There are no immediate deadlines for Apple, Samsung, HP, and other companies to improve local value addition 2023

There are no immediate deadlines for Apple, Samsung, HP, and other companies to improve local value addition 2023

In the race towards localizing production and ensuring a more sustainable and domestically driven economic model, many countries have emphasized the importance of local value addition.

It aims to ensure that not only are products assembled in a given country, but a significant part of their components and value chain also originate from within the country.

For technology giants such as Apple, Samsung, and HP, local value addition signifies adapting their vast global supply chains to fit into localized frameworks. Recent news reveals that these companies won’t face a strict deadline to accomplish this daunting task.

There will be no defined deadline for increasing local value addition for big manufacturers of electronics like Apple, Samsung, Lenovo, and HP who have established production facilities in the nation either directly or through contract manufacturers.

To prevent manipulation by any participant by including non-core components, the government will think about establishing a definition of what constitutes domestic value addition.

The question of defining what constitutes local value addition is being discussed as a result of recent concerns from numerous local telecom and electronic suppliers about manipulation in this area on the part of some major, multinational Indian corporations.

The alleged manipulation occurs when businesses include costs for tower erection, civil work, installation fees, annual maintenance fees (AMC), software costs, etc. under local value-addition to take advantage of specific programmes or satisfy requirements for participation in specific government tenders. For instance, a minimum of 20% domestic value addition is necessary to be eligible for any government procurement.

Only 4–8% of domestic value addition is now added to domestically produced electronics. Currently, the phones built in India by companies like Apple have a local value addition of between 10 and 12 percent. The government has added a further incentive for businesses to manufacture IT gear with local components under the production-linked incentive system.

The local value addition at the project level is not taken into account by the current calculation approach, according to several business leaders. “The costs associated with procuring materials locally for network deployment, spares costs, warranty costs, AMC costs, etc., are not reflected. The main expenses/stages for assembly, testing, integration, and other necessities for placing the equipment in the network are not taken into account either, according to Trai.

In terms of IT gear, the government hopes to lessen reliance on imports from dubious sources by producing up to 70% of the nation’s needs locally during the next three years. According to officials, the value addition component will naturally expand as local manufacturing grows.

Local value addition plays a pivotal role in:

• Economic Development: By encouraging companies to source materials and services locally, countries can bolster their domestic industries, from raw materials to R&D.
• Job Creation: More localized production means more job opportunities within a given country.
• Reducing Dependency: It reduces a country’s dependency on imports and safeguards against global supply chain disruptions.
• Sustainability: Local sourcing can potentially reduce carbon footprints, given the decreased need for extensive logistics and transportation.

For companies like Apple, Samsung, and HP, adjusting to these local value addition requirements isn’t straightforward:

• Established Supply Chains: These companies have spent decades optimizing their supply chains. Redesigning them for localized production can be expensive and time-consuming.
• Quality Assurance: The available local resources might not always meet the stringent quality standards these tech giants uphold.
• Economic Feasibility: Local components can sometimes be costlier than importing them, leading to higher production costs.

Recognizing the challenges and the potential disruptions that could arise from imposing strict deadlines, authorities seem to have taken a more lenient approach. This flexible stance provides companies:

• Time to Adjust: They can strategically plan their transition without compromising on quality or efficiency.
• Better Negotiation Power: Companies can work closely with local suppliers to ensure that the components meet the necessary standards and are economically feasible.
• Strategic Investment: Instead of hastily setting up facilities, companies can now evaluate the best areas for investment, be it in R&D or production.

It allows for a smoother shift towards local value addition without sudden disruptions.Companies won’t be forced to compromise on the quality of their products to meet deadlines.The expected boost to local economies might take longer to materialize.Local brands that already focus on local value addition might face stiffer competition from global giants for a longer duration.

While the decision to provide flexibility to major tech companies in their pursuit of local value addition might raise some eyebrows, it’s a pragmatic approach that recognizes the complexities of the global supply chain.

By granting these giants more time, authorities are likely betting on a smoother and more effective transition that will ultimately bring about the desired economic and environmental benefits. It will be intriguing to witness how Apple, Samsung, HP, and others strategize their shift towards local value addition in the coming years.