Apple chief Tim Cook is on a visit to China. This is the second time Cook has visited the Asian giant this year.
Apple works at the forefront of technology to create electronic products that are so well-crafted and ambitious that die-hard fans turn the sidewalks near Apple Stores into camping sites before the arrival of a new product. They have made it the world’s most valuable company with a market capitalization of $3.5 trillion, which is equal to India’s GDP in 2023.
Cook’s journey is interesting and important because Apple is an American native. And the US–China rivalry, especially in cutting-edge science and technology, is irreversibly shaping the 21st century. bloomberg Jin Zhuanglong, China’s minister of industry and information technology, was reported to have asked Cook to invest in innovation, a sensitive topic in Washington, which seeks to slow Beijing’s technological progress. The superpower competition is so intense that analysts sometimes predict it could escalate into war. Nevertheless, the Apple chief vowed to “continue to increase our investment in China and help the high-quality development of the supply chain.”
China cannot be ignored
Apple’s proposals show how China, unlike India, remains an unbeatable economy for global corporations. That’s why it is Apple that is wooing China, not the other way around. How the latter established itself as a global manufacturing hub is well documented and India is trying to emulate it in its own way. However, its ability to leverage access to markets and production capacity to learn and grow with the best in the world is severely limited.
For example, Cook considered China so important as both a manufacturing hub and market that the company signed a secret deal in 2016 to invest $275 billion locally, including billions in Chinese startups like Didi. Dollar investments were also included. The Chinese government barely made any concessions as Apple fought off regulatory attacks with an olive branch of investment. The agreement was a resounding success. Apple made a lot of money while promoting the country’s economic growth and prosperity of its citizens. It became the phone maker’s biggest market outside the US, generating $378 billion in revenue between 2016 and 2022, while helping Chinese companies upgrade their technological capabilities.
In comparison, India bent over backwards to woo iPhone and iPad makers to set up shop here. It reduced import duties on components while keeping out finished products with higher levies. Due to this, such a situation has now arisen that the iPhone made in India is cheaper in Dubai than in Delhi. The iPhone 16 with 128GB memory costs around Rs 78,000 at the Dubai Mall, while it costs Rs 89,000 at the glittering Apple retail store in Delhi, where Cook personally flew in and flagged off last year. It took no time for the mediation to give birth to a smuggling racket.
India’s tough duty structures
iPhone smuggling may not cause much loss to the government exchequer, but distorted duty structures and distorted incentives distort the market so much that larger national objectives and development agendas collapse. Protectionist tariffs have blocked growth and innovation in the solar industry. As this three-part series shows, India’s renewable energy program is taking a toll on the finances of power distribution companies, common consumers and ultimately taxpayers. State-owned public distribution companies have suffered a loss of Rs 6.77 lakh crore.
Indian solar power companies find it more profitable to import photovoltaic cells from China and assemble modules to send to other markets as well as sell to local users. High import duty on modules but low duty on cells ensures wide margins for module manufacturers and higher costs for power distributors and end consumers.
rely only on arbitration
Such policies also have broader, unintended consequences. For example, small manufacturers (read assemblers) use imported Chinese components in white-label goods and create their own brands to sell in regional markets. One such entrepreneur from Maharashtra, who has an income of around Rs 75 crore, says that his products have good margins and give tough competition to big companies. He keeps costs low by single-handedly managing sales, operations, purchasing and logistics. Levies are volatile and upward revisions will reduce margins and he does not want to risk increasing costs by hiring experts. This means that the basis of their success is neither technological innovation nor organizational efficiency but intermediation. It also means that the duty structure intended to promote local manufacturing and job creation is promoting product mix while creating only a few jobs.
Earlier this month, a fire broke out at a Tata Group-owned plant in Tamil Nadu, which makes back panels for older models of iPhone. The unit is the sole producer of the critical component, prompting iPhone maker Foxconn as well as the Tata group (it assembles older models in another unit) to buy parts from China to meet global demand in the peak festival season. forces. bloomberg Trade was also reported to be a key factor in achieving success in the India-China border talks.
Why is China moving forward?
When Cook signed the secret agreement in 2016, Apple vowed to localize component sourcing and strike deals with Chinese software firms, collaborate on technology with Chinese universities and invest directly in Chinese tech companies by 2022. It is also committed to building research and development centers and renewable energy projects, Information Reported in 2021.
Of course, Apple wasn’t the only US company to sign such a deal. Microsoft and Cisco signed similar deals to help local R&D and innovation. The ecosystem he helped create undoubtedly contributed to increasing the technological prowess of Chinese manufacturing. But, meanwhile, domestic companies also developed their own expertise and successes.
Chinese scientists have already created an electrolyzer that can directly split seawater to produce hydrogen. Betavolt, a Beijing-based energy startup, claimed in January this year to have created a commercially viable coin-sized nuclear battery that can power a mobile phone for 50 years. According to the Report on the Work of the Government presented at the 14th National People’s Congress, the number of SMEs creating new and unique products using specialized and sophisticated technologies exceeded 70,000 in 2023. To compare, according to NASSCOM, the number of technology SMEs in India is just over 10,000. Most of them are in the software sector and work for big companies. This does not mean that there are no Indian companies doing advanced research and innovation. But they are few and far between, and often hungry for capital. Tata Sons, ranked 207, is the only Indian company in the 2024 Patent 300 list, an annual global ranking of innovators.
Indian companies need to give importance to innovation
China offers generous tax incentives to manufacturing companies and SMEs if they invest in R&D. India also offers tax exemptions up to 150%, but this is mainly used by Global Competence Centers (GCCs) of foreign companies as even large Indian companies rarely foster a culture of innovation. Apart from the availability of affordable, high-quality talent, R&D tax breaks are also a reason for the rapid growth of GCCs in India (now over 1,600). However, the knowledge and patents created are not here.
Indian planning is often short-term. The government needs to holistically reevaluate its incentive structures to make local industry truly independent and competitive in the long run.
(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
