Why building iPhone parts in India is hard

The Information’s Wayne Ma takes a deep dive into manufacturing challenges on the subcontinent.

From “Inside Apple’s Search for an Indian Supply Chain” ($) posted Thursday:

Finding suppliers that could produce components locally proved difficult. One major issue was compliance with Apple’s supplier standards for health, safety and the environment, which are among the toughest in the consumer electronics business. Many Indian companies were unable to or unwilling to fix problems Apple’s auditors uncovered, according to people familiar with the matter.

For example, one Indian supplier Apple approached in 2018 was Superpacks, which operated a packaging factory in Bangalore. Apple sent auditors to assess whether its supplier responsibility practices were up to Apple’s standards. The audits revealed dozens of violations. The site had no safety measures for storing chemicals, lacked monitoring for noise and wastewater, and didn’t have several environmental and construction permits. It didn’t properly test drinking water for workers and the site lacked a fire hydrant system, according to a person close to Apple.

Apple spent months pushing Superpacks to fix the violations. However, the Indian company stopped giving updates and missed deadlines for fixes. Apple ultimately didn’t give it a business contract. Superpacks didn’t respond to a request for comment.

One reason why suppliers aren’t willing to improve factories in India to meet Apple’s requirements is because of its small order sizes. Current and former employees at Apple suppliers such as Shenzhen Yuto, Salcomp and Sunwoda, which make packaging, power adapters and batteries, say order sizes in India are in the thousands per month. By contrast, Apple’s orders in China are in the hundreds of thousands per week, according to people familiar with the matter.

My take: Imagine walking away from an Apple contract because the initial order was only in the thousands per month.

See also: The Apple 3.0 India archives

13 Comments

  1. Gregg Thurman said:
    And these are the companies that the Indian bureaucracy is protecting with its high tariffs.

    2
    March 6, 2020
  2. Mordechai Beizer said:
    It’s even better than that – walking away from your first supplier contract with Apple knowing that few, if any, of your competitors will follow you.

    Talk about short-term thinking.

    1
    March 6, 2020
  3. Jerry Doyle said:
    India is the world’s largest democracy. China is the world’s largest autocracy. Therein lies the problem dealing with India.

    If India needs an airport then Indians will spend several years deciding if the airport is needed. Another few years deciding where to place the airport. Then five to ten years negotiating with the people residing on the chosen land to move them elsewhere and the amount of compensation to pay them to move. Usually India can start construction and finish the project in five years. At the end of twenty years India may have its airport built.

    If China wants to build a major airport they can do it in less than two years. Pick the land, move the people off the land, start construction and voila! The airport is built.

    During the Covid-19 virus China constructed needed new hospitals in two weeks, and had them up and running fully equipped. Could that be done in India, or the USA?

    The United States’ regulatory environment through its democratic process is becoming ever more laborious as India’s to get things done. Every little special interest group can throw up roadblocks toward progress. Not so in China.

    This is why it is difficult for Apple to sever it umbilical cord with the People’s Republic of China.

    In a democracy there needs to be a balance between meeting the needs of special interest groups and meeting the capitalistic drive for progress. Little doubt special interests in India is serving the whole of the country badly.

    India indeed is a tough nut for Apple to crack.

    2
    March 6, 2020
    • Gregg Thurman said:
      Little doubt special interests in India is serving the whole of the country badly.

      There really is no one “real” India.

      India is a country of a million villages, hundreds of languages, a culture dominated by a historic (although illegal) caste system, and an incredibly bloated bureaucracy hellbent on protecting domestic industries no matter how badly those industries benefit the average “Indian”.

      2
      March 6, 2020
      • Jerry Doyle said:
        @Gregg Thurman: I agree with all that you wrote above. I was referencing in my comments that poignant observation reinforced by you that India is an “…. incredibly bloated bureaucracy hellbent on protecting domestic industries no matter how badly those industries benefit the average ‘Indian.’”

        I agree fully with you that India is a hugely diverse country. Also, with a half billion population under the age of 25, India offers fertile ground for Apple products. Half a billion population under the age of 25 almost takes one’s breath away; whereas China is the opposite being an aging population. So, there is exceptional opportunities for Apple in India if only we can find a smooth path to get there, timely.

        0
        March 6, 2020
    • Gregg Thurman said:
      India is the world’s largest democracy. China is the world’s largest autocracy.

      The closer the government gets to a dictatorship the more efficient it becomes.

      The more democratic the government gets the less efficient it becomes.

      I agree with you Jerry, since the Vietnam War the US has started to look more like the incredibly fragmented society of India every day.

      Although I’ve never seen one, to me, the best form of government is that of a benevolent dictatorship. Alas, power corrupts, and absolute power corrupts absolutely.

      0
      March 6, 2020
      • David Emery said:
        “The closer the government gets to a dictatorship the more efficient it becomes.”

        Historically, at least in the 20th century, that has not been true. Dictatorships can more efficiently implement policies, but they’ve shown no significant ability to actually come up with good policies. A lot of that has to do with the power struggles to get to the top, dictators seem to like fomenting divisions and conflicts among their minions to help keep themselves in power. And often it’s political considerations, rather than economic considerations, that drive policies.

        The counter-argument has been that messy democracies eventually converge on a better policy through the pull-and-tug of the political process. It’s not quite clear how well that’s working these days. But as I posted elsewhere, I don’t see a lot of people trying to emigrate/migrate to China, Russia, etc.

        3
        March 6, 2020
      • Jerry Doyle said:
        @Gregg Thurman: I am reminded of the words I once read uttered by a high level Chinese official commenting on how long it took for America to build-out infrastructure. He said: “Democracy sacrifices efficiency.”

        0
        March 6, 2020
        • Jerry Doyle said:
          There is a road in my community that residents long have had plans to construct (and the monies available to do so) for the purpose of saving commuters much travel time by cutting across a section of land for the purpose of connecting two major roads. The project has been on hold for twelve years because of roadblocks thrown-up by special interest groups. Meanwhile, commuters have an additional 30 minutes commuting time not counting the extra cost in lost productivity and increase fuel consumption covering their extra 30 minute commute.

          I also omitted that the cost of the project has risen exponentially during the 12 year delay.

          0
          March 6, 2020
          • David Emery said:
            I remember reading an article about 10 years ago that asserted the US tendency to take -everything- to court is unique among Western democracies, and a sign of the failure of legislatures to actually legislate. The argument continues that in a parliamentary system, the party in power can actually pass legislation and move its agenda forward (for better or worse!). I have a lot of sympathy with the notion that the courts have replaced legislatures, and too many things are decided by, or held up by, litigation that should have been resolved by political processes. There’s no real consequence for the plaintiffs to draw something out in litigation when their primary goal is to prevent the action from occurring.

            0
            March 7, 2020
  4. Fred Stein said:
    It is sad that the world’s largest democracy can’t accommodate modern capitalism and globalization*. It’s bitterly ironic, that the people I meet here in silicon valley, who come from India, have such fine minds and fine souls. As for the treatment of women, the contrast is even more stark, from here to there.

    With his vision, Tim Cook will help India move forward. They are a great people.

    *There is a lesson here for our so called progressives. (I’m a liberal, not a progressive.)

    1
    March 6, 2020
  5. Ken Cheng said:
    “Imagine walking away from an Apple contract because the initial order was only in the thousands per month.”

    Reminds me of Otellini at Intel. He turned down the opportunity to make chips for the iPhone, because the order wasn’t large enough to make a difference to Intel. Later he expressed his regret at turning down that offer. He had no way of imagining what the iPhone would become.

    These Indian suppliers can easily imagine what these iPhone orders can become, because they have over a decade of track record to rely upon.

    0
    March 14, 2020

Leave a Reply