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What Happened at the Wistron Plant? What Does the Event Mean for India's Manufacturing Environment?

Editor, TRANSFIN.
Dec 19, 2020 3:00 PM 4 min read
Editorial

What happens in Wistron...doesn’t stay in Wistron.

A major skirmish at an iPhone assembly unit near Bengaluru has added to the Government’s headaches and forced it to find ways to pacify investor sentiment and convince them to invest and make in India.

 

What Happened at Wistron?

Apple partners with different manufacturers to manufacture its products. One of these is Taiwanese company Wistron.

In July 2020, Winstron opened a new unit in Narasapura, 50 km from Bengaluru, to manufacture the flagship iPhone 7 and the second generation iPhone SE.

Over the past few months, employees at the Narasapura plant - most of them hired “through contractors” were protesting over alleged non-payment of monthly wages, mandatory 12-hour shifts and non-payment of promised overtime pay.

Last Saturday, matters escalated as more than 5,000 contract workers revolted and engaged in vandalism. They started throwing stones, burnt vehicles, damaged property and reportedly looted export-bound iPhones.

 

From the Horses’ Mouths

  • Apple said it has launched a "detailed investigation" into whether Wistron had indeed flouted its supplier guidelines.
  • Wistron had claimed losses to the tune of $60m - although in a subsequent statement to the Taiwan stock exchange it said the number was around $7m. It claims to have followed all the laws and said it is supporting authorities in their investigations. 
  • The Government - both Karnataka's and at the Centre - has condemned the violence and initiated a probe into the matter, vowing to take the "strictest action" against the wrongdoers. Officials said the Government was committed to Wistron's "success and business continuity" and hailed it as a "flag-bearer of India's ambitions to become a global hub for electronics manufacturing". Moreover, Karnataka’’s Labour Minister claimed that authorities had never received any worker complaints regarding non-payment of dues.
  • Taiwan's trade development council said its firms wanted Government support on land and labour issues, that they hoped "for more, and not just incentives".
  • India's trade unions have highlighted that the spark that led to the fire was alleged non-payment of wages, which needs to be investigated, criticising the state government for "going extremely soft" on Wistron.

 

The Significance of Wistron

The Narasapura plant was opened only this year, and Wistron has invested ₹2,200cr ($300m) to set up the state-of-the-art electronic devices manufacturing facility, where it employs c. 12,000 people. 

It has two other facilities in Bengaluru, which employ another 2,000.

The iPhone maker had previously outlined plans to expand its presence in India, hiring thousands of more workers and building more facilities. Similar to its contract manufacturing Taiwanese peers - Foxconn and Pegatron. These three firms together had plans to invest up to $850m in India in the next five years. 

As for the latest developments, Wistron has said it is trying to restart operations at its plans at the earliest, but doing so may be “difficult”. The incident “disrupts business for Wistron massively”, Reuters quoted a source as saying.

Hundreds of Wistron workers have been arrested or detained by the police as part of their probe. But the damage inflicted may not have been only on factory windows and assembly lines. At stake may also be India’s reputation as an investing hub. 

 

The Implications of the Wistron Violence

You might not want to view the Wistrom incident in isolation. It needs to be understood within the contexts of businesses’ “flight from China” and India’s faltering economy.

Multinational companies have been considering diluting their over-reliance on China for a long time now. The main driver for this was the Trump administration’s hostility to Beijing’s business practices and the full-blown trade war between the two countries. COVID-19 exacerbated the necessity for diversification as businesses learnt the drawbacks of concentrated supply lines the hard way. (Think: the extreme shortages of hand sanitizers, tissues, face masks and ventilators earlier this year.)

But if not China, who? India was an obvious candidate - availability of cheap labour + a booming economy with massive local demand of its own. But the economy was not as conducive to foreign investment as some other countries’ and there was a severe shortage of skilled labour, which is why alternatives like Vietnam, Taiwan and Thailand stole India’s spotlight.

Then came the pandemic. The nationwide and local lockdowns crippled the Indian economy, forcing it into its first recession on record. As dreams of a “$5trn economy by 2025” faded into black, the Government passed a slew of emergency reforms - many initially issued as ordinances - to make the country more business-friendly.

These included major overhauls in agriculture, labour and the MSME sector. Also announced were a string of production-linked incentive (PLI) schemes to attract global companies to come and make in India. (The Government also painted autarky-ist dreams for a self-reliant “Atma Nirbhar” India whilst sounding the bugle for international companies, but that probably discrepancy is a topic for another day.)

FYI: Incidentally, smartphone manufacturing was always at the heart of the PLI push; it was also the blueprint based on which the PLI scheme was expanded to other key sectors.

Ergo, the implications of the Wistron violence are far-reaching. The vandalism sends out an unfavourable message about India to global investors - and at a time when the economy is on its knees. 

An additional point to note is that this incident happens at a time when there are similar labour unrests across the country. In Bidadi, thousands of workers have been protesting at a Toyota plant for over a month. There have been many demonstrations against the new Labour Code. And thousands of farmers have camped outside Delhi demanding a repeal of the farm reforms.

Unless these fears are allayed and normalcy restored, India’s hopes to benefit from the “flight from China” may turn into a nightmarish “flight from India”.

Although, one party is enjoying what’s been happening - China. All-time-low diplomatic distrust aside, Beijing must never have been amused at companies’ probability of shifting base to its southern neighbour. Now, the Wistron incident must be making Chinese commentators smile.

“Move to China,” one of them said on a Chinese social media platform. “The probability of smashing and burning in China is extremely low!”

FIN.

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