phones for a long time told reporters that Chinese brands quickly transitioned from SKD to CKD to complete localization in just over a year, and have won nearly 75% of the market share on the Indian mobile phone sales chart.

180 million expenditure orders are gone

According to a report from the Global Trade Research Initiative, an economic think tank, India's imports of electronic products such as laptops, personal computers, integrated circuits, and solar cells from China have decreased between 2022 and 2023.

At present, China's exports to India mainly consist of electronic components, batteries, primary chemical particles, plastics, and other production materials. According to Chinese customs statistics, from January to June this year, China's total import and export value to India was 66.027 billion US dollars, a year-on-year decrease of 0.8%. Among them, exports amounted to 56.531 billion US dollars, a decrease of 0.9%; Imports amounted to 9.496 billion US dollars, a decrease of 0.6%.

Among all categories, mobile component devices still rank first with an export value of 1.74 billion US dollars, while the overall export value of smartphones is 306 million US dollars. But in terms of amount, the former decreased by 52% year-on-year, while the latter decreased by 24% year-on-year.

This is not a recent trend. According to Indian customs statistics, the import volume of mobile phones in India has decreased from 200 million in 2014 to 3.77 million in 2022, a contraction of over 98%. The import volume from China has also decreased from 179 million to 2.19 million.

These pieces of evidence indicate that at least in the manufacturing process of mobile phones, Indian consumers have basically achieved self-sufficiency in their mobile phone needs.

The trend of mobile phone manufacturing shifting to India has not stopped.

Apple CEO Cook has repeatedly emphasized his importance to the Indian market in his financial reports, viewing it as the next major market to drive Apple's growth, and even one of the most important markets. This year, Apple plans to launch the iPhone 15 series in India and increase investment and layout in the local market.

In March of this year, a photo of Foxconn Chairman Liu Yangwei shaking hands with Indian Prime Minister Modi spread on overseas social media. Liu Yangwei's itinerary in India was interpreted by the outside world as a signal for Foxconn to increase investment in India, including expanding manufacturing plants and building silicon carbide processing plants and chip packaging facilities.

Although Foxconn subsequently denied any specific investment actions, there are reports that Foxconn will begin producing the latest iPhone in the southern Indian state of Karnataka in April 2024. The government of the southern Indian state of Karnataka has stated that the project is worth 130 billion rupees and is expected to create approximately 50000 job opportunities.

Bloomberg Think Tank predicts that the new production base and expansion plan will increase India's market share in iPhone assembly from less than 5% to 10% to 15%.

Except for Apple, leading smartphone manufacturers including Xiaomi, OPPO, and vivo have all achieved local manufacturing in India.

Shilpi Jain told reporters that Xiaomi has recently partnered with Dixon to expand its smartphone manufacturing capacity in India, while vivo plans to expand its production capacity in India by the end of 2023. However, the official mobile phone manufacturer did not further confirm the above-mentioned expansion news.

Research firm Omdia Display analyst Guo Zijiao believes that the configuration of global supply chains is ultimately determined by costs and markets. The most important advantage of cost comes from scale, followed by investment and material costs, and also depends on management. "As a capital and technology intensive industry, China still accounts for a considerable proportion of Apple's parts production, and there is no place in the world to undertake large-scale transfers in the short term."

In the short term, it is not easy for India to replicate the success of Made in China.

"At the beginning of production, the production efficiency of Indian factories was only 60% of that of China." A person in charge of a company that used to do overseas OEM for Xiaomi once told reporters that technical work still needs to rely on Chinese workers to teach local Indian workers hands-on, and they are not very willing to work overtime. They need to rest on Sundays, which is different from Chinese factories.

In addition, the upstream supply chain also needs to be improved. In addition to the supply chain ecosystem, complete supporting facilities, including highways, railways, electricity, water, etc., require significant investment. The above report believes that in the next 10 years, India's infrastructure gap is expected to be around $1 trillion, which needs to be absorbed from overseas markets.

"We can't miss any spare parts and it will take another month to assemble. It will still take time to fully achieve localized manufacturing in India," said the person mentioned above.

However, as India becomes Apple's fifth largest market, the local mobile phone industry chain is entering a period of opportunity. TechInsights stated that Apple's iPhone shipments in India increased by over 50% year-on-year in the quarter, making India an important strategic market for Apple in terms of sales and manufacturing.