There has been a lot of chest-thumping around the fact that Apple has started production of the iPhone 11 in Foxconn’s plants. No this is not Apple suddenly manufacturing their flagship phone in India and neither this is a sign of it pivoting strategy from China. The moment this news came out there was a lot of chatter but this was debunked quite efficiently by my friend Prasid Banerjee of LiveMint in a Tweetstorm. But I’d like to elaborate more on this. This just goes beyond a narrative of big organisations trying to diversify their supply chains or just a case of business as usual. This is more nuanced.
To understand this nuance, you need to understand the iPhone XR. The iPhone XR was launched in 2018, positioned as a budget offering alongside the iPhone XS. This was the year, Apple really struggled in India with its market share and revenues plummeting.
In 2019, the iPhone XR became the best selling phone in the world. In fact, sales of the iPhone XR also picked up in India and Apple started rebounding in India. This is around the same time when Apple started manufacturing the iPhone XR in India. This happened around October 2019 and within a month even India’s IT minister Ravi Shankar Prasad confirmed the same. Remember, this was more than a year after the iPhone XR was launched in India. By this time, even the iPhone 11 was being sold in India.
So whatever is happening with the iPhone 11 is a repeat of the same strategy. In fact, like the iPhone XR, in early 2020, the iPhone 11 became the best selling phone in the world until the pandemic crippled the entire planet. It has happened earlier than last time for a couple of reasons :
- Firstly, Apple obviously wants to increase more and more local production as it has plans to have its own retail stores and for those, to circumvent the local sourcing limitations, Apple has to increase local production.
- Apple also wants to increase its market share in India and be more competitive with new brands like OnePlus — even a phone like the iPhone SE costs upwards of Rs 40,000 which is Rs 10,000 more expensive than the top OnePlus Nord SKU. It needs to have more affordable products in a market like India.
- As Prasid pointed out, the most important reason why this has happened is the iPhone 11 is basically an upgraded version of the iPhone XR. It has the same frame, same display, same front-facing camera system and a similar battery. There are differences like the new dual-camera array on the back, a beefier chipset and a slightly bigger battery – but largely this is a similar phone which means the manufacturing know-how is already there inclusive of the tooling. This also means that the iPhone 11 isn’t even the flagship iPhone. That’s the iPhone 11 Pro.
- Since the capability was already there and now the iPhone 11 is in its second year and will be relegated to being the older iPhone in less than 3-4 months, it makes sense to expand manufacturing so that Apple can leverage economies of scale and all offset any drop in demand for the iPhone XR which is now more than 2 years old. This also means when the iPhone 12 will be announced in September or October, it will not be manufactured in India. Likely, it will bring a new design and those models will not see local manufacturing till 2021.
- This acceleration of manufacturing in India coupled with Foxconn’s new $1 billion commitment to India or Pegatron’s overtures in the country can’t be seen in isolation from what’s happening in China. Apple is certainly looking to diversify its supply chain. It wants to protect itself from the pandemic. Currently, shipments of Apple products are highly muddled because of the Indo-China border tension and constraints of the pandemic. Most stores don’t have new devices. Apple also wants to protect itself from the consequences of the US-China trade war. All of this is at play, but this isn’t a sudden flip of a switch.
Apple is a very cautious company when it comes down to manufacturing and expects the highest standards. In fact, for years, it has been struggling with manufacturing in India as the ecosystem wasn’t evolved. That’s been slowly changing. Before it thinks about launching the iPhone 12 Pro models, it will look at its supply chain and only the most proven suppliers and factories will be involved. In India, it has started manufacturing its second-best product, which is also a best seller. Now that it is manufacturing the phones here, the next step would be to scale the manufacturing so that it can be exported — this also has started to happen. After Apple has that level of clarity, it will probably take a stab at manufacturing the phone at launch in India before it expands manufacturing for “pro” models. All of this will happen in a planned manner, in stages and most people will not even realise the change has happened.