Wistron exits Apple India biz after tripping over scale, work culture

This departure comes as Apple’s other contract makers Foxconn and Pegatron double down on India.

Wistron was the first of Apple’s three global contract manufacturers to start assembling iPhones in India in 2017. But its inability to get deeper into Apple’s supply chain–component manufacturing and vendor-managed inventory holding—is one of the key reasons the Taiwanese contract manufacturer is exiting India, the world’s second largest smartphone market.

Then there was the challenge of coping with the local work culture—something that had erupted before. Violence broke out at the newly opened Kolar unit in December 2020 as workers protested against allegedly unpaid wages and arduous hours. That episode cost the company about Rs 430 crore in damages. Apple put Wistron on probation, halting the unit until corrective measures were taken. It resumed work in February 2021.

Since Wednesday, over 400 senior production staff have been protesting against the management, demanding parity in salaries with junior contractual workers, ET reported.

While the deal is yet to be closed, Tata executives are already taking up key positions.

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Employees and industry executives told ET that Wistron had been contemplating an exit as it didn’t see long-term profitability in being a mere assembler of the final product. It would rather bet on its core IT manufacturing businesses in countries like Vietnam and Mexico.Also read | Foxconn looks to expand Chennai iPhone facility

With the company having stopped iPhone assembly in China after selling its Kunshan unit to Luxshare in 2020, the India business became too small for it to focus on.

Also, “Wistron has not been able to make any money from the Apple business in India. It has tried to negotiate with Apple for higher margins, but being a smaller player as compared to Foxconn and Pegatron globally, it did not have the necessary leverage,” said an executive.

Foxconn and Pegatron are engaged in inventory management for Apple in India, but Wistron wasn’t able to get into the high-margin business. “There need to be systems in place to gauge demand and ship to various units, which Wistron lacked. Plus, it is a much smaller player as compared to Foxconn and Pegatron,” said one of the executives.

Doing just the final assembly at a time when components had to be procured from multiple regions became difficult, especially during the pandemic.

The Apple supply chain, which CEO Tim Cook is credited with having put in place, has three layers. The first layer includes component suppliers that make parts such as camera sensors, displays and batteries as well as vibration motors, sensors and speakers that go inside the iPhone.

The second layer consists of vendor-managed inventory players that sort, store and ship the components to final assemblers. Inventory management, which allows Apple to maintain a just-in-time production model, is often controlled by the final assemblers themselves such as contract manufacturers Foxconn and Pegatron. The third layer comprises the contract manufacturers which assemble the final product.

Key to contract manufacturing across the globe is inventory warehousing, where the profit margin can be close to 100%, said Mark Zetter, management consultant at US-based Venture Outsource, which provides consulting services. This allows big contract manufacturers room to offset the low margins in the assembly business.

“If you are playing in one or all three layers of the supply chain—from design to manufacturing to shipping to distribution and even reverse logistics, you are going to make more revenue,” Zetter said. “But at the same time, your margins will get hit in slower and softer markets, and the issue with contract manufacturers is that a lot of them are dependent on regular refinancing. But now, credit markets are starting to freeze, and the cost of capital is getting higher, so unless they have enough revenues to offset the operating inputs, they will be struggling.”

An industry executive said it was too early for Wistron to start seeing profit in India after the roughly Rs 1,000 crore investment under the production-linked incentive (PLI) scheme. The company saw more than Rs 200 crore turnover in iPhone manufacturing in FY23 and got about Rs 600 crore in incentives from the government.

Apple declined to comment.

Wistron entered India in 2008 with a repair facility servicing PCs, laptops, servers and other devices it manufactured. In 2017, it started making iPhones for Apple and now makes the iPhone 14, iPhone 13, iPhone 12 and the iPhone SE. The company will continue with its repair facility.

ETtech

Local Wistron employees said, on condition of anonymity, that the company has been having problems retaining workers at the Kolar facility.

“There were a lot of management issues. China and India work in different ways, and they did not understand that. The mindset of Indian labourers are different, but they don’t pay any heed, leading to a high rate of attrition,” one of them said.

Another added: “We see the Chinese and Taiwanese employees from various vendors who come and work here, working round the clock. They don’t have a social life. But the Indian labourers here want to have that balance. They want to go out after work, take leave on festivals, but they are often not allowed.”

A Wistron executive in response to ET’s detailed questionnaire said, “I would like to confirm you that Wistron does not mandate its workers to operate on national holidays.”

One of the industry executives cited above did point out that those who work on official holidays get a compensatory off.

Some of the issues will be a challenge for the Tata Group as well. Finding replacements in the mid-level and higher ranks was difficult for Wistron, particularly due to the plant’s distance from Bengaluru.

One of the executives cited above said about 20 senior management members have left since the Tata takeover began.

“The Kolar plant is 40 km away from the city and has no quarters for employees to reside,” an employee said. “Most of us live in the city and have to navigate through traffic to reach early in the morning. This is one reason why senior postings have been difficult to fill.”

Executives said there wasn’t much scope for scalability in Wistron’s Apple business in India. It makes more sense for the company to focus on its core business, which is IT hardware manufacturing.

As per regulatory filings with the Taiwan Stock Exchange, a new 214,000 sq ft factory is in the finishing stages in Vietnam where the company will be making PCs, notebooks, laptops, servers, and other IT hardware.

“It does not make business sense for a manufacturing company to be in both Vietnam and India, given that both countries have a free trade agreement,” said one of the executives. The company would rather make in Vietnam, which is closer to the Chinese supply chain, and ship products to India without incurring additional duties, the person said.

Wistron will continue its repair business in India from a unit in Peenya, Bengaluru. The repair business has been ongoing since 2008 and is a profitable one for the company.