The iPhone Takes On India’s Burgeoning Market

Apple will start building iPhones in India this month, according to India?s Karnataka state information and technology minister, Priyank Kharge. Manufacture and assembly of iPhones will start in India?s answer to Silicon Valley, the prosperous state of Bangalore, or Bengaluru, as it is officially known in India. Partnering with Taiwanese contract manufacturer Wistron, the Cupertino, California-based company will start manufacturing iPhone 6 and iPhone 6s models immediately, and the iPhone SE within three months.

Kharge said the iPhones will be for the domestic market and will foster ?cutting-edge technology? in the region. Apple, which reportedly negotiated hard with the Indian government on tax exemptions and other incentives, has reportedly not been able to clear all of their demands. According to Investopedia, the Indian government balked at the expedited customs clearance of only 30 minutes and the reduction of import duties. Demands that China, which has a customs clearing facility right outside of a manufacturing plant, has delivered on.

Indian market potential

Whilst iPhone prices have, in the past, been much too high for the average Indian consumer, who favor cheaper competitors using Google?s Android mobile operating system, the 1.3 billion population makes the country one of Apple?s most important long-term growth markets. Apple CEO Tim Cook, said Apple intends to invest significantly in the country and as Phones assembled in Indian factories will not be subjected to heavy import costs, the phones will become a lot cheaper.

IT minister Kharge said the phones assembled in the Bangalore factory would be up to 16% cheaper. By assembling the phones inside India, he explained, the company will not have to pay the import tax which comes from units manufactured and assembled outside of India. That saving will be passed on to the customer and will help Apple gain a foothold in the largest growing smartphone market in the world.

Revenue loss in China

Apple branching into India comes at a much needed time, as Apple suffered its first ever decline in its share of China?s smartphone market last year. In 2015, Apple held 13.6% of the market share in China, whilst in 2016, they dropped to 9.6%. Apple is losing ground to the three top selling Chinese vendors Oppo, Huawei and Vivo, which accounted for nearly half the domestic smartphone market in China in 2016. China?s overall smartphone market grew by 8.7% showing a new trend in China to accept local vendors, as product features and marketing efforts improve.

China is not the only place where Apple is losing out, however. According to the Guardian, Apple sold $215.6 billion worth of products in the year to 24 September 2016, which was an 8% decrease from the previous year. Apple?s profits also slipped to $45.7 billion, a 14% decrease. The fall in sales, the news outlet states, was mostly down to declining sales of the iPhone, Apple?s most important product, accounting for two thirds of all its sales. The loss in sales has left some analysists saying Apple has hit its peak, with almost everyone who wants or can afford an iPhone, already in possession of one.

Will India save Apple?

Although Cook seems positive about the move to India, not everyone maintains the same attitude. According to UK Business Insider, India is not the next China and the smartphone market is not mature enough to make a difference to Apples waning sales. Counterpoint research director, Neil Shah, said 250 million phones are sold in India every year, but only 125 million are smartphones, with an average selling point to $125. That would mean a possible 8 to 10 million sales a year, a drop in the ocean compared to the 60 million smartphones Apple sells in China per year. Shah maintains that Indians will not pay up to $600 for an iPhone.

Smartphone use in India is on the rise, however, with an estimated 400 million smartphone users in India by 2018, Shah said. Apple stands a better chance in the years ahead, but only if it lies the groundwork now, perhaps by releasing budget phones first. Apple?s CEO is in a different mindset, however, as in April, last year, he said India is where China was seven to ten years ago and from that point of view it is a really great opportunity.