Harvard Business School Professor of Management Practice Willy Shih discusses Apple's ongoing investments into India and breaks down how doing business in the country compares with doing business in China.
Video Transcript
- With concerns around China's economy and political tensions between Beijing and the west, India has become an attractive alternative for doing business. The country remains the fastest-growing economy in the world with a population to rival China's. And it's a big reason why Apple is betting big on the country. But is India really the next China?
Joining us now is Willie Shih, a professor of management practice at Harvard Business School. Professor, good to talk to you today. You know, amid all of the discussions about India being the next big market, I'm thinking back to 2014, which is when India said they would make this big push as the next design and manufacturing leader in the world. How is this opportunity different this time around?
WILLIE SHIH: Well, India has been talking about the great opportunity. I think one of the things that's really different is we saw it during the trade war during the Trump administration. A lot of people kind of were steadfast in their interest in China, you know, including companies like Apple.
But in some sense, I'd say the real turning point was a year ago, April, when we saw the lockdown in Shanghai because of COVID. And that was when a lot of people said, you know, I've got to diversify my supply chains.
And then when you look at some of the really labor intensive operations like, for example, assembling iPhones and things like that, where are your alternatives? Well, you can go to Vietnam. But Vietnam is kind of filling up. India is large population, large market as well.
So I think that was probably a turning point, if you will, where people started to say, you know, I got to try to make India work.
- The demographic comparison, the population is a big reason why so many have compared India to China. And yet you think back to past entries from, especially in multinational companies like Amazon, the hiccups always been about the infrastructure in place. It's not a unified market or as unified as it is in a place like China. To what extent has India really corrected some of those hiccups, and how ready are they for a potential push from a lot of these major companies looking at India as an alternative?
WILLIE SHIH: Well, I think there are a couple of obstacles. One of them is, as you say, infrastructure. China built a lot of infrastructure. They built export-oriented infrastructure, ports, rail roads to get exports out.
And if you look at India, India is starting to build more infrastructure. They're making some progress. But it's not anywhere near the scale or the efficiency of Chinese operations.
So that, of course, is one of the obstacles. And that's why, for example, a lot of people locate around Chennai, where there's a port and it's relatively easy to go to. You go to some of the--
I was visiting the factory in Hyderabad a couple of years ago. And the plant manager said it's really a chore getting containers out for ocean export because you have to truck them down to Chennai. And that was really a chore. So infrastructure is one of the problems.
Another problem I think is just bureaucratic obstacles. It's hard to get things done. In India, they're working on it. But that's kind of an ongoing problem.
And then the other big thing people always complain about is the supply chain. Let's say you're going to assemble iPhones in India. And I think in April, they were up to about 7% of Apple's total production up from 1% a year before.
But most of the components still have to come from China. So there's still the logistics costs. You have a huge logistics burden getting all that stuff into the country. And then just getting the workforce, it's a little different than China. It's been more challenging to manage the workforce.
We've seen companies like Wistron who was manufacturing for Apple among others run into some difficulties just in managing laborers kind of different cultures. So there are a lot of challenges. They can be overcome. But it's not a walk in the park.
- I mean, let's elaborate on the workforce part. Because when you think about who's been in India, you've got Samsung, you've got some of the Chinese smartphone makers. In some ways, you could argue that the groundwork, the foundation for a big name like Apple to enter the market has been laid out there. How does it compare to what we've seen in China? And what's the calculation for some of these multinational companies?
WILLIE SHIH: Well, just marshaling the human resources. In China, used to be much easier. There was this model where I'd set up dormitories. I'd go to inland provinces. I'd bus people in. I'd bring them in by the tens hundreds of thousands.
And that was something you could do in China. It's a lot harder to do that in India. It's kind of not as accepted a practice, where people will go live in dorms and go home once a year, right?
So it's just harder to Marshal those types of resources, where it becomes really important is like I'm probably dating myself. But sometimes when Apple has had some issues launching a product or Apple's manufacturers had issues, like I'm thinking about iPhone 10. Early on, they have some manufacturing challenges than they needed to recruit a couple of 100,000 people to do rework in China that you can do things like that. In India is a lot harder.
- And finally, on the political climate, you could argue that one of the reasons why so many companies are looking to diversify outside of China is the uncertainty around the political tensions. India, yes, is the world's largest democracy. But Narendra Modi has been accused of, for example, censoring companies like Twitter.
And what does that political climate look like in India when you compare it to China? And does that maybe complicate the potential business investments coming in?
WILLIE SHIH: Yeah. It's certainly makes it more complicated. Remember, India tries to maintain non-aligned status, which means like they're buying a lot of oil from Russia right now. And so it's I think what a lot of companies are thinking about is, OK, I have to go into other areas. I have risk.
But the key thing is I have to diversify my risk. I can't be solely dependent on manufacturing in China or India. I mean, I think large manufacturers are going to keep a foot in China for quite some time because the supply chains, the workforce all the infrastructure is hard to beat.
Do I want to de-risk my supply chains by having a little more diversity? Absolutely.
- Willie Shih from the Harvard Business School really good to have you on today. Appreciate the time.