Apple boss Tim Cook is visiting China. This is the second time Cook has visited the Asian giant this year.
Apple operates at the frontiers of technology to create electronic products that are so well-crafted and ambitious that die-hard fans turn the sidewalks near Apple stores into campsites before new products arrive. They catapulted it to become the most valuable company in the world with a market capitalization of $3.5 trillion, which is the GDP of India in 2023.
Cook’s visit is intriguing and important because Apple is American. And the rivalry between the US and China, especially in cutting-edge science and technology, is irrevocably shaping the 21st century. Bloomberg reported that China’s Industry and Information Technology Minister Jin Zhuanglong is asking Cook to invest in innovation, a sensitive issue in Washington, which wants to slow Beijing’s technological march. The superpower competition is so intense that analysts sometimes speculate that it could lead to war. Still, Apple’s boss vowed to “continue to increase investment in China and help develop a high-quality supply chain.”
China remains uncircumcised
Apple’s overtures show how China, unlike India, remains an indispensable economy for global corporations. That’s why Apple is courting China, not the other way around. How the latter built itself into a global manufacturing hub is well documented and India is trying to emulate it in its own way. However, its ability to use market access and production capacity to learn and grow with the world’s best is severely limited.
For example, Cook considers China so important, both as a manufacturing center and as a market, that the company signed on secret deal in 2016 to invest $275 billion domestically, including billion-dollar infusions into Chinese startups like Didi. The Chinese government has made almost no concessions as Apple grapples with a regulatory olive branch attack on investment. The pact was an unqualified success. Apple gained success while riding the economic boom of the country and the prosperity of the citizens. It became the phone maker’s largest market outside the US, importing $378 billion in revenue between 2016 and 2022, even as it helped Chinese companies upgrade their technological capabilities.
In comparison, India has bent over backwards to woo iPhone and iPad makers to set up shop here. It reduced import duties on components while keeping final products out of high duties. This has now led to a situation where an iPhone made in India is cheaper in Dubai compared to Delhi. The 128GB iPhone 16 costs around 78,000 rupees at Dubai Mall, while it costs 89,000 rupees at Apple’s sleek retail store in Delhi, which Cook personally went to last year and marked it down. It didn’t take long for arbitration to spawn a contraband racket.
India’s crooked customs structures
iPhone smuggling may not do much damage to the coffers, but distorted duty structures and misguided incentives distort the market so much that larger national goals and development agendas fall apart. Protectionist tariffs hinder growth and innovation in the solar industry. Like this a three-part series shows, India’s renewable energy program weighs heavily on the finances of power distribution companies, ordinary consumers and ultimately taxpayers. State public distribution companies have accumulated losses of Rs 6.77 lakh crore.
Indian solar firms find it more profitable to import solar cells from China and assemble modules to ship to other markets as well as sell to domestic consumers. High import duties on modules but low charges on cells ensure high margins for module manufacturers and high costs for power distributors and end users.
Relying only on arbitration
Such policies also have wider, unintended consequences. For example, small manufacturers (read assemblers) use imported Chinese components in white label goods and own brands to sell in regional markets. One such Maharashtra-based entrepreneur with a profit of around Rs 75 crore says his products enjoy good margins and give bigger companies a run for their money. He keeps costs low by managing sales, operations, supply and logistics all by himself. Charges are volatile and an upward revision will reduce margins and he does not want to risk increasing costs by hiring specialists. This means that the basis of its success is neither technological innovation nor organizational efficiency, but arbitrage. It also means that the duty structure, designed to encourage local manufacturing and job creation, simply encourages the assembly of products while generating few jobs.
Earlier this month, Tata Group’s plant in Tamil Nadu, which makes back panels for older iPhone models caught fire. The division is the sole manufacturer of the critical component, forcing iPhone maker Foxconn as well as the Tata Group (which assembles older models in another unit) to source the parts from China to meet global demand during the peak festival season. Bloomberg reports that business was a key factor in even achieving a breakthrough in the India-China border talks.
Why China is moving forward
When Cook signed the secret deal in 2016, Apple promised to localize component sourcing and make deals with Chinese software firms, collaborate on technology with Chinese universities and invest directly in Chinese technology companies by 2022. Also is committed to building research and development centers and renewable energy projects, The information reported in 2021
Apple certainly wasn’t the only American company to sign such a deal. Microsoft and Cisco have signed similar deals that have boosted local R&D and innovation. The ecosystem they helped build undoubtedly contributed to the strengthening of Chinese manufacturing’s technological prowess. But in the meantime, local companies have also developed their own expertise and breakthroughs.
Chinese scientists already are built an electrolyser that can directly split seawater to produce hydrogen. Beijing-based energy startup Betavolt hard in January this year that it had created a commercially viable coin-sized nuclear battery that could power a mobile phone for 50 years. In 2023, the number of SMEs that produce new and unique products using special and advanced technologies will exceed 70,000, according to the government work report presented at the 14th National People’s Congress. By comparison, the number of tech SMEs in India is just over 10,000, according to Nasscom. Most of them deal with software and work for larger companies. This is not to say that there are no Indian companies doing advanced research and innovation. But they are few in number and often deprived of capital. Tata Sons at 207 is the only Indian company on the 2024 Patent 300 list, an annual global ranking of innovators.
Indian businesses should value innovation
China offers liberal tax incentives to manufacturing companies and SMEs if they invest in research and development. India also offers tax breaks of up to 150%, but it is mainly used by the Global Capability Centers (GCC) of foreign companies, as even large Indian firms rarely foster a culture of innovation. The R&D tax break is one of the reasons, apart from the availability of cheap, high-quality talent, for the mushrooming of GCCs (over 1,600 now) in India. However, the created knowledge and patents are not here.
Indian planning is often short-term. The government needs to comprehensively reassess its incentive structures to make local industry truly independent and competitive in the long term.
(Dinesh Narayanan is a Delhi-based journalist and author of The RSS And The Making Of The Deep Nation.)
Disclaimer: These are the personal opinions of the author
