Global Tech Companies Leaving China For India  

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

A bold move by China’s President Xi Jinping, the most powerful leader in China in decades, increased his grip on the government and the country when he recently was named to another term as head of the ruling Communist Party, but it broke with tradition.

He immediately eliminated layers of the upper echelon of the government and promoted allies who support his vision for tighter control over society and the economy. This is a major shift in China’s policy, as Xi looks to quell much of the gains made in the market-oriented reformist ideology that has fueled the enormous presence of Western corporations in China.

Xi then called for faster military development, self-reliance in technology and the defense of China’s interests abroad by whatever means, raising the specter of further economic and political tension. The party has a new directive to tighten control and roll back the market reforms that will surely weigh on both domestic and foreign companies doing business there.

This new paradigm creates a major opportunity for other countries to attract global companies looking to relocate their manufacturing processes, and that opportunity, in my view as well as that of many others, exists in India. Specifically, India provides the tech-savvy culture and labor force for companies like Apple Inc. (AAPL) to move their production out of China and not miss a beat. 

In fact, Apple is already undergoing this shift, having shipped over $1 billion in iPhones this year from India, giving a clear indication of the tech behemoth’s growing wager on India and New Delhi’s push to draw in key companies with low-cost local manufacturing that can scale. 

The outbound shipments of India-made iPhones, mainly to Europe and the Middle East, are set to reach $2.5 billion in the 12 months through March 2023, almost double when compared to the year through March 2022, the report said. Mexico and Vietnam are also notable draws for contract manufacturers that supply American brands and are looking to diversify away from China amid rising tensions between Washington and Beijing and ever-present COVID lockdowns that stifle production schedules.

India’s Prime Minister Narendra Modi’s government is planning to attract more big-time investments under a $10 billion incentive plan for chip and display production, aiming to make India a key player in the global supply chain. Modi’s government had already agreed to cover between 30% and 50% of the cost of setting up new display and chip plants. Back in late September, the government announced that it will also cover 50% of the capital expenditure required to set up semiconductor packaging facilities.

Modi’s goal is to grow the share of manufacturing in the economy to 25% from around 15% as part of his “Make in India” program. His government has already cut taxes on companies to among the lowest in Asia, seeking to attract new investments in an economy heading this year for its first contraction in more than four decades. The latest output-linked incentive plan is a “big win for Make in India,” Amish Shah, an analyst at BofA Securities, said in a report to his clients. He forecasts gains for industrials, cement, pharmaceuticals, metals and logistics, with long-term indirect benefits across many sectors.

India’s Junior IT minister Rajeev Chandrasekhar said the government is in conversations with many of the global players to invest in India’s chip sector, without naming any.

“These conversations are happening in the context of multiple incentive packages and programs that have been announced by various countries,” Chandrasekhar said. “Our proposition is … we have a proven track record of growing the electronics industry. And we also come along with the basic infrastructure requirement to set up manufacturing.” 

Back in August 2020, Samsung laid out plans to make $40 billion worth of smartphones in India and may shift a major part of its production from Vietnam and other countries, the Economic Times reported. “Samsung is likely to diversify its production lines for making smartphones to India under the PLI (Production Linked Incentive) scheme and this will have an impact in its existing capabilities across various countries like Vietnam.”

This global shift is not going unnoticed. While most global markets are trading well off their historic highs, India’s Sensex traded to a new all-time high on Nov. 24, and its peer Nifty 50 touched a new 52-week high last Friday. Interestingly, this raging bull market in India receives little or no mention among financial media outlets.

The shift away from China by leading technology companies is of China’s own doing through tight controls, forced technology transfer and outright theft of intellectual property. The old saying of “money goes where it its best served” can also be complemented with “manufacturing goes where it is best served.” China has lost trust and favor with the United States and other nations, whereas India is rapidly becoming a tech assembly powerhouse and a better global partner for the future.

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