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Despite modest market, India may emerge a strategic bright spot for Apple

As three major vendors get clearance to expand operations in India, the country could become a large hub for Apple exports to the world. Local manufacturing also means Apple will surely expand its premium segment market share in the country

Harichandan Arakali
Published: Nov 6, 2020 05:32:33 PM IST
Updated: Nov 6, 2020 05:46:12 PM IST

Despite modest market, India may emerge a strategic bright spot for AppleImage: Shutterstock

Apple’s iPhone 12 advertisements have featured prominently during the ongoing Indian Premier League cricket matches, with the now-familiar annual tagline of the ‘most powerful iPhone ever’. The 5G-ready iPhone 12 as well as the iPhone 12 Mini and iPhone 12 Pro versions became available in the US on October 23, and a fortnight later in India.

Quick availability of the latest products in India, typically within weeks of the launch, has become the norm over the last few years. This is because Apple expanded its operations in the country, reaching stores nation-wide, comprising everything from small electronics shops to large Apple Premium Resellers, supported by national level distributors. Online sales kicked in as well, via Amazon and Walmart-owned Flipkart. Today, Apple has over 40 percent of the ‘premium’ segment of the smartphone market in India—typically phones costing $400 (about Rs 30,000) or more.

What was missing, until recently, was Apple’s own retail stores. And over 20 years after Apple came to India, that was partially rectified when India’s own Apple online store opened for business on September 23. A physical store too should have opened in Mumbai around the same time, “but the Covid-19 pandemic put a spanner in the works,” says an industry executive familiar with Apple’s operations in India.

Shilpi Jain, a research analyst at Counterpoint Research, tells Forbes India that Apple was planning to open its own online as well as offline store in India since last year, but the plan was delayed due to the pandemic. Last year, India relaxed local sourcing rules for single-brand retailers making it easier for companies such as Apple to open their own stores.

“Opening its own store will help the brand to grow its connection with its customers thereby building a loyal customer base,” Jain says. Apple CEO Tim Cook’s comments suggests likewise. Apple “set a September quarter record in India, thanks in part to a very strong reception to this quarter's launch of our online store in the country,” Cook told analysts on October 29, discussing the company’s September quarter results.
A lot of work goes into a physical store as opposed to the online store, which is typically a back-end effort, the industry executive says. The physical stores, most often, are milestones and tourist attractions. Among the newest in Asia are Apple Marina Bay Sands in Singapore and Apple Central World in Bangkok, Thailand. It’s likely that the Mumbai store will be opened next year.

With the online store in India, Apple currently works with BlueDart as its delivery partner, servicing more than 2,000 locations across the country.

Premium segment
Apple is increasing its focus on the Indian market as the premium segment holds immense growth potential in the country. Recently, it started the assembling of iPhone 11 and latest iPhone SE 2020 in India. Opening its own online store ahead of the festive season will help in boosting its devices sales, Jain says.

In India, Apple is an aspirational brand. Though the Indian smartphone market has seen significant growth in recent years—crossing the 150 million-unit mark last year—the premium segment remains nascent at less than 4 percent of the overall market. On the other hand, the segment is expanding. In 2019, it was the fastest growing segment and this year, Counterpoint expects 16 percent more premium phones to be sold in India, while the overall smartphone market is estimated to decline.

In the next three to five years, the premium segment is expected to account for 8-10 percent of India’s smartphone market. Apple knows that, and is looking to expand its leadership in the segment. With the recent launch of Apple iPhone 12 series, and the iPhone SE 2020 in the affordable premium segment, Apple is set to increase its market share in the Indian market in the December quarter of 2020, Counterpoint projects.

While retail is one piece of Apple’s plans in India, it has ambitions on multiple other fronts, including expanding the reach of Apple’s services, developing software for Apple’s products, promoting the iOS ecosystem via the developers in the country, and manufacturing in India for the world.

Manufacturing hub
That last piece is now coming together and will accelerate in the quarters to come. India recently approved the setting up of or expansion of 16 smartphone-related electronics manufacturers’ operations in the country, including three of Apple’s biggest contract manufacturing suppliers—Wistron, Foxconn and Pegatron—under a production-linked incentive plan. The first two were already here and are expected to expand their operations, while the third will soon come in.

This will mean that most iPhones, which account for the largest chunk of the Cupertino company’s revenues, will be made in India as well, not just China.

“The move away from China for smartphone manufacturing is real, and India is a viable alternative for any brand that is willing to invest,” Rushabh Doshi, a research manager and head of its India office at Canalys, a tech market researcher and consultancy, tells Forbes India in an email.

Apple is a global player in the smartphone industry, therefore, approval of its contract manufacturing partners under the incentive plan will be important for the overall growth of handset manufacturing ecosystem in the country, says Jain at Counterpoint. For now, mostly assembly is happening in India, while 85-87 percent of components are still imported.

As the largest players Apple and Samsung expand their production base in the country to tap the incentive plan and make India an export hub, their supply chain partners and major component players will also be interested in manufacturing in India itself, which will increase local value addition, she says.

Local manufacturing of components would bring down the dependency primarily on China, Upasana Joshi, an associate research manager for client devices at IDC India, adds.

In 2017, Apple started assembling an iPhone for the first time in India—the original iPhone SE through Wistron’s facility in Bengaluru. Subsequently, every year, models were added, including the iPhone 6s,  iPhone 7, then the iPhone XR—which Foxconn started assembling in Chennai last year—and earlier this year, the iPhone 11, which was last year’s flagship model. And the iPhone XR is one of the most popular Apple phones in India.

Exports from India have already been happening, starting with the iPhone SE, but exports are currently a small proportion of what is assembled in the country. “As the different partners come in and grow, exports will automatically grow,” says the industry executive.

 And as Apple starts making its latest and most popular phones in India, it all be able to expand its share in the local market as well. For one, it will be able to price the phones much more competitively. The majority of Apple devices in India are still imported, incurring a direct import duty of 22 percent. With local manufacturing, Apple is expected to save on upfront duty cost and price devices accordingly, IDC’s Joshi says.

“India is one of the few markets where Apple expects to continue to grow double-digit” due to its low penetration, and relatively smaller addressable market share as compared to the total population, says Doshi at Canalys. That Apple is investing in self-owned retail in India is “a great indication that things are definitely moving forward after a long hiatus” since Apple CEO Tim Cook visited India in 2016.

Doshi adds: “In the long-term, Apple can look to India to fuel its ambitions of growing its installed base—something that investors are keeping a keen eye on—and subsequently growing revenue share from its services, the pricing for which Apple seems to have gotten right in this country.”

Apple’s services available in India include Apple Music, Apple TV+, Apple Arcade—a games subscription—and iCloud storage services. For example, Apple Music is Rs. 99 for a monthly subscription, “which isn’t the price anywhere else in the world” the industry executive says. Students can get Apple Music for just Rs 49 for the student plan. Now the company is also offering bundled services called Apple One, starting at Rs 195 a month per subscription, and has recently launched a family sharing plan.

The one big service which Apple hasn’t yet brought to India is Apple Pay. An important requirement for Apple Pay is that the accepting merchant’s point-of-sale machine should support contactless payment. In India’s largely unorganised retail scene, small merchants would be loath to invest to upgrade. And India already has a thriving ecosystem of payments options, including the government-led unified payments interface. Rival Samsung, however, does offer its Samsung Pay in India.

Software development
When CEO Tim Cook visited India in 2016, he inaugurated a maps software development centre in Hyderabad, which is currently at over 5,000 staff. This centre is taking care of software development for Apple’s Maps team. Cook also announced an App Design and Development Accelerator to support the iOS app ecosystem, which went live the following year, in Bengaluru.

A majority of the staff in Hyderabad is third-party contractors. Apple, on its own rolls, has less than a thousand people in India as full-time Apple badged employees. The contractors will be on various vendors’ payroll, such as an Infosys, for example.

“The app accelerator is a tribute to India’s app ecosystem and the strength of the developer ecosystem,” the industry executive says. Thousands of developers have attended sessions at the accelerator, which isn’t an incubator, but a place where developers—from individuals to large ecommerce companies—can seek help to make their iOS apps better.

India has tens of thousands of iOS app developers, and Apple says its investments in the country today “support” about 900,000 jobs.

India’s potential to emerge as a major manufacturing and export hub, and its large number of iOS developers make it a strategic location for Apple, even as it pushes to grow its sales in the market. Apple is around two percent of the overall smartphone market in India today, by units sold. That accounts for most of the approximately $2 billion it currently makes in revenue from the country. China accounts for more than 20 times that. Thailand accounts for twice as much as India. Ditto for Dubai. “So, it’s not a sales game from India,” the industry executive says.

On the other hand, there are very few countries that have the kind of human resources that India has across the spectrum—from workers for Wistron and Foxconn’s factories to entrepreneurial app developers for the iOS ecosystem. Those are the things that set India apart. In five years, say, India may also rank among Apple’s medium sized retail markets, but it will be an increasingly important strategic hub.

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