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Apple: Looking for a larger slice of the Indian smartphone market

July 03, 2019
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By Diksha Sharma

Apple forayed into the Indian mobile handset market in 2008 with its iPhone 3G smartphone. The company recorded impressive growth in the initial years. According to The Wall Street Journal, Apple’s India sales increased from $100 million in 2011 to $1 billion by 2015. On the basis of this growth, the company had set a goal of taking sales in the country to $5 billion by 2020. However, going by the current scenario, achieving this target seems to be a daunting task. As of 2018, Apple has achieved only $1.8 billion in India revenues. Moreover, its market share in the country has started declining, owing to significant competition from new Chinese players. According to Canalys, Apple’s market share in India has reduced from 2 per cent in 2017 to around 1 per cent in 2018. The volume of iPhones shipped to the country also showed a downturn.

The challenges notwithstanding, India continues to be an important market for Apple and the company has undertaken some key initiatives to address the issues hindering its growth and improve its market position. This includes augmenting its domestic manufacturing capabilities as well as expanding its offline retail footprint. Apple is hopeful that these measures will bring in financial gains for the company, besides helping it increase market share.

A look at some of the key measures taken by Apple as part of its new market strategy and how these will benefit the company.

Boosting domestic manufacturing capability

Apple has been manufacturing its phones in India through Wistron, a Taiwanese contract manufacturer, at the latter’s facility near Bengaluru. The unit started with the production of iPhone SE and subsequently also manufactured iPhone 6S. Recently, Apple announced that it is widening its “Made in India” portfolio of smartphones and since March 2019, has started manufacturing iPhone 7 for its Indian customers at the facility.

Wistron, on its part, has been working towards expanding its manufacturing capabilities with the aim of producing Apple devices domestically. In fact, Wistron recently received official approval for its Rs 50 billion expansion plan. Meanwhile, Foxconn, another contract manufacturer of Apple in India, is planning to begin commercial manufacturing of the iPhone X model at its 160 acre Chennai factory from July 2019. To this end, Foxconn had signed an agreement for the manufacture of premium smartphones during the Global Investors Meet conducted in Chennai in January 2019.

Apple’s efforts to expand its domestic manufacturing capabilities could bring in major financial benefits for the company in terms of lowering the cost of acquisition of select iPhone models. This is because the cost of manufacturing these devices in India is cheaper than importing them, owing to concessions in duty for locally manufactured products.

At present, Apple has to pay 20 per cent import tax on every handset it ships to India. This additional cost gets transferred to the end-consumer, making Apple handsets’ market price higher in India as compared to that in the US. For example, while the introductory retail price of iPhone XR was $749 (approximately Rs 52,809) in the US, it was sold for Rs 76,900 in India. Phone sales at such a high price point in an extremely price-conscious market like India are a challenge. Premium smartphones account for less than 1 per cent of the total handset market in the country. As a result of this limited market size, Apple has not been able to increase its sales significantly in India. Moreover, the price dynamics of the premium smartphone segment in India have undergone a significant change with the arrival of China-based OnePlus, which offers its premium smartphones at much cheaper rates, but with almost similar features, than those from Apple.

With Apple now augmenting its domestic manufacturing, it could potentially pass on the cost savings to the end consumers and lower its handset prices by 10-20 per cent. This would help the company increase its sales volumes to a great extent. Alternatively, some industry analysts believe that the company could utilise the margins to plan a more aggressive sales and marketing strategy.

Nonetheless, boosting its domestic manufacturing capabilities will bring in significant financial rewards for the company. Further, Apple can gradually make India its manufacturing hub not only to address domestic consumption needs but also to export to other markets from India.


Setting up retail stores

In yet another move to boost sales, Apple is planning to set up its first retail store in the country. To this end, the company has shortlisted a few locations in Mumbai. Earlier, Apple had been prohibited from opening its own stores in India on the ground of not meeting the local sourcing requirements. But things seem to be taking a positive turn for the handset manufacturer as it is enhancing its smartphone manufacturing capacity in India. The company is now in talks with the government to set up retail outlets in the country.

In addition to this, Apple is planning to open five to six flagship stores in metro cities to bolster sales. According to industry experts, the new stores would be at least three times larger than the current 1,000 square feet stores. Further, the company currently has about 150 franchisee-run premium reseller stores in India, each about 1,500 square feet in area.

Future outlook

While the expansion of its retail and manufacturing footprint will most certainly help Apple in increasing its sales in the country, industry experts believe that the company needs to supplement these initiatives with the strengthening of its music and video services. Apple could probably go in for acquisitions to meet this goal. Moreover, Apple can complement its music and video services by foraying into the over-the-top (OTT) space. The OTT segment is growing fast in India. Industry experts believe that Apple could draw significant benefits from this explosion in the content-on-demand market by offering subscription-based content on demand to its iPhone buyers. Bundling of OTT services with its handsets will help Apple find more buyers as they would now get more value at the same price.

From the point of view of future growth prospects, it is imperative that the company eventually moves beyond its music and video services and starts offering the plethora of other Apple-exclusive services that are already available to its users in other markets such as the US. In fact, the provision of Apple services is one area where a huge gap exists between the India and the US markets. Barring some services like Apple Music and the App Store, most other Apple services are not available to Indian users. This is a huge revenue generating segment, which has remained largely untapped by the company so far. Moreover, once its user base hits a healthy number, Apple can eventually start offering India-specific content and services as well.

Overall, Apple seems to be on the right trajectory to expand its footprint in the Indian market. Local manufacturing to lower costs and initiatives to establish its retail presence will both help in driving Apple’s growth in the country.

 
 
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