After a lot of speculation and a quite a few hurdles along the way, Apple has finally begun their India manufacturing operations. We reported back in February about Apple’s intention to open a manufacturing plant in India. Subsequently, it was decided that Apple would only manufacture 3 iPhone models to begin with – the iPhone 6, iPhone 6S and iPhone SE. On Wednesday, Apple confirmed that its first trial run in India had been successfully completed with an initial production of a limited quantity of iPhone SE models.

This is a historic moment, for both India and Apple. This move is likely to affect both profoundly. Let us analyse what this development will beget in the immediate future and the long run.

What It Means For India

Ever since Prime Minister Modi announced his “Make in India” initiative, India has set about making itself an attractive destination for global manufacturers. Apple’s foray into India can arguably be considered Make in India’s greatest achievement so far. This also validation of India’s credentials as the future elite global manufacturing hub.

Now that the ball has been set rolling, here are just some of the effects we can expect:-

Lower iPhone Prices

One of the biggest bugbears of Apple fans in India has been the unreasonable prices of iPhones. In fact, at the launch, the iPhone 7 was nearly 40% more expensive in India than in the US! The reasons behind the sky-high prices are twofold – high import taxes and third party retailers who levy their own fees. The manufacturing plant in India should help alleviate these problems in a huge way. The iPhone SE, which currently retails for about $320 for the base model, is expected to drop in price by $100 due to local manufacturing. This actually makes iPhone a viable option for many consumers and gives Apple a solid presence in the Indian mid-range market segment.

Apple Stores In India

With the commencement of its manufacturing operations in India, Apple may finally open its iconic Apple stores in India. Indians have shown a preference for buying their smartphones from physical channels as it allows them to get a feel for the device. The establishment of Apple stores should help greatly in enabling this. This will also give Indian users access to Apple’s wide range of services such as Apple Care, personalized engravings, custom color options, etc.

Widespread Availability

Local manufacturing should greatly help in increasing availability of iPhones across India. Due to a limited number of distributors, iPhones often suffer supply issues especially around the launch window of a new model.

India As A Global Manufacturing Hub

Make no mistake about it, Apple coming to India is a huge win for India and its pitch as a global manufacturing hub. Apple is a global presence unlike any other and trendsetter in the tech industry. Their decision to establish manufacturing operations in India sets an example to every other industry player. Soon, we may find that more and more global giants may look to emulate Apple and establish production channels in India too.

What It Means For Apple

Establishing Presence In India

Typically, India has been a small market for Apple, accounting for merely 1% of its global iPhone sales. Historically, Apple experienced massive revenue growth from US, European and eventually Chinese markets, making their lack of penetration in India a non-issue. However, the situation is now changing. Apple has been experiencing slowing growth and stagnation globally. High smartphone penetration has caused saturation of key markets like the US. Apple has even been losing ground in the highly lucrative Chinese market as of late. In such a situation, Apple is turning to alternate avenues for growth. India, which is now the second-largest smartphone market in the world, represents a goldmine of untapped potential. Smartphone penetration has now reached nearly 48% in India in Q1 2017, and Apple stands to gain a lot by expanding into this market.

Making Inroads Into The Subcontinent

By establishing the presence in India, Apple has the roadmap for further expansion into the whole of south-east Asia. The region, which mostly consists of emerging markets, has tremendous potential for growth.

Compete In The Indian Mid-Range Segment

By manufacturing locally and bringing down costs, Apple will reportedly sell the iPhone SE for around $220 in India. This is not far off from the $150 price bracket which constitutes 70%-75% of smartphone sales in India. By pricing their products so competitively, Apple can set the cat among the pigeons and shake up the Indian market.

Higher Profit Margins

Due to India’s prohibitive import taxes, Apple’s sales and profit margins in India have suffered thus far. In 2016, Apple paid 11.43% in custom duty for the iPhone imports and nearly 28.85% for the accessories boxed with the iPhone. These duties have undoubtedly affected Apple’s bottom line in India.

Direct Sales

Now that Apple has opened up manufacturing in India, they can open up their own online and physical storefronts. This would eliminate the need for third-party retailers who drive up the price cutting into Apple’s profits.

Takeaways

  • With Apple finally manufacturing the iPhone in India, we can expect a significant price cut on iPhones soon. Other players in the Indian market have reason to be worried as we may find Apple cannibalizing their market share in India.
  • We may expect other smartphone manufacturers to take a cue from Apple and set up operations in India. This would make for an incredibly competitive scenario in the fastest growing smartphone market in the world. It would also mean, more features and lower prices leading to a smartphone sales boom in India.
  • Due to faltering global sales, India is now a key strategic market for Apple. Their success here can have the potential to dictate their long term health as a company.
  • If Apple manages to get Indian users invested in their ecosystem, they have potential access to one of the largest services markets in the world. This could be a real leg up for Apple’s services business which is slowly making up more and more of their revenue share.