Daybreak - Tata wants to make iPhones in South India by copying China's dorm labour model. Here's why it won't work

Episode Date: December 9, 2024

What put iPhone city on the map is that it produces more than half of the world’s iPhone’s every single year. The global demand for the Apple iPhone has only increased over the years. To keep up with that demand Foxconn hires up to 200,000 workers – a mix of migrants and college students – to make sure that the assembly lines keep running. Especially during the peak season which happens to begin right around now, from September to February. Iphone city is the perfect example of the China manufacturing playbook. It is what propelled China to emerge as the world’s manufacturing hub. It’s pretty simple – Foxconn and companies like it build these large facilities, pack millions of migrant laborers into dorms near their facilities, and get them to work long hours, in often tough conditions. But now things are changing. More and more global companies are adopting a China-plus-one strategy. And India is becoming a favoured alternative. And  as the focus shifts our way, manufacturers in India are pretty much replicating the same China labour model. But this model has an indigenous problem.Tune in**This episode was first published on September 26, 2024.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.Listen to the latest episode of Two by Two here

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast.

It's called Intermission. We want to tell the Sita Ramancahans, my colleague. secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they managed to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people.

And if that wasn't enough, we also decided to throw in video into. to the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert, as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcast. or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am.

With that, back to your episode. Have you heard of iPhone City? It is a 5.5 square kilometre manufacturing plant located in East China, and it is run by Honai Precision Industry, which is better known as Foxconn, the largest contract manufacturer of electronics in the world. Of course, no points are guessing what is. manufactured at this particular plant in Chengzhou.

You see, what put iPhone City on the map is that it produces more than half of the world's iPhones in a single year. The global demand for the Apple iPhone has only increased over the years. So to keep up with that demand, Foxcon hires up to 200,000 workers, a mix of migrants and college students to make sure that their assembly lines keep running, especially during the peak season, which happens to begin about right now, from September to February. iPhone City is the perfect example of the China Manufacturing Playbook. It is what propelled China to emerge as the world's manufacturing hub. It's quite simple. Foxcorn and companies like it

built these large facilities, pack millions of migrant labourers into dorms near these facilities and get them to work long hours, often in very tough conditions. But now things are changing. More and more global companies are adopting a China plus one strategy, and India is becoming a favoured alternative. And as the focus shifts our way, manufacturers here are pretty much replicating the same China labour model. Take the Narasapura industrial area, for instance. It is about half an hour away from the Kohlar gold mines in the southern state of Granataka.

This bustling little locality is home to Tata Electronics. Apple's Indian manufacturing partner. The whole setup looks like it was pulled straight out of the China manufacturing playbook, complete with huge dormitories to pack workers into. Stats released by the Electronic Sector Scale Council of India state that nearly 6 million workers will have to be hired by 2025 to 2025 to 26 to meet the needs of India's burgeoning tech manufacturing industry. And Karnatica and Tamil Nad account for about 30 to 40% of the market.

this demand. While Tamil Nad hosts about half of Apple's 14 supplies in India, Karnataka has taken up aerospace and defence projects, along with electronics and precision engineering investments. So all the big wigs of manufacturing are pumping in huge amounts of money to fulfil their ambitious hiring plans. They all clearly want to make the most of this manufacturing boom. So more jobs in a country grappling with rising unemployment, right? It's a good thing. Well, that is what we would like to think, but there is more to it, because this model has an indigenous problem, which is regional political parties are not happy about the sudden influx of migrant laborers.

Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nagda Sharma, and I Don't Chase the News Cycle. Instead, every day of the week, my colleague Rahal Philipos and I will come to you with one business story that is worth understanding and worth your time. Today is Thursday, the 26th of September. Labour migration is not new to India. But that does not make it any less controversial. Especially now when big companies like Tata are planning to hire

lacks of migrant workers to work in their manufacturing plants. Take the case of Tamil Nad for instance. Here, a regional political leader named S. Ramados urged the government to prevent the Tata group from hiring talent from outside the state. His argument was that so many local youth are still jobless, so why should they hire people from other states? You see, when it comes to joblessness levels in Tamil Nad, Ramados has a point. A recent study by the International Labour Organization, which is a UN agency,

found that more than a quarter of the educated population in Tamil Nad and nearly one-fifth in Karnataka are currently unemployed. But again, the counter-argument to that is that Tata was a company that did try to employ local farmers for its coal-ar plant in 2023. But their lack of skills in production operations rendered the effort useless. The Ken reporter Shrishi Achar spoke to Lohid Bhatya, the president of workforce management at Quest Corps, which is a staffing company. He explained that while talent is available in southern states,

generally they have alternative job opportunities as well. So in many cases, the local talent has to be supplemented by money. migratory talent to fuel the sudden surge of job opportunities that occur. There is also the fact that companies tend to hire from a particular age group, especially those below 25 years. Sarkit Gorev, chairman and managing director of Technodome, a UAE-based consumer electronics distributor, explained that that is because they generally do not have a problem with relocating. Apart from age, gender is also coming up to play here.

A lot of these companies have been pushing to hire more women. And that is because women's dexterity is favoured in assembly line operations. Currently, one-fourth of the entire tech manufacturing workforce in India is made up of women. And this is according to data from team leaves. And three out of every four of them are employed in the electronics manufacturing industry. The idea is to get the right people from wherever as long as they have the right skills. Shrishti spoke to R. Murili Dharan, the chief technology officer at aerospace tech manufacturer Tata Advanced Systems. And he said it is almost like the military.

He said, and I'm quoting, they are very disciplined and there is no loss of production. And since you have enough workers, you can give two months off in a year. End quote. There is also another advantage for manufacturers in this kind of a system. And that is the non-existence of a labourer's network or any kind of a union. More on that in the next segment. The mall coppelips is here. Or is it?

You're probably wondering what that even means? Well, it's a rather over-the-top portmanteau to describe a trend in India's retail landscape that many say is inevitable. I'm talking about the mall apocalypse, the death of the shopping mall as we know it. In fact, a recent report found a 59% increase in ghost mall. across the country. What happened?

Well, most people blame e-commerce. Then they say that COVID was the final nail in the coffin. But, turns out, there's more to it than that. In an upcoming episode of Daybreak, we will uncover why India seems to be over shopping malls. But we want to hear from you. When was the last time you went to a shopping mall? Has the in-person shopping experience lost its charm?

Tell us what you think. If you're open to having a candid one-on-one chat on the subject, write to us on WhatsApp. Our number is 8971-08379. I'll also add it to the show notes of this episode. Thank you and I'm really looking forward to hearing from you. It's been about a year since data electronics bought the manufacturing facility near Kolar for $125 million from Taiwan-based Wistron Corp.

Wistron was the original design manufacturer for Apple. Wistron was actually using the Kolar plant for six years to produce iPhones. And then its employees launched a protest demanding a pay hike. Earlier to, in 2020, some of its employees ransacked offices owing to non-payment of dues and long working hours. Chidambram G. Ayer, who is an associate professor at the Center for Development Studies in Theruvanantapuram, explained why uprisings like these sometimes happen. He said that it is often difficult to get local labourers to work overtime. And that is largely because they have a strong network.

Meanwhile, when companies get migrant labourers from other states and make them stay in their own dormitories, their local network is a lot shallower. So it is easier for these companies to get them or push them to be more productive. Also, no network helps cut the attrition. problem in the bud. It also means you don't have to increase your wage costs constantly because training also requires a certain amount of investment. The biggest problem with the job market lies in its inability to provide long-term secure employment. The automation of processes has a role

to play here. A report by the World Economic Forum says that over two and five tasks will be automated globally by 2027. And turns out, the likes of Apple are also. reportedly trying to cut their head count by half in the next five years and automate their assembly line operations. For companies like Tata, this will play out in interesting ways. For starters, it will mean that off the 250,000 jobs that it is planning to create by 2025, only about one-fifth will be expected to be on the payroll. And the rest will likely be filled by contractual workers who will be subject to the whims of the company's production needs. Basically, these ambitious hiring models that companies like Tata are committing to now may not make sense in the long term.

The industry needs a long-term circuit fix for automation, unemployment and skill shortages. And taking a page out of the China playbook is not going to cut it. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscribers. on the offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the ken.com and click on the red subscribe button on top of the Ken website.

Today's episode was hosted by Snigda Sharma and edited by Rajiv Sien.