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In February officials from the Indian government had confirmed tech giant Apple’s plans to manufacture of select iPhone models in Bengaluru, India. Yesterday, government officials exposed more specific details about Apple’s plan stating that the Cupertino giant will manufacture iPhone 6, iPhone 6s and iPhone SE for now. This is an announcement that has been expected ever since Apple CEO Tim Cook’s visit to India back in 2016. Apple supplier Wistron will be shouldering most of the manufacturing responsibilities. However, the announcement also states that Apple will start out manufacturing only the iPhone 6 and iPhone SE in India.

Apple has a history of achieving incredible success in most markets they enter. However, in this case, Apple face some unique challenges that they will need to overcome in order to tap into the Indian market’s vast potential.

Apple’s Growing Interest In India

In recent times, Apple has displayed a growing interest in the Indian smartphone market. Ever since Prime Minister Narendra Modi’s “Make in India” pitch, Apple has shown a desire to set up a manufacturing hub in India. Apple currently holds only about 4% share of smartphone market in India. It can be said that until now, Apple has failed to make the most of the potential in the Indian market. However, while Apple was focusing on other fledgeling markets in the past, it can no longer afford to ignore India. Recent reports have suggested that iPhone sales in China are slowing down. Markets in the US and Europe have also saturated by now. As the third largest smartphone market in the world, and one of the fastest growing, India is a potential goldmine for Apple. In fact, Apple’s position in India has already started improving. During 2016, iPhone sales went up by 50% in India. Apple shipped a record 2.5 million iPhones from October 2015 to September 2016.

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Why Start With the iPhone 6/SE?

Apple’s decision to start its manufacturing operations in India with the iPhone 6 and SE might appear odd at first. However, upon deeper analysis, this decision makes perfect sense from Apple’s perspective. India’s smartphone market is heavily budget and mid-range oriented. The high-end smartphones costing $300 and above only account 6% of the quarterly smartphone shipments in India. The average selling price of a smartphone in India is hovering $120, which is less than half of the average selling price of smartphone globally. This is primarily due to the fact that per capita income in India is quite low in spite of the fact that it’s estimated to cross $1,700 in 2017. In such a market environment, the lower-priced iPhone 6 and SE models are more likely to sell better. In India, about 45-50% of iPhone sales came from the iPhone 5S or lower in July-September 2016, said Neil Shah, research director at Counterpoint.

Moreover, Apple may be hoping to sort out the kinks of manufacturing in a new location and do a sort of “practice run” before they commit to manufacturing their premium flagship smartphones in India.

Significant Challenges Apple iPhone May Face

  • Pricing – The prices of iPhones have always been exorbitantly high. A recent report from Deutsche Bank notes that average iPhone prices in India were 31% more than in the US. This is especially egregious in a very price sensitive market like India. With Apple’s new manufacturing hub in India, CNBC believes iPhone prices in India can fall by up to $100. This will put it more in line with the US average.
  • Sub-par Brand Awareness – Fortune notes that Apple’s brand awareness in India ranks at 10th. This is below its rivals Samsung, Sony and even Blackberry. In fact, a Morgan Stanley survey found that nearly half respondents had never even heard of Apple. The opening of official Apple Stores and more advertising endeavours would help greatly in improving brand recognition.
  • No Contract System – The lack of any carrier-subsidized contract bound smartphones in India is a big blow to Apple. Apple has based their successful sales model in the US on selling cheaper iPhones under carrier contracts. To remedy this, Tim Cook reportedly met with Airtel and Vodafone executives to discuss possible tie-ups in the future.
  • Cash/Debit-Based Economy – A major part of Apple’s revenue stream comes from users invested in their ecosystem. However, Apple’s entire app purchase system is based on credit, which severely limits digital purchases on their platform in a country where credit cards are still not ubiquitous. Apple would do well to emulate Valve’s Steam digital distribution platform and introduce more amenable methods of payment such as net banking and mobile wallets.
  • Competition From Android – Android is by far the dominant smartphone platform in India, with Android smartphones accounting for an incredible 97% of the market share in Q2 2016. Apple has their work cut out if they want to push back Android in India.

Takeaways

  • Apple to manufacture their mid-range smartphones in India to reduce prices and tap into the lucrative budget/mid-range Indian market.
  • With growth in China slowing down, India represents the next big market for Apple.
  • Apple is lagging behind competitors when it comes to brand awareness in India.
  • With nearly 97% of the market share, Android remains the dominant force in India.

Apple is closer to start manufacturing iPhone 6, iPhone 6S and iPhone SE in India: Which iPhone would you buy?

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