China can't upset India's Applecart

Foxconn's decision to recall 600 Chinese engineers and technicians from its India operations - reportedly due to Beijing's tightening curbs on exporting manufacturing know-how and an attempt to slow the Taiwanese company's growth in India - could perversely strengthen Apple's resolve to diversify its global supply chain. The expertise embedded in these Chinese executives represents just one segment of the skillset Apple's contract manufacturer requires - skills acquired rapidly during Apple's shift to contract manufacturing, and which can be re-cultivated in India. China may still hold an edge in certain processes, but it doesn't command the full range of capabilities - certainly not in design, which drives growth in the consumer electronics industry. Trying to sabotage Apple's India plans only highlights China's growing unreliability and could accelerate efforts to reduce dependence.

China retains a relatively small share of value in Apple's supply chain, with higher value-added parts sourced from Japan and South Korea. These countries have no reason to regard the rise of India as a contract manufacturing hub with alarm. Apple does not outsource design and marketing, so, another block of value is off-limits for Asian manufacturers. Acquiring capability relatively low in Apple's value chain is an easier hurdle for Indian contract manufacturers, and Chinese attempts to withhold transfer of know-how may be a tactical gain but a strategic loss. Once the hurdle is crossed, China stands to lose its competitive advantage.

The Chinese stalling tactics may extend to its vendors that feed Apple's supply chain. Developing an alternative system in India is facilitated by closer interaction with Chinese suppliers. However, an alternative ecosystem can still be created if this facility is not available. That is the opportunity and challenge for Indian manufacturers, particularly small enterprises. Again, any such move by China will be a strategic loss by raising the competitive intensity for Apple's contract manufacturing. It might take a bit more legwork, but Apple will gain supply chain resilience.