Ecosystem, not price play: Why the made in India iPhone costs an arm and a leg in India 

China had reportedly banned government officials from using iPhones for official work as it flagged data security concerns.

Apple’s decision to keep the prices of the latest iPhone elevated may have surprised buyers, but industry experts said that the tech titan was never gearing up to assemble in India to lower prices. The Cupertino-based company is, in fact, looking to strengthen its ecosystem in India, its fifth largest market, and assembling in India is just another step in that direction.

For Apple, creating an ecosystem happens in two broad ways; one is nudging existing Apple users to buy more Apple products and deeply embed them in the system. The other is creating a company-wide ecosystem: manufacturing products, partnering with resellers, setting up stores and the like, all in the same geography.

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“iPhones account for 50-60 percent of Apple’s overall sales in India, but if iPhone users aren’t also buying the MacBook, Airpods, the iWatch or the iPad, then the Apple ecosystem is going to remain weak. Apple wants to lock in customers in India and for that it has to create more stickiness and awareness, which is why we also saw the flagship stores,” said Tarun Pathak, research director at Counterpoint Research.

Pricing not a consideration

“Apple wants to control the end-to-end consumer experience. That’s the larger part of its strategy. It is not very concerned about pricing. People who want to buy an iPhone will anyway do it and Rs 5,000-10,000 here and there won’t matter to them. Apple knows that,” Pathak added.

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Apple’s hold on Indian consumers is only growing. Its market share has grown from around 1 percent in 2019 to about 5 percent in 2023, despite the product being priced at a premium.

Navkendar Singh, AVP of IDC India, said that 80 percent of the smartphones sold in India have an average selling price (ASP) of less than $300, or about Rs 25,000. Apple’s iPhones, on the other hand, have an ASP of over $940 (around Rs 78,000) excluding Goods and Service Tax (GST).

While some argue that Apple could lower the prices of its products and push up volumes, IDC’s Singh said the company is unlikely to take that route simply because of the segment it wants to target.

“In a market like India, where the competition is so intense, Apple is very conscious of the brand halo it enjoys. So, it's like BMW and Mercedes, if they launch cars at Rs 20 lakh and everybody buys them, then there’s no point, there is no premium play left anymore,”  said Singh.

He added that Apple would love to have more volumes but not at the cost of the latest iPhone models. The company will instead aggressively discount the previous versions and encourage people to switch to an iPhone, which will drive up sales.

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iPhones, despite being assembled here, remain expensive because a majority of the parts are still imported, which exposes the company to various duties and taxes. While Apple would enjoy selling more units, the long-term goal will be to produce more in India for the world, even if consumption doesn’t grow meaningfully.

Hedging Chinese risks

Apple’s plans to strengthen its ecosystem are also supported by India’s Production-Linked Incentive (PLI) scheme, which rewards companies for producing more in India. The incentives do not depend on consumption volume. In fact, thanks to targets under the PLI scheme, Apple may look at shifting at least 18 percent of its global iPhone production to India by FY25, up from 7 percent in FY23, BofA Global Research said in a note to clients. Apple’s share may expand further if the larger scale incentivises its vendors to also expand in India, the report added.

Some also see the move, where Apple assembles and makes more in India, as a diversification strategy for the tech titan.

“Apple will always have a certain degree of uncertainty with China. It has complete dependency on China right now, and may also look at shifting a lot of its manufacturing work to India simply because it wants to hedge its risk,” said Faisal Kawoosa, chief analyst at TechArc, an independent research organisation.

In fact, China had reportedly banned government officials from using iPhones for official work as it flagged data security concerns. China has however denied any such move, in what is yet another sign of Apple’s relations with China getting fraught.

“The increased push into India should be seen as a hedging strategy and not Apple completely reducing its dependency on China. Apple will never fully leave China,” Kawoosa added.