Why India is critical to Apple's future plans: Key factors driving the much-delayed bonhomie

CEO Tim Cook was present at the Apple store launch both in Mumbai and New Delhi.

Tim Cook, Apple's CEO, is currently in India where he has inaugurated two physical stores of the company. Apple's physical retail presence in India comes after three years of launching its online store and over two decades since the first Apple store opened in the US, and 15 years since the first one in China.

This is Cook's second visit to India, and it has been an eventful one. Apart from taking selfies with Apple fans, who eagerly waited for hours for the store openings, he has met Prime Minister Narendra Modi, various government ministers, top business leaders, and Bollywood actors.

Cook's visit to India comes at a crucial time for Apple. Sales in the world's fifth-largest economy hit a record high of $6 billion in the financial year 2023, representing a year-on-year increase of over 50 per cent. Additionally, Apple is betting big on India as it seeks to diversify its manufacturing base away from China.

Let’s try and find out how Apple needs India just as much as India needs Apple:

Away from China

Apple is seeking to reduce its reliance on manufacturing operations in China due to various factors. Firstly, China's increasing authoritarianism under Xi Jinping's leadership has created an uncertain business environment for foreign companies like Apple. Secondly, the worsening relationship between China and the United States has added to this uncertainty.

Finally, the strict Covid-19 control measures implemented in China in the last three years have led to significant production disruptions, prompting Apple to explore alternative manufacturing options.

But despite recent efforts to diversify its supply chain, Apple still produces around 95 percent of its iPhones, AirPods, Macs, and iPads in China and generates around $74 billion in revenue, which represents approximately one-fifth of its total earnings.

Initiatives for Apple

As part of Prime Minister Narendra Modi's ‘Make in India’ initiative to boost domestic manufacturing, Apple's manufacturing partner, Foxconn, has received a grant of Rs 357.17 crore.

The Modi government introduced the PLI (Production-Linked Incentive) scheme to offer incentives for incremental sales from products manufactured in domestic units. The scheme encourages local companies to set up or expand existing manufacturing units and cut down on import bills. The production of mobile phones has risen from about 6 crore in 2014-15 to approximately 31 crore in 2021-22.

Apart from that, Karnataka introduced new labour reforms in February, thanks to lobbying by companies including Apple and Foxconn, that permit 12-hour shifts and night-time work for women, similar to company practices in China.

The Karnataka government has announced that iPhones will soon be assembled in the state, and a factory spanning 300 acre has been set up for this purpose.

Meanwhile, Tamil Nadu, where Foxconn operates India's largest iPhone plant, is considering new rules to provide more flexibility in factory shifts.

Union Minister Rajeev Chandrasekhar has recently said Apple could double or triple investments in India, along with exports, over the next few years.

Record exports

Highlighting India’s push for a manufacturing boost, the iPhone maker recently made history by becoming the first company to export smartphones worth $1 billion in a single month from India.

Apple exported iPhones worth Rs 8,100 crore in December 2022, which took the overall export of smartphones to Rs 10,000 crore.

Apple’s next major market

During a February earnings call, Apple CEO Tim Cook expressed his enthusiasm for India as a "hugely exciting" market and stated that Apple is placing a great deal of emphasis on it.

Apple's revenue in India has reportedly grown by nearly 50 percent to nearly $6 billion from $4.1 billion a year earlier, with the company maintaining a 60 percent share of the premium $500+ segment, followed by Samsung with a 21 per cent share.

Apple assembled over $7 billion worth of iPhones in India last fiscal year, representing almost 7 percent of its total iPhones produced, with the company expanding its partnerships from Foxconn Technology Group to Pegatron Corp.

However, Apple's presence in India is still small, with just 4 percent of nearly 700 million smartphone users in the country owning iPhones, accounting for less than 2 percent of Apple's global revenue.

India is expected to assemble up to half of the world's iPhones by 2027, a significant increase from the current 7 percent, according to a forecast by Taiwan-based DigiTimes Research. JPMorgan has also estimated that India will produce a quarter of all iPhones by 2025.

Win-win situation

It is evident that both Apple and India stand to benefit from this partnership. Apple requires India to extend its market reach and reduce its dependence on China for manufacturing, whilst India needs Apple's investment and technological expertise to stimulate its own economic growth. Hence, it is a mutually beneficial situation for both parties, and Cook's visit highlights the significance of this relationship.