This is econ 101. Moving now is pricier in the short run, but the investment, particularly in India, means that there will be a new ecosystem being built that will eventually provide the same costs and availability as manufactured in China without having to deal with the forced tech transfers, censorship, nationalistic boycotts, and a country that is increasingly hostile to democratic values and international norms.
Even though India now has a net surplus of electric generation, there are systemic problems with the electric grid. Some of them are due to poor infrastructure, others due to theft or corruption. But the takeaway is that a factory in India just can't run for 24 hours a day the way it can in China.
This is not likely to change in the foreseeable future, even with sustained international investment. There are a ton of constituencies in India that make fixing these kinds of issues much more complicated than in China. So while a company like Foxconn may be able to setup a factory and use their considerable resources to make it work, I don't think we're likely to see the kind of ecosystem pop up that you see in Shenzhen.
It's true India has a lot of issues. But the good thing about investments like these is that it creates an opportunity for everyone involved to potentially make a change for the better. This could be the start of a new series of investment in manufacturing and the potential could batter enough heads together to fix issues like electricity reliability especially if every has a vested interest in making it work out.
I'm not saying it will definitely happen, but these are the sort of gamechangers that could disrupt the status quo for the better.
In theory this is all true, but you really have to look at the facts on the ground and the specific situation. Tons of folks have agreed with what you're saying, and poured in investment, and the situation remains really challenging. It's not for a lack of effort — India has a huge potential labor force, it's well-situated for shipping to emerging markets (like China, parts of Africa, or India itself). And, as was pointed out above, it has a strong democratic tradition that makes it appealing to Western investment.
But that same democratic tradition makes it a very different situation from China. It can take literal decades to organize and satisfy all the constituencies involved for projects like a power station, factory complex, or highway construction. Labor constituencies are strong and organized enough to seriously push back against projects, and are often skeptical of foreign investment and "interference". Political parties even resort to violence to stop initiatives that they disagree with.
I'm not saying that it's going to be like this forever. As a US national of Indian origin, I would be happy if the the situation was different so that I could work with manufacturing partners in India. Having some cultural and legal ties to the country would give me an advantage that I don't have when working with partners in Shenzhen or Shanghai.
But it's really just not the case right now. By all means, I'm happy that this investment is happening, but I think we need to be realistic. For a manufacturing ecosystem to develop that looks anything like China does, it's going to be more on the scale of 50 years or more, not 5-10.
Indeed. The thing is that China has been investing like crazy in infrastructure projects which proved crucial to develop industry and its physical supply chain.
> no paved roads, and no electricity
And they built all that first.
I was in Shenzhen 10 years ago with an Indian colleague, its first trip to China. He was shocked when he saw that Shenzhen was a modern metropolis with large avenues as he was expecting something like in India...
May be they were, but I doubt they are the largest anymore. LF is has been selling asset after asset and their share price are now in 20 Yr's low. Basically they are a dying company.
I was in Shenzhen in the early 90s, and there was already reliable electricity, roads, ports etc., and those were not built by Li & Fung
(I know for a while only the state of Gujarat had it; back in the day, even Bangalore didn't have 24/7 power so most multinationals that set up shop there ran their own generators)
I've heard this a number of times over the last decade or so, and wonder what is it that prevents factories from running their own generators/power stations. Is fuel availability also a problem? Is is not economically feasible? There are plenty of factories in the world that have backup power sources. What's happening in India that makes this not common?
Generators are complex and weird. Many use more fuel at 50% of their capacity than at 80%, even though the latter is delivering substantially more power.
The roads are narrow and dangerous, which also means that they are unreliable and slow. For example, it can routinely take 3-4 hours to travel just 60 miles, in a passenger vehicle. The issues only get worse if you need to move a large amount of materials or goods.
Many commercial and residential complexes in India do have a backup power source, but I don't think it would be feasible to run a factory off that.
It seems like that they would be a big enough consumer of electricity that any standard grid would struggle to accommodate them, and they would be doing things like:
- Placing themselves immediately beside the power plant.
- Place their own wires between themselves and the power plant.
- Maybe even build their own power plants (particularly with things like solar/wind that scale down nicely).
Renewables in this scenario is a fairy tale.
[No Renewable Subsidy] + [Shift Downside onto Public] + [Energy Demand Timing] = COAL!
Since India is also a closed market, but more aligned with Western values
No, I don't think so. Any one company has a negligible impact on the size of the ecosystem. If everyone moved at the same time then, tautologically, the whole ecosystem would move. But there's a coordination problem involved. Each player is incentivised to wait for many others to move before doing so. If there was just the ecosystem issues, they would all stay in China forever.
If Foxconn is going there now, it somehow believes it's worth it to go now.
Ridiculous court cases caused by the religious anti-hate speech laws have prevented basic health and safety concerns from being addressed: https://en.m.wikipedia.org/wiki/Hate_speech_laws_in_India
Nevermind the severe pollution of the Ganges (a sacred river) that has gone unmitigated. Its hard to build when the underlying infrastructure delivers dirty water, unreliable power and poor transport infrastructure.
There is vast potential in India, but short of a miracle the pervasive corruption will continue to stunt societal development :c
Wrt the Ganges, iirc there was a project started a few years ago that was supposed to clean it up, yet the river is still dirty as ever. For what is such a revered river, you think that the clean up would be a prime priority.
This is rather about rising labour costs and environmental regulations. Arguably 1988 China when Foxconn entered was way worse in terms of censorship, tech transfers and nationalistic boycotts. 1989 Tiananmen happened the year after. Foxconn staying for 20 years in China is about the low labour costs.
Chinese manufacturing has long been documented with moving out of China since the early 2010s and into other countries like Vietnam and even Africa because of the costs. The real killer nowadays is that China is starting to enforce more stricter environmental regulations and companies are moving out to areas that allow leniency to pollute.
It is doubtful that India will ever develop the kind of ecosystem that you might find in say, Shenzhen.
Those places are as different as they languages they speak.
Now - maybe 'entire ecosystems' are not necessary, but for many things they are.
Foxxconn is big enough to install the parts of the system they need - so long as the electricity runs, the workers show up and work, the government doesn't mess it up ...
I’m not sure this is considered a minus in Foxconn’s (and most capitalist’s) book
$16.5 million - Vietnamese Unit - "for operations and sales"
Easy to see where the major investment is.
I see this is as a clear intent to start putting roots in the Indian market, especially since regulations for international phone imports in India are sometimes prohibitive. Though this move isn't to manufacture iPhones right now, they might be making a strategic move to be appealing to Apple, to produce more phones (a future cheap - XR like version maybe?) in India.
That would be in addition to the production already in place in India for some iPhones.
Apple still has the brand awareness in India. The iconic Apple logo's power has yet to die. I'm not sure if they expect to sell high end iPhones about $1000+ in volume, because they will fail.
One because that isn't cheap even for American blood. And the concept of monthly payments for a phone (price exceeding most two wheelers' prices -- a popular mode of transport) won't sit well with people there, especially devoid of all the carrier incentives in the states.
This is also following rumors from a bit ago -
"More iPhones made in India may also help Apple to hit a requirement of 30% locally-made products in order to get government clearance to open Apple Stores in the country."
So, the article claiming the issue was 30% locally made products in 2016 doesn't seem right.
I can afford a $10k iPhone, but there's no way I'd buy one at that price. Price matters to almost everyone beside the top 0.1%.
China is investing heavily in Sihanoukville, Cambodia because it is a major seaport that isn't Vietnam and because the Cambodian's were more happy enough to get some much needed income.
I am also guessing the Chinese have a lot of saved up USD they'd like to spend and Cambodia is based on USD. I wouldn't be surprised if we see more news from there over time. It is a great way for them to bypass the tariffs.
Everyone wants a taste of the high life, and while the cheap version of the iPhone might not be 500 USD, it needs to get close to the prevailing flagships in India with little tariff overhead. iPhones incur an insane markup in India right now, so they'll want to reduce that, atleast close to the price in the US.
Well yes, they're a status symbol, no need for the arm chair.
People may rationalise how it does y better than the competition, but there very few people where the better y is worth the extra $xx.
I'm reminded of this:
I'll admit its hard to tease out utility differences here. This isn't a rolex situation where the cheaper alternative is 'better'. Although I could cite the gold iPhones as purer examples.
The fact remains, a mid range android phone gets you 95% of what you want a smartphone to have. The iphone proposition is nice to have, not need to have.
You did bring up Rolex, but it isn't that simple. Phones have much more variety and depth of utility than watches. While a watch's quality of function will not really vary between a $15 digital one and a $1000+ one, phones' functionality will. That's part of what makes expensive phones worth it, because they have good software and quality to go along with design.
> The iphone proposition is nice to have, not need to have.
That assumes phones are purely utilitarian.
Apple had lobbied hard against these rules but given that "Made in India" platform had be one of the bedrock policies of Prime Minister Modi, this was going to be an uphill battle.
That said, I might be pessimistic but I don't see this changing Apple's fortunes in India.
From 2008 ( can't believe 2008 was 11 years ago ) ...
Over the coming decade Vietnam should be able to use the same approach China did, with regards to US imports pouring dollars into the country, to rapidly build itself up. Their GDP per capita has been soaring, from $543 in 2004 to $2,500 this year (up ~20% in the last three years). Probably 12 to 15 years out they'll have an economy the size of Turkey or Taiwan.
This is a business decision to expand and diversify but that also widens the Chinese sphere of influence.
Its existing factory(ies) in India are very much used by China mainland smartphone companies, which dominate the Indian market, for example...
It will take decades to those other countries fulfil what China is offering _Today_
But when Apple began making the $3,000 computer in Austin, Tex., it struggled to find enough screws... In China, Apple relied on factories that can produce vast quantities of custom screws on short notice. In Texas, where they say everything is bigger, it turned out the screw suppliers were not.
After creating months of delay, Apple ended up ordering the screws from China. Eventually, Apple found a supplier in Texas that could produce 28,000 custom screws, although they weren’t the exact screws needed nor in the right quantity, according to the NYT. And they were delivered over 22 trips, often in a Lexus driven by the maker’s owner.
"37 percent have moved production out of China in the past 12 months, while 33 percent plan to move in the next 6-12 months."
I would be surprised if even 3% of aggregate production has moved out of China.
That being said, China might be missing out on a more significant portion of future production because of uncertainties (trade war).
Let’s see....China is a export focused economy. Last year their stock crashed 30%. Their currency crashed 10%. The luxury sales in China crashed 30-70%, depending on sectors. New car sales fell 6%. There were discounts of 30% for new real estate projects in Golden September.
Yup, 30% of factories moving out of China seems possible
Now he’s asked me if I know any other US manufacturers who he could manufacture for (guessing because I work in tech (though software) & live in the states)
Would love to help him, but don’t really know how. Makes me realize I haven’t networked enough.
If all the tech is in China, there is no competition to have the most favorable regulatory/taxation scheme. If there are two competitions, both have an incentive to lure more manufacturing towards themselves.
What I am somewhat confused about, that maybe someone with more experience in the import/export situation can enlighten me on, is whether the Wisconsin plant was also some sort of move in this direction or not. What are the advantages of trying to avoid a trade war by opening up facilities in some neutral third country, as opposed to what they already have, which is facilities in both "belligerent" countries? Is it that you're trying to route Chinese-made products through some minor step in India or Vietnam in order to say "no these really came from India/Vietnam, the tariff doesn't apply" and maintain capacity? Or is the idea that they're ramping up enough capacity in India/Vietnam/US that they no longer have to depend on Chinese policy in general? Or something else?
AFAIK the Wisconsin plant isn't going to happen. Even with the outrageous incentives, it will be more expensive than China. Because it isn't simple 'price of math of man hours in China <= price of man hours in America + savings in tariffs".
Set aside for a second the loss in margins due to absence of substantial ecosystem of parts and other manufacturing companies. The worker situation and protection in US would be a lot greater, which means 'less' productivity. So that man hour equation is a lot more complicated. That is unless a large scale automation of testing/validation effort kicks in. Again the technicians for those machines will be double or triple digit more expensive in the US (the rate at which income growth with skill rises in US is much higher - like most developed countries).
That deal, in the first place, was made possible because of multitude of reasons:
1. Foxconn saving their butt in case a horrible trade war happens between US and China, where the rumours were floating since way back before the tariffs actually came in effect last year (ref: Youtube video of Trump saying China, China, China)
2. According to Point 1, if China-US trade wars do hurt their business, fish for US tax incentives for minimal damage. Insurance.
3. The local Wisconsin representatives trying to win over voter base saying they will win jobs. These are the guys that screwed up. Just look at the scale of those incentives.
But we can see today, a trade war won't happen, atleast at the scale that will warrant an immediate start of manufacturing at the Wisconsin plant. This is because Trump and Xi know trade wars kill GDP, and GDP, with all its flaws is still the media's image of the long term economic growth.
> Is it that you're trying to route Chinese-made products through some minor step in India or Vietnam in order to say "no these really came from India/Vietnam, the tariff doesn't apply" and maintain capacity?
Possibly. India doesn't have the ecosystem for manufacturing many parts. So it might be the final step of assembly. Because the tariffs will be for phones, not for parts of phones. Though Indian government isn't stupid (I hope) enough to get the short end of that stick.
A trade war is already taking place. And will increase in scope very soon. And no likelihood of it stopping
Commerce Secretary Wilbur Ross: The US is still 'miles and miles' from a trade deal with China
There is no way China will take the chance of losing its position as the manufacturing hub. They might throw a couple punches, but will make up sooner than a product release cycle.
The region simply does not have the type of workers that the plant would require, and it does not have anything there to attract the required workers. I'm not sure where all that money was supposed to go, but it for danged sure is not going to residents and businesses in Kenosha and Racine counties. As far as I know, the Republican Party officeholders in Wisconsin paid millions of the people's dollars to a foreign company, with promises of billions more, just for enough dubious promises to win one or two elections. (But that isn't stopping the party supporters that I know from making jobs claims, of course.)
Wisconsin might end up paying $200k to $1M for each job that actually gets created. I'm assuming that at about $8k direct tax revenue to the state for each employee, that's a payoff period of 25 to 125 years. I estimated about 7% tax on $60k income, and about 2% property tax on a $200k house. As far as I am aware, it's the worst deal ever made in the entire sordid history of "buying jobs". I wouldn't even consider moving back, unless one or more of the principals involved in making that deal faced criminal charges under chapter 946, subchapter II . And the incoming new governor is already walking back campaign promises to act tough on the Foxconn deal.
To say they "screwed up" is an understatement. They screwed everyone in the whole state, for decades to come, and a good number of people are screwed right now, near the construction site. Eminent domain has been used, as with Kelo v. New London, for the exclusive benefit of a private party. Environmental concerns are being met with waivers instead of oversight. Nearby municipalities are making infrastructure investments that will likely turn into bankruptcy if Foxconn does not deliver. Foxconn only hired 178 of the 260 it was supposed to have hired in 2018, and their jobs target for this year is 2080. Remember: the promised number was 13000 jobs total.
Wait, you mean they're not going to develop "AI 8K+5G" TVs there?
Chinese manufacturing work ethic > Indian manufacturing work ethic.
This will be disastrous short term.
Indian workers can go on strike and vote in elections. Not so in Red China.