Apple makes a big comeback in India, but will it last?
2018 was a miserable year for Apple. It posted a dramatic decline in shipments in India -- almost half of the previous year's 3.2 million. And yet, this was nothing new for the company's operations in India at the time despite Tim Cook's banally grand pronouncements of the importance of the Indian market. There just were not enough ballast to prove his words right.
As I wrote here in 2018, despite being entrenched within a much serenaded rising consumer base and in possession of the "aspirational brand", its phones were simply too pricey for your average consumer. Plus, other Chinese brands such as Oppo and Vivo were luring phone buyers with stupendous specs and -- most importantly -- bargain basement prices by comparison.
Apple would have to do a lot more then flog its lesser models to the masses, which it had tried in India until now to little avail. It really looked like Cupertino was stuck, with no new India strategy, let alone a shrewd one. The sad fact though, is that no one was really surprised. Apple basically ignored India for years and it looked like nothing was going to change anytime soon, including their results.
To read that Apple had increased its market share in the fourth quarter and grown 41% during this period to make it one of the fastest-growing brands in India, was definitely a shocker to say the least. Nothing greases the wheels of any sales machine like cold hard cash and in this case, it seems to have ignited a raging, dormant fire within middle-class Indians for Apple phones. This is quite an accomplishment when you consider the great value for money -- even in the premium market -- offered by its Chinese competitors. Yet, Apple seized a record 75.6% market share during the quarter.
How on earth did this happen? A major propellant of the quarter's triumph was the launch of the iPhone 11, which had a great run thanks to it being sold for $50 cheaper than elsewhere. Also, the price of the XR dropped by an inconceivable $400 and the iPhone 7's price was sliced around $40 to help those phones fly off shelves. Meanwhile, price drops on even older models pulled Indians in from different socio-economic brackets. During the bumper sale season that runs during the Indian festival of Diwali, Apple made sure that their sales partners, especially online ones like Flipkart, advertised and doled out EMIs (monthly payment schemes) to deserving customers. Unions were also forged with banks like HDFC to allow those schemes to bring customers another $84 in hard-to-ignore cashbacks.
Cash, though, can only take you so far. What makes your bottom line's red ink fade gradually away is your ability to dramatically lower your costs. Finally recognising this truth, Apple has finally stepped up its manufacturing efforts in India. Using the word manufacturing may perhaps be a little deceptive considering the work undertaken is merely assembly. Yet, doing so has lopped off 20% of Apple's import duties.
Of course, there's more than a bit of geopolitics in this story. The Trump-China trade war has convinced many company stewards that they need to de-risk their China exposure by finding another manufacturing base. That realisation seems to have set in especially over the past year. In 2015, Apple had convinced its manufacturing partner Foxconn to set up a plant in Sri City, Tamil Nadu and in a spate of four years, it has also nudged both Wistron and Salcomp to open several more new plants to cater to its new strategy. The overall investment made by Apple and its partners is rumoured to be around $1 billion. This would eventually allow its entire lineup -- from the SE to the 6 to the XR and ultimately the 11 -- to be churned out from India, much like what its Chinese rivals have been doing for years.
Right now, all of the parts are shipped in from China and assembled in India, but as all things trade keep heating up between the US and China, India seems primed for a steady climb up the value chain. Apple partner Wistron, for example, recently announced that it was going to start making printed circuit boards in the country, which comprises 50% of the value of a phone and are not widely made in India.
Apple's recent and sudden deep dive into India has been a long time coming, especially when you take into account that labour costs in the country are half that of China's and there are already a ubiquity of trained engineers here. There's also an increased manufacturing impetus that will further pare unit costs, alongside the company's $140 million investment into three Apple-owned stores and an online retail platform that will bring more eager customers into the fold. So, the future looks pretty rosy for once in Apple's India campaign.
But hurdles remain. Electricity and water supply, taken for granted in other manufacturing locales, can be a scarce commodity. Roads are still in bad shape. Most worrisome of them all though is the security climate in India. The same government that is pushing for investment is also a Hindu supremacist regime that has terrorised minority Muslims and others, causing conflagration in much of the country. In the last few days alone, during Donald Trump's visit, Hindu mobs stoked by politicians from the ruling BJP Hindu nationalist party attacked Muslims. The death toll for the attack is 24 and counting -- the actual toll is rumoured to be almost double so far. Meanwhile, the country's craven and terrified media have also pushed all of their chips firmly to the government's side, shrilly exhorting viewers to despise the minority.
If this continues, India may not be a country worth sinking money into, and that would be bad news for Apple.
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