South India set to emerge as Apple’s manufacturing hub

Tamil Nadu and Karnataka are locked in an intense battle to grab an investment from Pegatron Corporation, one of the largest manufacturing partners of Apple Inc, for setting up its manufacturing plant.

The Taiwan-based company recently opened its office in Chennai after duly registering with the Registrar of Companies under the name Pegatron Technology India Private Limited which is classified as a subsidiary of foreign company.

While the Karnataka government has offered land near Bengaluru, Tamil Nadu is proposing Oragadam outside the state capital as a possible location for the plant. Pegatron is the third manufacturing partner of California-based Apple to enter India with Foxconn and Wistron manufacturing a select iPhone models at their units near Chennai and Bengaluru, respectively.

Though both states have offered “best offers”, Tamil Nadu might clinch the deal if indications from the industry and government sources are anything to go by. Three seaports in and around Chennai and the skilled workforce available in Tamil Nadu are some of the reasons that the government feels would bring Pegatron towards the state.

Whichever state manages to win over the Taiwan-based company, it is South India that will not just benefit but will emerge as a manufacturing hub of Apple iPhones and other electronic gadgets. Pegatron setting up its plant in India also gives credence to the talk that the country will stand to gain as several manufacturers would come here from China after the Covid-19 scare.

Already, two of the contract manufacturers of Apple – Wistron and Foxconn – are manufacturing iPhones in India.

Wistron has set up facilities in Bengaluru and Narasapura in Karnataka. Its new greenfield plant started manufacturing iPhones at Narasapura recently.

The Foxconn plant near Sriperumbudur, 50 km from Chennai, has already begun manufacturing high-end Apple iPhones, giving a boost to the ‘Make in India’ programme of the Prime Minister Narendra Modi government.

The move by Pegatron to set up a unit in India comes close on the heels of Foxconn mulling investing an additional Rs 7,000 crore to expand its capacity at its Sriperumbudur plant.

“We are in talks with Pegatron on its plans to set up a manufacturing unit in India. We have offered them incentives and they are aware of the committed skill force available in Tamil Nadu. We are hopeful, but it is too early to say anything,” a senior state government functionary told DH.

“The two sides might meet for another round of talks in the coming weeks,” another official said, adding that “we might emerge as the winner because we have offered a lucrative deal” to Pegatron.

A senior official with the Karnataka Government also confirmed having established contact with the management of Pegatron. “We are in talks with Pegatron for their investment in the state. We have offered them land on the outskirts of Bengaluru. They are currently studying the ecosystem available in the country. We are willing to give them the support they need,” he told DH.

He said Bengaluru offers one of the best eco-systems for setting up electronics manufacturing plants. The city also offers skilled workforce and engineers required to set up such a facility.

With an eye on a larger share of one of the world's fastest-growing smartphone markets, Apple started assembling iPhone SE at its Bengaluru plant in 2016 and iPhone XR in 2019. Earlier this year, it began iPhone 11 assembly at Chennai's Foxconn plant.

Tamil Nadu, which is aiming to emerge as the hub of electronics manufacturers in the country, has been reaching out to several such companies that might move out of China, following the outbreak of Covid-19. Chief Minister Edappadi K Palaniswami had written to CEOs of several companies, including Apple, Samsung, and HP, asking them to invest in the state.

Salcomp, another electronics equipment manufacturer, has also promised additional investment in Tamil Nadu as it gets ready to launch production from the Nokia plant which was lying idle since 2014 due to a tax dispute. The plant has now been bought by Salcomp after India and Finland reached an agreement on the tax dispute with Nokia under the Mutual Agreement Procedure in the first half of 2018.

One of the leading destinations for Foreign Direct Investments (FDI) into the country, Tamil Nadu has attracted $31.2 billion in FDI from April 2000 to September 2019. It is also the third largest exporter of goods in the country and accounts for 30.8% of India’s apparel exports, 46.4% of footwear exports and 25.7% of electronic exports.

PLI scheme

In April this year, the Central government notified a production linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components, including Assembly, Testing, Marking and Packaging (ATMP) units.

Under this scheme, incentives of 4-6% will be given to electronics companies that manufacture mobile phones and other electronic components such as transistors, diodes, thyristores, and resistors among others for a period of five years.

Last week, the government cleared 16 proposals from domestic and overseas companies involving an investment of Rs 11,000 crore under the PLI scheme to manufacture mobile phones worth Rs 10.5 lakh crore over the next five years.

The companies include iPhone maker Apple's contract manufacturers Foxconn Hon Hai, Wistron and Pegatron, apart from Samsung and Rising Star.

Though Pegatron is said to have pledged to invest Rs 1,200 crore under the production-linked incentive (PLI) plan, sources in both the governments were tight-lipped about the proposed investment amount by the Taiwanese company.