India’s loss, America’s gain? Apple may shift iPhone factory to US

Workers walk out of the entrance to a Foxconn factory in Chengdu, Sichuan province. (REUTERS)

India might have just lost the opportunity to coax Apple and Foxconn to make iPhones in India as reports claim that Apple had asked its manufacturer partners, namely Foxconn and Pegatron, to investigate ways to bring the iPhone assembly supply chain into the United States after China.

"Apple asked both Foxconn and Pegatron, the two iPhone assemblers, in June to look into making iPhones in the US," a source was quoted as saying to the Nikkei Asian Review. "Foxconn complied, while Pegatron declined to formulate such a plan due to cost concerns," the source explained adding that "making iPhones in the US means the cost will more than double."

India had rejected a plan by Apple to import used iPhones, government officials said, a blow to the US tech giant which has been seeking to revive flagging sales of its flagship smartphones.

Apple sells what it calls refurbished iPhones at a discount in some countries, including the United States, and extending this practice to India would have likely helped it gain market share against competitors with much cheaper offerings. Refurbished iPhones are usually devices that have been returned by buyers or are repaired to factory condition after damage.

A customer holds an iPhone 6 (R) and iPhone 6 Plus after the phones went on sale at the Fifth Avenue Apple store in Manhattan, New York September 19, 2014. REUTERS/Adrees Latif (REUTERS)

A customer holds an iPhone 6 (R) and iPhone 6 Plus after the phones went on sale at the Fifth Avenue Apple store in Manhattan, New York September 19, 2014. REUTERS/Adrees Latif (REUTERS)

India, which has been pushing a 'Make in India' initiative to enhance the competitiveness of its manufacturing industry, rejected the proposal citing rules against importing used electronics.

Apple's proposal was opposed by domestic phone makers who claim selling used iPhones would breach India's anti-dumping rules. The Consumer Electronics and Appliances Manufacturers Association had written to India's telecom ministry to stall the move.

However, Indian consumers were excited when Foxconn had made its foray into the country last year. It was believed that if iPhones were made in India, then prices of the Apple flagship smartphone would go down.

On May 21, Prime Minister Narendra Modi met Apple CEO Tim Cook and asked him to manufacture iPhones in India instead of pushing its plan to sell refurbished pre-owned handsets, according to officials familiar with discussions.

Cook, who was on a four-day maiden India visit, came amid declining sales of iPhones globally. Cook met with Modi to push for sale of pre-owned refurbished iPhones - a proposal that has yet to find favour with the Indian government since it was first mooted and rejected during the UPA regime.

Although Apple has no plan to make iPhones here, Cook agreed to explore Modi's proposal. Apple, back then, would unlikely benefit from manufacturing of iPhones in India, analysts had said, citing the price-sensitive nature of the Indian market and the low volumes of iPhone sales here. India accounts for just 1% of global iPhone sales and Apple's share of India's mobile handset sales is just 1.5%.

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However, just after the launch of the new iPhone family, Cook on several ocassions, has said that Apple iPhone sales in India has grown by 50% and the company sees India as the next big overseas market after China as sales have been slowing down there.

Foxconn and its smaller Taiwanese rival churn out more than 200 million iPhones annually from their massive Chinese campuses. Another source told the Asian Review that while Foxconn had been working on the request from Apple, its biggest customer that accounts for more than 50% of its sales, chairman Terry Gou had been less enthusiastic due to an inevitable rise in production costs.

But the question is why is Apple contemplating making phones in the US? Analysts think that US President-elect Donald Trump may push the Cupertino-based tech giant to make a certain number of iPhone components at home.

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While Apple, Foxconn and Pegatron have declined to comment on the issue, all the company's moves appear to fall in line with Trump's stand that he expressed during his campaign speeches -- to push US firms to make their products at home. India and its manufacturing policy also found space during this barbs.

Further, most US citizens think that US is losing manufacturing jobs to other countries in face of globalisation and free trade. Other than having its popular gadgets assembled in China, Apple also procures most of the key components for its flagship iPhones from Asian suppliers.

Taiwan Semiconductor Manufacturing Co. makes chips for iPhones, Japan's Japan Display and Sharp supply panels for Apple's handsets, and South Korea's SK Hynix and Japan's Toshiba produce memory chips for the device.

And in lieu of all the components being imported from Asia, Trump in his speeches had said that he will impose a 45# tariff on all goods made in China. "We're going to get Apple to build their damn computers and things in this country instead of in other countries," he said at Liberty University in Virginia in January.

In March, Trump further pointed the blame at China, where Apple's assemblers churn out iPhones, iPads and MacBooks. "How does it help us when they make it in China?" Trump said during his victory speech. It also closely follows his campaign motto -- "Let's Make America Great Again."

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Also, there is steep criticism from US think tanks against Apple, which claims to have created 2 million jobs domestically. Think tanks claim that while there were new jobs, America has lost 5 million manufacturing jobs to other countries between 2000 and 2014.

Is it possible to move shop?

The task will not be simple. Why? Because the mathematics are against it.

While Cook believes that America doesn't have trained population to make iPhones, the rise in production costs will set back the profits of the company dangerously. Meanwhile, Beijing has also hinted that it will push back manufacturing of auto and iPhones if Trump starts a trade war.