Apple’s iPhone sales have lagged in India for years. It’s only now unleashing its branding firepower
On Aug. 22, 2008, crowds gathered at phone stores across India to catch a glimpse of the iPhone 3G launch, the first-ever smartphone to be sold in the country. In Mumbai, a phone vendor even marked the occasion with showers of confetti and cheerleaders.
Before the launch, Apple’s then chief operating officer Tim Cook said in a statement that he “couldn’t wait” to get the “iPhone 3G to millions of mobile customers in India.”
The iPhone made a flashy and highly-anticipated entrance to the Indian market, where Apple sold the devices through Indian carriers Bharti Airtel and Vodafone India. But in the 12 years since, Apple’s captured just 2% of India’s smartphone market, which now totals a half billion users. By contrast, it owns 46% of the market in the U.S. and 8.5% in China.
Apple was eager to arrive in India, but the country has been a somewhat inhospitable host. Until last year, India banned foreign retailers from selling products directly unless they sourced at least 30% of their goods from India. The rule meant Apple could not open physical or online stores in India, forcing it to rely on third-party sellers and neutralizing its branding firepower.
But now a series of changes—deregulation, India’s anti-China actions, and shifts in Apple’s supply chain—are poised to reshape India’s smartphone, market, perhaps in the iPhone maker’s favor.
India’s 30% rule
The restrictions were aimed at promoting Indian-made goods, but they hamstrung brands like Apple, which sources 48% of its products’ component parts from China. Apple did not respond to requests for comment for this article.
Without a direct avenue to customers, Apple has been at the mercy of third-party sellers. Sixty-nine percent of its products are sold at physical third-party retailers, and the rest through e-commerce companies like Amazon and Flipkart, says Shilpi Jain, an analyst at Counterpoint research.
Physical retailers “prioritize inventory that sells the fastest,” meaning that they often stockpile fewer Apple items than cheaper, often Chinese-made, products, says Abishur Prakash, a technology and geopolitical analyst at consulting firm Center for Innovating the Future. Therefore, Apple products in India “have never received the attention that Apple places on them in its stores,” he said.
The reliance on third parties also has hindered customer efforts to repair iPhones. In 2019, Buzzfeed reported that Apple’s third-party retailers are often unable to provide even simple fixes.
India’s restrictions have been such an impediment to the Cupertino-based giant that CEO Tim Cook personally waged a campaign to change them. In June 2017, Reuters reported that Cook raised the issue in a meeting with India Prime Minister Narendra Modi in Washington, D.C. In pushing for the rule change, Cook credited Indian developers with creating roughly 100,000 apps on Apple’s app store, which generated upwards of 740,000 jobs in India, according to Reuters.
Other foreign retailers like home furnishings giant Ikea also lobbied for a roll-back of the regulations, but Ambareesh Baliga, an independent market analyst in Mumbai, says Apple’s overtures likely carried extra weight given its prominence and Cook’s direct appeal to Modi.
In late August 2019, India relented, announcing that single-brand retailers could now set up their own online and physical stores without meeting the 30% made-in-India threshold.
“The changes will result in India becoming a more attractive [foreign direct investment] destination, leading to benefits of increased investments, employment, and growth,” Piyush Goyal, India’s commerce minister, said at the time.
Apple heaped praise on Modi’s administration for the move.
“We appreciate the support and hard work by Prime Minister Modi and his team to make this possible,” an Apple spokesperson said. Cook has also credited the Trump administration for intervening on Apple’s behalf and urging the Indian government to change the policy.
The company immediately indicated its intent to open its own stores in the country. “We’re eager to serve [Indian customers] online and in-store with the same experience and care that Apple customers around the world enjoy,” the spokesperson said.
The plans materialized quickly.
In February, Cook announced that Apple would open its first retail store in India in 2021. “We like to do things our way,” Cook said of opening the first brick-and-mortar store in India on an earnings call.
And last week, Bloomberg reported that the American tech giant plans to open an online store for India this month.
The physical store, in particular, will introduce Indians to the ‘Apple experience’—sleek product displays, Instagramable design features, doting store employees—that has enchanted customers elsewhere. “The rush to place an order for a new iPhone online or lining up for hours outside a physical store speak to the power of Apple brand and the critical role the stores play,” said Prakash. Opening stores in India represents an “unparalleled” opportunity for Apple, since it will be able to “develop roots” in the country, he said.
The store openings, Jain says, will offer Apple the chance to finally “connect with its customers” and grow a “loyal customer base.”
Still, Apple has to navigate what is arguably its biggest hurdle in India: its phones are among the most expensive on the market.
In 2019, the average smartphone sold in India cost roughly $160, whereas iPhones range from $400 to over $1,000. The disparity helps explain why Apple holds a 49% share of the premium smartphone market in India but only 2% of the overall market.
Its main competitors are Chinese smartphone makers, four of which—Xiaomi, vivo, realme, and OPPO—combined to sell nearly half of all smartphones in India in the second quarter of 2020, according to the International Data Corporation. Chinese smartphones sold in India are less expensive—Xiaomi’s cheapest model costs about $75—plus, the Chinese brands have tailored their strategies to India by relocating supply chains to the country and investing in research and development centers and local distribution partners, says Sanchit vir Gogia, CEO of digital advisory firm Greyhound Research in Mumbai.
By comparison, “Apple hasn’t done justice to [the Indian market],” vir Gogia said.
Apple attempted to make inroads with its cheaper iPhone SE in India in 2016. But at $400, the model’s specs did not “compare well” with Chinese phones of the same price, Baliga said.
Like its Chinese rivals, Apple is now concentrating more of its supply chain in India. It began assembling the SE model at a plant in Chennai in 2017, and confirmed in August that it will assemble the latest 2020 version in India too. That news followed reports in July that Apple would assemble some new iPhone 11s in the country. Goyal, the Indian commerce minister, has confirmed the iPhone 11 report; it will be the first time Apple has produced its premium iPhone model in India.
Apple’s efforts to assemble more iPhones in India will help it avoid the 20% tariffs that India imposes on imported smartphones, which has the potential to lower the handsets’ price points. (The cost of tariffs are often passed on to consumers.)
Border clash fallout
Apple does have one distinct advantage over its Chinese rivals that’s become relevant only recently: it’s not Chinese.
After Chinese and Indian troops clashed in a deadly border dispute in June, political parties and citizens in India issued calls to boycott Chinese goods. The Indian government banned 59 Chinese apps from app stores in India, citing security concerns. This week, the Indian government banned another 118 Chinese apps as border tensions reignited. Amid those actions, there’s evidence that China’s dominance in India’s smartphone market may be fading.
When accounting for all Chinese phone makers, Counterpoint research estimated that in the spring of 2020 Chinese firms controlled a record 81% of India’s smartphone sales, a share that fell to 72% in the summer.
The drop is due, in part, to “growing anti-China sentiment that was compounded by stringent actions taken by the government,” Jain said.
“[India’s] flareup with China makes India incredibly attractive for Apple,” says Prakash. “As Indian consumers seek alternatives [to Chinese goods], Apple can offer its lineup of products and services.”
In addition to Chinese smartphone makers, Apple faces competition from other American tech firms that are now eyeing the same market.
In July, Google announced a $4.5 billion investment in Indian tech conglomerate Jio Platforms, which includes plans to produce a new, cheap smartphone. Google and Jio have not said how much the phone will cost, but Counterpoint research projects that they will likely sell it for less than $140.
“Together we are excited to rethink, from the ground up, how millions of users in India can become owners of smartphones,” Google said at the time.
Apple is looking to establish itself anew in India—but it’s not the only one.