Big in Bangalore

Apple Making iPhones in India Could Spell Trouble for Samsung


If things go according to Apple's plans, the smartphone market in India could look a little different in a few years, something that should be of particular concern to current market leader Samsung.

Apple currently has a sliver of the smartphone market in India. We estimate that less than 3 percent of smartphones sold in 2016 in India were iPhones. But Apple does enjoy significant market share at the high end — it is the aspirational brand among consumers. Although iPhones are currently out of reach for most consumers in India, Apple is working to improve its numbers at the top price tier challenging Samsung, and at the same time in the mid-range segment where Chinese entrants have made significant headway in the last few years.

A significant part of Apple's future strategy in India is geared toward manufacturing locally. After several months of negotiations with the government, Apple will initially begin making smartphones in Bangalore in spring 2017. Wistron, a Taiwanese contract manufacturer, is the front runner to land the contract. Although it's likely that there will be some initial complications relating to logistics, a local production presence will align Apple with the country's Make in India programme initiated by prime minister Narendra Modi in 2014. The campaign aims to create jobs, encourage manufacturing in India, attract capital investments into the country and develop technical expertise for the long term.

Local production will allow Apple products to enjoy reduced import tariffs that were announced as part of India's federal budget, introduced last week — domestic manufacturing incentives and import duties on printed circuit boards like those used in mobile devices. This would help Apple reduce manufacturing costs further. By making devices in Bangalore, Apple can tap into these incentives.

Furthermore, manufacturing locally would ease Apple's efforts to establish its own-branded retail presence in the country — Apple has been in talks with the Indian government to open stores that would allow it to further strengthen its brand in urban areas.

We believe the company will explore deals with government agencies, particularly in the education segment, allowing the Apple brand and iOS to seep into the country. We also expect Apple to work with local wireless service providers, using device subsidies to lower barriers to iPhone ownership with annual contracts. Like markets in many countries, operators can use the Apple brand to bring in and keep high-value subscribers.

Deals with operators would allow Apple to control the cream of the Indian market. Apple competes with Samsung for the country's growing high-end smartphone market. At the end of 2016, Apple tied up with Reliance Jio to offer customers free voice and data services for one year with the purchase of an iPhone.

According to our research of current retail prices, a 32GB version of the iPhone 7 costs $900 and Samsung's flagship, the Galaxy S7, costs $645. If Apple could use the advantages of local production to get its pricing closer to Samsung's, the high-end market could shift further in Apple's favour. Although it's currently a luxury brand, Apple could become the aspirational brand for the India's growing middle class.

India is a mobile-first country, and as 4G and Wi-Fi connectivity spread across the subcontinent, there's a growing dependence on smartphones for daily chores. Apple needs to establish iOS as a computing platform to attract more developers. Android, with 98 percent of the smartphone market, is the clear first choice for local app developers. But as Apple is in it for the long-haul, it could be Bangalore or bust.

This entry was posted on February 6th, 2017 and is filed under Devices. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Posted By Raghu Gopal On February 6th, 2017


Comments
Kevin Breen
- 2017-02-12 at 16:58
With sliwing growth rates, it will be interesting to see how the device/OEM "games" play out in huge battlegrounds such as China & India... An Apple / Samsung's duopoly is not guaranteed by any means!

http://www.economist.com/news/business/21716080-how-two-obscure-local-smartphone-manufacturers-made-it-top-beating-apple-xiaomi-and

W: www.cyberactive.ie / LinkedIn: KevinBreen
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