Why Apple wants to manufacture iPhones in India

It’s been a long time coming!

By Prajith

| Published: Monday, January 23, 2017, 14:59 [IST]

Apple, the most valuable company on Earth, could soon start manufacturing iPhones in India.

It all started when Apple's CEO, Tim Cook paid a visit to Narendra Modi, Prime Minister of India, back in 2016 to get the approval from the government to open its own stores in the country. The Cupertino-based tech giant had earlier showed interest to strengthen its presence in India, but the Indian government never gave in to Apple's demands. And things never went further.

Why Apple wants to manufacture iPhones in India

This, however, seems to change very soon as a team from Apple is meeting senior officials from Indian Ministry to discuss about setting up a manufacturing base in the country.

To do so, it is demanding huge incentives, a 15-year tax relaxation on imports of equipment and components, for example from one of the poorest countries. This is the kind of freedom Indian government had never offered to any company earlier.

Ravi Shankar Prasad, Minister for Information Technology, India, however, said that Apple's requests will be considered "with an open mind."

We will get to know if Apple will be given the permission to set up a manufacturing base in India anytime soon tomorrow. But why is it planning to manufacture iPhones in India in the first place?

Well, here are a few reasons.

Flattening sales in the US and China

Apple has been one of the most successful companies of all times. It has been the industry leader for the past decade. But, of late, things seems to have changed and changed drastically. In fact, Apple had witnessed a drop in iPhone sales for the first time last year. While the global sales dropped including the US and China, iPhone sales in India grew by 50% in fiscal 2016 in comparison to 2015.

"Our iPhone sales in India were up over 50% in fiscal 2016 compared to the prior year, and we believe we're just beginning to scratch the surface of this large and growing market opportunity," Tim Cook said.

Despite such growth in India, Apple still holds only a meager 2.2% of market share according to Counterpoint research. That's largely thanks to the high price tags that come along with the iPhones. Speaking of which....

Manufacturing iPhones in India could be the key to strengthening its presence in the country

One of the primary reasons for such low market share for the company in India is the price.

Currently, for every iPhone that's shipped into the country, 12.5% of import tax is levied, which takes the final price of the iPhone to something not many Indians would want to shell out especially, when Chinese companies like Xiaomi, OnePlus, and Huawei are offering flagship-like phones at half the price.

With this in mind, Apple had earlier tried to sell refurbished smartphones in India which could bring the iPhone prices down. The Indian government, though, didn't approve the idea. With that option gone now, setting up a manufacturing unit in the country to lower price by avoiding the import taxes is the company's best bet.

Surging assembling costs in China

As cited in a report by TOI, Apple has around 766 suppliers spread across 28 countries out of which, 346 are based out of China. Also, no matter where some of the sub-parts of iPhone are flocked together, the final assembling process happens only in China (sometimes Brazil).

But, of late the assembling costs in China have surged, and Apple has been in search of a new hub for the assembling process. Now, with India growing to be the biggest market for smartphones (expected to be the second biggest market), it will obviously be the first choice for any company. Moreover, the labor costs in India are quite low comparatively which is nothing but a cherry on the cake for Apple (pun intended).

Manufacturing iPhones in India is a free ticket for Apple to set up its own stores

Like mentioned earlier, Tim Cook met Narendra Modi to get approval from the government to set up its own stores in the country instead of depending on third parties. But, the Indian government had insisted Apple to "source 30% of its components locally."

Manufacturing iPhones in India would meet this requirement and is certainly a free ticket for the tech giant to set up its own stores in India.