Apple All Set To Open Stores In India: Government Waives Off 30% Sourcing Policy

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Finally, there’s something to cheer for Apple Inc. (NASDAQ:AAPL) after its dismal Q2 fiscal 2016 performance. A government panel ended the woes of Apple by exempting the tech behemoth from the local sourcing norms, allowing it to open its own Apple stores in India.

Due to the scarcity of vendors, the government policy to mandate sourcing of 30% goods within the country seemed like a roadblock for Cupertino giant. The government citing revisions in the policy conditioned to Apple fulfils their ‘state-of-the-art’ and ‘cutting-edge-technology’ provision.

The Government is eligible under the norms paved by Foreign Direct Investment (FDI) to grant relaxation to the organization seeking single-brand retailing of products in India. The undertaking must fulfil government’s provisions of state-of-the-art and cutting-edge technology.

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A detailed presentation describing the Apple’s state of the art products, innovations and technology were circulated to the committee headed by Department of Industrial Policy and Promotion (DIPP) Secretary Ramesh Abhishek on April 19.

“The committee has found that the company’s products are cutting edge technology and state-of-the art. It has recommended to exempt them from the local sourcing norms” – sources said.

Following the footprints of Apple, Chinese smartphone major, Xiaomi is also awaiting Government’s nod for opening their stores in India, while its competitor LeEco has also filed seeking the exemption.

India: Apple’s new Playground

Tim Cook is enthralled citing a humongous 56% Y-o-Y increase in Apple iPhone sales in India. As a result, Cook desperately wants to spread Apple’s wings in India.

India is the second largest smartphone market in the world after China. According to the latest report by Counterpoint Research, smartphones shipments in India boomed by 15% annually in Q4 2015. In a country of 1.25 billion people, only 17.6% of the total population possess a smartphone. The numbers cast light on the profitable future of smartphone industries in India.

According to Gartner, the global smartphone sales are estimated to reach 1.5 billion units in 2016, a mere 7% YoY growth. Therefore, India is serving as the green pasture for smartphones sale in the future amassing approximately 29% of smartphone growth in 2016 and will continue to exhibit double-digit growth in the next two years.

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Deciphering the smartphone market in India, Samsung leads the smartphone market with 28.6% smartphone shipments share in 4Q 2015, followed by Micromax which accounted for 14.3% of the shipments. In contrast, Apple could manage to gain a tiny 2% smartphone shipment share in the last quarter of 2015. The main reason behind Apple’s not-so-encouraging performance in India is the price tag of iPhone as Indians prefer scrutinizing the features instead of brand value; in simple terms brand loyalty in India is quite minuscule.

Needs to reform its strategy

As the developed markets are on the verge of saturation, Apple is now looking towards developing markets, especially India, to keep its growth rate intact. However, considering the premium price of Apple’s products and the fact that India smartphone market is largely driven by the budget smartphones, Apple needs to reform its policies and come out with pricing strategies that could attract potential buyers to Apple stores in India.

The latest launch of iPhone SE, priced at $399, sheds some light on the marketing strategy of Apple. The company’s strategies of selling its older versions of iPhones in India at discounted price has resulted in sky-rocketing its growth index by 56%. The promotional programs like iPhone exchange and interest-free instalment schemes have worked quite well in the favour of Apple so far.

The declining ASP (Average Selling Price) being the biggest hurdle along with the new competition set by the new Chinese entrants, like LeEco and Coolpad, the competition has become stiffer even for the Numero Uno Samsung in India. The Chinese smartphone manufacturers have strengthened their market presence in India, from 14% in 2014 to 20.5% in 2015, only by targeting the budget smartphone market.

Controlling the bricks and mortars store network in India was the biggest challenge for Apple, but apparently, it has been solved to an extent after Apple got the permission to open its stores across the country.

Final thoughts

India may be the saviour for Apple in the long run but Apple needs to reform their strategies and concentrate more on the budget devices or make the iPhone ‘look’ pocket-friendly.

“I view India as where China was seven to ten years ago and I think there’s a greater opportunity there.”, says Tim Cook.

With a heartbreaking Q2 fiscal 2016 performance of Apple, a huge reform is on the cards and according to Tim Cook, India will be able to steady its ship in the near future.

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