EV parts to iPhones, Foxconn making India second home

The Taiwanese company, which is best known as the largest contract manufacturer for Apple and assembler of the iconic iPhone, has ambitious plans for India.

The company has been consistently making headlines in India for its massive investments and partnerships, as it looks to diversify its supply chain operations outside of China.

Not only is the company doubling down on its investment to expand its existing facility in Tamil Nadu, but it is also diversifying investments and recently has announced big-ticket projects in Telangana and Karnataka.

It has also partnered with Vedanta for chip manufacturing in India and is venturing into producing wearables and hearables too, while having its eyes firmly set on the electric vehicle market.

In its latest annual report, Foxconn said it would also look to establish a production line in India this year for two-wheeled electric vehicles.

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“Foxconn has ambitions to not only be a component manufacturer but also venture into large-scale manufacturing in the EV space,” Neil Shah, vice president of research at Counterpoint Research, told ET. “Its ambition is to turn the dinosaur-like automotive industry into a more new-age, fast industry like smartphones. Mobility is a new space for Foxconn. What they’re doing with EV manufacturing is the BOL (build-operate-localise) policy. They want to become the Android of the EV ecosystem.”Deepak Jain, partner at Bain & Co, said India’s large consumer market, favourable demographics and government initiatives like “Make in India” have attracted several companies to invest in manufacturing facilities within the country. “Future strategic importance of India to these players is likely to be contingent on sustained infrastructure development, ease of doing business, government incentives and the ability to address challenges across logistics, supply chain efficiency, and talent pool up-skilling and retention,” he said.

India is expected to become a sizeable EV market ($100 billion+ opportunity by 2030 across value chain), driven by strong domestic demand, favourable regulatory environment and the push by the manufacturers, Jain said. This, coupled with a strong talent base and well-established automotive manufacturing sector, indicates strong potential to become an EV manufacturing hub.

Foxconn did not respond to a request for comment on its India plans.

Regional manufacturing

Foxconn is aggressive in wanting to expand its footprint in India. Its chairman, Young Liu, visited India twice in less than a year, reaffirming that India is an important destination for the company. Following his second visit in March, Foxconn announced investments of $500 million (more than Rs 4,000 crore) in Telangana and Rs 8,000 crore in Karnataka.

“Foxconn is like this octopus that is spreading its tentacles in India,” an official who did not wish to be named told ET. “They are everywhere, and they want to do everything. At any given point there are multiple conversations going on with Foxconn on things ranging from battery swapping, consumer electronics, chip manufacturing, EVs, wearables and more.”

The new global trend is regional manufacturing and Foxconn is moving with that. The company established the BOL business model two years ago, expecting to create the “triple-win” scenario of: local countries, local partners and Hon Hai (Foxconn).

New projects aside, Foxconn has been equally committed to expanding its production capacity in India and is looking to add two additional buildings at its manufacturing site near Chennai.

Analysts said there are two key factors fuelling Foxconn’s growth in India: Apple’s plans to diversify its supply chain operations and in turn pushing its top contract manufacturers to rapidly scale in other geographies, and India’s ambitions to be aatmanirbhar in semiconductors, the chip that powers most things electronic in the world.

They are of the view that Foxconn’s feverish capacity expansion plans are being driven by the massive exports that Apple has seen out of India. Ashweej Aithal, market research analyst at Canalys, said Foxconn always had a very long-term plan for India but was cautious in the beginning. It is more aggressive now.

“This is mainly being driven by the massive exports that Apple has seen out of India. Exports for Apple increased drastically in March where nearly 2.5 million iPhones were exported of which 1.3 million were to the US alone. That is a record number. And local demand too is there for the premium segment and we expect it to be more,” Aithal said.

According to Shah of Counterpoint Research, Apple would want 20-25% of the global production of iPhones to happen in India in the next 3-4 years. At the end of 2022, this number stood at 6%.

“Apple has been pushing partners like Foxconn to expand and many of the partners too have been craving for more production in India to make use of the PLI (production-linked incentive) that India is offering,” he said.

In its annual report, Foxconn stated that when it came to smartphones, the US and Europe were already mature markets, and the growth of local phone shipments had slowed. It said that the growth momentum of the smartphone market in the future would come from emerging regions, such as China and India.

“India is a fast-growing region. As the local smartphone adoption rate is still low; as local telecom companies continue to increase network coverage outside of Tier 1 and Tier 2 cities, the region will attract major smartphone manufacturers to actively invest. It is one of the main driving forces (that will) provide growth for global smartphone shipments in the future,” it said.

Hardware, design

The Electronic Products Innovation Consortium (EPIC) Foundation’s co-chair and founder of HCL Arjun Malhotra said Foxconn’s India manufacturing push could put the country back on the hardware map. India has been more focused in recent times towards IT services, which he termed a “low hanging fruit”.

“What Foxconn gets is high volume production,” he explained. “That is really necessary and it’s good to see it coming to India because we haven’t really been a big part of the global supply chain in too many things. Plus, from an Indian point of view, once you get volume production in India, the component manufacturers will get motivated to invest and set up component manufacturing in India because we’ve got a large domestic market.”

However, the president of the VLSI Society of India and co-founder of the EPIC Foundation, Satya Gupta, said while manufacturing capability is important, design is a key factor that India has yet to crack.

Apple’s dependence on China is not just because of manufacturing, but because China contributes very significantly towards the product design of the iPhone as well, he said. “Manufacturing alone is not a sticky business because somebody can go wherever the incentives, manpower and markets are available. Once you anchor the manufacturing around product design, then you create a more sustainable and sticky business. I think that product design dependency is more crucial for Apple to basically be in China than just pure manufacturing.”

Gupta said India has a lot of engineering talent, but is not doing product design using that talent. In order to create a sustainable electronics manufacturing ecosystem, product design in addition to manufacturing is a critical aspect that should be given proper attention and incentives, he said.

Technology, Cencerns

While there have been no doubts raised about Foxconn’s technical prowess when it comes to electronics manufacturing, several questions have been asked of its semiconductor plans, especially over availability of technology.

Vedanta Foxconn Semiconductors Ltd, a joint venture between Anil Agarwal’s Vedanta and Foxconn, recently entered into agreements with two other firms to conduct research on 28- and 40-nanometer chips, CEO of the JV David Reed told a publication early this month.

He said one of the companies is Belgium-based research and innovation hub, Interuniversity Microelectronics Centre (IMEC), for research on 28-nm chips, which requires work to make it high volume production. The second is for 40-nm, full-fledged manufacturing of high-volume chips used in both automotive and non-automotive industries. He did not disclose the name of the second firm.

“Foxconn does not have experience running silicon semiconductor fabs, especially 300mm fabs,” semiconductor industry veteran Arun Mampazhy said. “They don’t have the technology. First, they tried if IMEC technology would suffice but that is not production grade. Now they claim to have a 40nm production-grade licence possibly from ST Microelectronics, but are quoting the price of a 28nm or even higher than what a 28nm project would cost. That doesn’t seem convincing to me even now. They seem to be trying to get the maximum out of the government even when they don’t deserve that much.”

There are also other concerns that plague Foxconn’s plans in India. The company has come under fire several times for its allegedly poor working conditions in places like China where it runs large operations. In India, too, the Foxconn plant has run into problems. In December 2021, Apple placed the plant in Chennai on probation after a food poisoning incident led to protests at the plant and its temporary closure.

Jenny Chan, who co-authored a book ‘Dying for an iPhone’, which narrated the working conditions in the ultra-secretive Foxconn facilities in China, said she found it “concerning” the way Foxconn was going about trying to tweak labour law clauses in India. Chan was part of a team that went undercover to report what they claimed was the story behind the suicides, excessive overtime, hostility and violence on Foxconn’s factory floor in China.

Apple and its partner Foxconn were reportedly involved in lobbying for a significant liberalisation of labour laws in Karnataka. This meant changes that allow for 12-hour shifts and night-time work for women, which is similar to the companies’ practices in China.

Apple and Foxconn had not commented on the reports.

“I do understand why the Indian government and many other local state officials are looking to attract Foxconn and other investors to build new factories,” Chan told ET. “But I am very concerned because I already can tell that they may be asking for a compromise in terms of the Indian labour law and that is already very worrying to me that there seems to be more flexibility in terms of how you can extend the working hours to just meet the production goal.”

Regardless of these issues, Foxconn is here to stay. Sana Hashmi, who is a Postdoctoral Fellow at Taiwan-Asia Exchange Foundation said that Foxconn has been operating in India for quite sometime and is more familiar with the workings of the Indian market, in comparison to other Taiwanese companies.

“While other companies are leaving or still apprehensive, Foxconn is taking advantage of the vacuum left by other Taiwanese companies,” she explained. “Taiwanese companies including Wistron rely on middlemen. Lack of familiarity with how the Indian business environment and bureaucracy functions is a factor that Foxconn has been able to navigate so I’m optimistic regarding Foxconn’s long term operations in India.”

Their results too are proof of their resilience. Despite the macroeconomic challenges in 2022, Foxconn was able to deliver record high revenue and the best earnings per share performance in 15 years. Its annual consolidated revenue reached about $216 billion, and it comes as no surprise that India is leaving no stone unturned to woo Foxconn. However, analysts say India should ensure that its people don’t suffer in their factories.