Foxconn Chairman Young Liu addresses the audience during the 'SemiconIndia 2023', in Gandhinagar, India on July 28, 2023. Image: Amit Dave/ Reuters
On August 14, when Taipei-based Foxconn announced its quarterly results, India was frequently cited. And it doesn’t come as a surprise. The leading contract manufacturer of electronics has been pouring investments into the country and eyeing expansion in the semiconductors and electric vehicles (EVs) space. So far, in its nearly-two decades of presence in India, Foxconn’s main operations have focussed on the information and communications technology (ICT) assembly business. Now it wants to expand key component capacity to increase its competitiveness in India.
Amid geopolitical concerns, the Taiwanese company is on an expansion spree. Foxconn is making a serious effort to be less reliant on its supply chain in China, which accounts for 75 percent of its operations. During his recent visit to India, the chairman of the company, Young Liu, signed a series of agreements with the governments of Karnataka, Tamil Nadu and Telangana.
Just a few days ago, the company topped up its investment in Telangana, adding $400 million to the $150 million announced earlier. Its India representative, V Lee, announced in a social media post that Foxconn's FIT Hon Teng's board has approved the latest round. In the first week of August, the tech giant signed an agreement to build a manufacturing facility for electronic components in Tamil Nadu, after announcing a day earlier that it would invest $600 million in two manufacturing ventures in Karnataka. The company has purchased 21.5 million square feet of land in Bengaluru and Telangana. This year alone, Foxconn has declared investing over $1.2 billion in India.
As Apple gears up for the launch of its latest iPhone 15 in September, Foxconn has begun its production at the Sriperumbudur plant in Tamil Nadu. The company is all set to deliver the newest devices only weeks after they start shipping from factories in China. Ever since Apple made a grand entry in April with the launch of two new stores, India has become an increasingly important location for its largest supplier worldwide. A major part of Foxconn’s expansion in India is because of Apple's plan to ramp up manufacturing and assembly to branch out its supply chain from China. Foxconn is also reportedly set to start producing Apple AirPods at its Hyderabad facility by December 2024. If this works out, AirPods will be the second Apple product to be made in India.
According to Kylie Huang, executive director at Daiwa Capital Markets, Foxconn will be more aggressive in expanding iPhone manufacturing in India. "Right now, it's only a single digit in terms of percentage, maybe 6 percent capacity. In the next five years, it plans to run 15-20 percent-plus capacity in India," she said, adding that the company is making an effort to move away from just assembling. The next focus will be on making casing components. "Their subsidiary, FIT, will most likely be making the next generation of AirPods very soon."
During the earnings call, Foxconn chair Liu said that in the last two quarters, Indian questions have continually come up. "It tells me there is positive energy for this market." And rightly so, the 49-year-old company has been recurrently making headlines in India. For instance, on August 19, the logistics arm of Foxconn, Jusda, opened an office in Tamil Nadu. With over two decades of experience in lean supply chain management, the company focuses on end-to-end supply chain integration in the whole process for the manufacturing industry. The firm has had a presence in India since 2017. Another subsidiary of Foxconn, Bharat FIH, has been manufacturing components for EV firms like Ather Energy and Ola Electric since 2015.
The world's biggest maker of electronic components is pulling out all stops to make the most of India’s expanding economy and the financial incentives offered by the government to boost manufacturing. Despite that, in July, Foxconn withdrew from its pact with Anil Agarwal-led Vedanta
to invest $19.5 billion to set up a semiconductor plant in the country. It is speculated that the deal fell through due to a delay in approvals from the government. Yet Foxconn remains bullish.
"I’m a bit sceptical about semiconductor investment as there’s limited experience in this sector for the Foxconn group. But investing in smartphone assembly, casings, and other peripheral components is a good way to invest further into EVs and semiconductors in the long run," says Yasuo Nakane, global head of technology research at Mizuho Securities.
In India, Foxconn presently operates on around nine campuses with a total size of more than the equivalent of 500 football fields. Their 30 factories in India account for $10 billion of annual revenue, which is 4.6 percent of the company’s $216 billion 2022 revenue, up from 2 percent registered in 2021. "From the perspective of India’s potential market size, and if we can fully implement our plans there, I think several billion dollars in investment is only the beginning," Liu said during the earnings call.
Taiwan’s Foxconn, with its ambitions to expand into newer segments such as EVs and components, is looking to pivot to China, plus one strategy that the firm is calling BOL (Build, Operate, and Localise). This means they want to leverage the local resources, talent, and government support to scale and build custom-targeted solutions for the markets they will operate in and partner with local original equipment manufacturers (OEMs), explains Neil Shah, vice president of research at Counterpoint Research. "China’s contribution to overall Foxconn’s business will reduce to less than 50 percent in the next three to four years," he adds.
Foxconn is primarily playing the role of an assembler of components. OEMs like Apple play an important role in the finalisation of component manufacturers, for example, Samsung supplies screens for many Apple iPhones. Most of them have set up facilities in China and have well-established supply chains, explains Nilaya Varma, co-founder of Primus Partners. "Foxconn would need demand in terms of units manufactured in India to rise, supply chain in terms of both vendor and logistics (including ports) to improve, and policy support like PLI, and custom duty. This will lead to the manufacturing cost of components being cheaper than the landed cost."
Also Read: India's potential to dominate smartphone and semiconductor manufacturing for the world
Most indicators point to India's position as an alternative supplier and a manufacturing hub, but businesses are still reluctant to completely place their bets on India, according to Arjun Gargeyas, a tech policy researcher and student at the Harvard Kennedy School. This is because of the protectionist economic policies promoted by the government. It could be seen by the recent ban on imports for laptops and other electronics goods. National policies have always favoured the domestic industry and tried to shield local firms from competing globally. For ICT goods, India has one of the highest tariffs in the world. This has not allowed easy market access for international businesses and has also prevented domestic firms from competing on the global market itself. Additionally, India has not committed to any kind of multilateral trade agreement that would enable the free flow of goods, services, and human capital. The government has pulled out of the Regional Comprehensive Economic Partnership (RCEP), which promotes the free trade of ICT products. This resistance to free trade has made the private sector think twice before investing and moving their operations.
"There has to be more of a conducive business-friendly environment that ensures that no one is disadvantaged. You're not giving a complete advantage only to domestic firms, and you are not overly dependent on other countries for supplying many parts of the supply chain. If you try to eliminate every kind of dependency possible, we might end up hurting ourselves more than we can imagine. Self-sufficiency should be complemented by free trade, liberal trade policies, and a less protectionist economic powerhouse," adds Gargeyas.
Foxconn sees India and some Southeast Asian markets as key destinations to diversify and expand over the decade, and a lot of success will depend on how the company can leverage the cost advantage these markets offer and how soon it can build a localised ecosystem, train local talent, and develop IP to scale beyond being just an EMS player, concludes Shah of Counterpoint Research.