iPhone in India: Why Apple opts for the country for its pricey products?
Apple has opened its stores in India at the time when the country has overtaken the US to become the second largest smartphone market in the world
Last week, Apple CEO Tim Cook opened two new stores—one in Mumbai and another in Delhi. Analysts suggest India is the next big market for Apple after China. In fact, for Apple, India offers an opportunity to boost its revenue and iPhone sales near the levels seen in markets like the US and China, said CNBC in its report.
In India, market share of iPhone products reached 5.5% for 2022. It accounted for 10-15% of iPhones’ overall production capacity at the end of 2022. Analysts predict that by 2025, every fourth iPhone that Apple manufactures, could be made in India, indicating clearly that the country has emerged as the major market for the giant American tech company which is trying to diversify its assembly of products away from China.
Some analysts say one of the key reasons for Apple to diversify supply chains away from China is to avoid disruptions as tension between Beijing and Washington DC over Taiwan and trade escalates.
Apple’s strategy to expand its footprint in India
Apple adopted three broad strategies to increase its presence in India. Firstly, it started assembling and manufacturing iPhones locally under the ‘Make in India’ programme.
Apple has production facilities in Sriperumbudur and Hosur—both in Tamil Nadu, India’s Southern state.
Secondly, it started expanding its retail presence through online and offline modes. And lastly, by lowering prices, either through domestic manufacturing or by sacrificing margins.
Reason behind Apple’s plan to shift manufacturing bases to India
Apple aims to produce 25% of its iPhones in India and manufacture 40% of its devices outside China, possibly by 2025. While the implications of the move for Apple investors are unknown, it could lower trade tensions and tariffs in the long term. However, there could be short-term negative impacts on the stock price due to costs associated with production shift.
India's large population, cost-competitive labor, and focus on technology make it a more cost-effective production option for Apple, especially with China's rising production costs and other developing nations' decreasing market share.
China's real GDP per capita is $12,556, while India's is $2,256. Ramp-up of component production in India could reduce import duties, lowering the costs for Apple and passing savings to Indian consumers, which could boost Apple's market penetration in India's rapidly growing middle class, projected to reach 63% by 2047.
India an appealing investment destination
India's aim for a $5 trillion GDP by 2025 offers numerous investment opportunities across sectors. The country's 1.3 billion population, growing at a rate of 1.1% annually, provides a vast market potential for various products and services.
India's young working population, aged 28-30 years, is expected to drive long-term economic growth. With a favourable investment climate, rapid business reforms, low manufacturing costs, and significant investments in infrastructure, India is an attractive destination for direct and portfolio investment.
The country's young and skilled workforce provides a consistent supply of low-cost labour, with over 65% of the population under 35. India ranks second globally for manufacturing costs, and infrastructure development is critical to reaching its goal.
Apple's plan to attract customers
Apple’s target audience consists of middle-class and upper-class users who can pay for products that provide them with an incredible user experience.
But given that the Indian market is dominated by much cheaper South Korean and Chinese smartphones, Apple’s strategy to attract mobile users in India, by allowing them to pay in installments and trade-in discounts, has shown some success.
Apple's entry-level phone, the iPhone SE, retails for $429 in the US, while the average selling price of a smartphone in India is $224.
Apple's plan to reduce dependence on China by manufacturing in India
To reduce its reliance on China, Apple plans to increase production in India through a $700 million plant being built by Foxconn in Bangalore. India is the world's second-largest smartphone market, with nearly 12% of the global market.
Apple currently manufactures 5-7% of its iPhones in India and plans to increase this figure. While India may assemble up to 50% of iPhones by 2027, analysts believe 10-15% is more realistic due to Apple's premium brand, which may not reach the mass market price point. Despite this, India's expanding middle class and technology adoption are expected to increase iPhone sales.
Apple's strategy to attract Indian customers
Apple needs to crack the Indian market for sales growth, but it's been challenging due to the dominance of Android phones, which are priced lower than Apple phones.
Apple's strategy to attract "switchers" in India, allowing installment payments and trade-in discounts, has shown some success. Apple's entry-level phone, the iPhone SE, retails for $429 in the US, while the average selling price of a smartphone in India is $224.
India as a new center for high-tech industries
India has the potential to become a hub for technology and innovation due to its strength in the Information Technology (IT) Services and Business Process Outsourcing (BPO) services, which have grown at a CAGR of 14% in dollar terms, reaching a value of $254.5 billion in 2021-22. The IT and BPO segment alone employs 5.1 million people directly and over 12 million indirectly.
India is expected to become a hub for technology and innovation, with more complex and expertise-based services contributing to further growth in the IT sector. India currently has over 1,500 Global Capability Centres (GCC), employing around 1.3 million people. GCC are the tech and shared service centres of MNCs in India. They are growing rapidly as international companies look for talent to help them digitally transform.
The service sector, which accounts for over 50% of India's GDP and employs almost 31% of the workforce, is a significant recipient of FDI inflows
While India presents unique challenges, such as differences in business priorities and infrastructure, it is poised to become a significant player in the tech industry, as demonstrated by Apple's investment in the region. Other smartphone brands are also moving their production bases to India. Factors for this are many, but the Indian government is ramping up efforts to position the country as the key tech hub of the world.