Apple ripens its India plans

Making the country an alternative export hub to China makes sense for the US giant but competition in the domestic market could be intense

There is good news from Apple Inc. Nearly three years after it kicked off its discussions with the government, the Cupertino, California-based company has decided to take the plunge by making India an alternative global hub for exports, apart from China.

To achieve that, Apple has roped in three of its global original equipment manufacturer (OEM) vendors — Foxconn, Wistron and Pegatron — to sign on for the flagship productivity-linked incentive (PLI) scheme. The scheme offers incentives between 4 and 6 per cent on the production value of phones manufactured in India for five years and mostly exported, provided they meet targets of value and investment each year. Foxconn and Wistron already have plants in Tamil Nadu and Karnataka. Pegatron is currently scouting around for land to set up a manufacturing plant in India.

It’s a win-win all round. It will help Apple hedge its over-dependence on China, where 95 per cent of the devices are manufactured. And for India, it will kick off the strategy to boost exports so that it can reach the magic number of $110 billion by 2025.

There is a third dimension. The hope is that Apple, which has already started manufacturing some of its phones in India in a small way, will pump up production for the domestic market too, have a stronger distribution system, offer Indian consumers phones at an affordable price tag (because they will not have to pay import duties) and, therefore, sell phones in larger volumes.

The global giant has already taken some significant steps to strengthen its India play — it will set up company-owned Apple online stores sometime this year, which global experience suggests drives substantial sales. Currently, it is dependent on third party e-commerce sites such as Amazon to sell its products online. And it is working towards setting up company-owned signature Apple stores, the first to be in Mumbai, in 2021. That again will reduce its current dependence on 1,000-odd resellers.

Both these moves were delayed by foreign direct investment rules on retail that stipulated that a company has to source 30 per cent of its products locally to qualify for permission to set up single-brand retail outlets. The policy was later relaxed and Apple Inc. became one of the early beneficiaries.

Meanwhile, Apple has started reworking its India pricing strategy. In a curious inversion, Apple phones in India cost more than in the US, despite the wide gap in per capita income. Last year, it dropped prices of the iphone XR twice to below ~50,000. It has also launched the iphone SE at ~42,000 in April this year. And its entry-level model, iphone 7, which was launched in India four years ago, is available for under ~30,000. It has also begun manufacturing its latest Apple iphone 11, among other models.

Analysts expect local manufacturing to significantly reduce Apple’s costs, enabling them to price their phones competitively. This is principally because the 22 per cent import duty will not be applicable, and as volumes increase, the plan is to get in global component suppliers to manufacture the components in India, which will reduce costs further.

But are these measures enough for Apple to become a larger player in the

Indian mobile sweepstakes? An Apple Inc. spokesperson declined to comment on future predictions, pricing or revenues. To put it in perspective, India is a minuscule market for the global giant, accounting for 0.5 per cent of its global revenues (based on FY2019 figures). Apple’s India revenues are just 3.5 per cent of the revenues from Greater China, Apple’s largest market after US and Europe. The question is whether Apple will replicate the China model in India, concentrating on both domestic and export markets. After all, can Apple afford not to play a larger role in an annual smartphone market of 150 million?

The company faces growing competition in the premium smartphone market (~30,000 and above). In Q2 July, One Plus 8 from China hit the number one slot with a 19 per cent share followed by Vivo V 19 and Samsung Galaxy A71 in the segment, according to data from Counterpoint Research. Apple iphone SE (10 per cent share), the price warrior, was at number four and Apple iphone11 at number 5.

But if one looks at the over $500 segment, which accounts for the bulk of Apple sales by value, the company still dominates. According to IDC, in the second quarter of calendar 2020, Apple had a 48.8 per cent share, up from 41 per cent last year in this segment, followed only by Samsung and One Plus.

But competition is gaining ground in this segment too. Recently, the Big Three are being challenged by the three Chinese players: Xiaomi, Vivo and Oppo.

Analysts agree that the over-~50,000 market, where Apple is big, is tiny — making for not more than 3 per cent of all smartphone sales. But the market between ~30,000 and sub-~50,000 — where One Plus and Samsung are the big boys — is growing fast. Says Faisal Kawoosa, founder of Techarch: “Unlike in other countries, a lot of the loyal Apple customers were forced to shift to other brands because their phones became too expensive, hitting ~1 lakh. So they moved to premium phones like One Plus and Samsung and so on.”

Kawoosa says similarly, customers who bought phones costing less than ~25,000 found a range of new quality phone available at half the price of an Apple.

Apple’s other big challenge has been the lacklustre response to bundling of phones with operators in India. Apple has been successful in many key markets in tying up with mobile operators, which in turn offer the phone bundled with operator minutes and at a discounted price to their subscribers. “In India, bundling has not really worked, the volumes are very low and nothing to talk about,” says a senior executive of a telecom company.

Apple’s first calculated steps in India and aggressive competition from Chinese makers, all make for interesting times for consumers.

SURAJEET DAS GUPTA New Delhi, 14 August