In perhaps the most important electronics manufacturing benchmark for India yet, the green signal has finally been given to Apple to start manufacturing in India. They will apparently be churned out at a factory run by Taiwanese contract manufacturer Wistron Corp.
This is a big win for both India, which has been trying to woo phone makers to the country for the past couple of years so it can catalyse local manufacturing, as well as for Apple, which has been trying to figure out a way to manufacture in India, a country it sees as its next biggest challenge and opportunity.
So much so that Apple gave up its adamant stance on not paying India’s import duty on electronics components shipped into the country to make the phone that amounts to 12.5 percent of the goods. (This was originally exempt under a WTO agreement, but it was brought back in order to boost domestic manufacturing.)
There are few global brand names that spell quality, reliability, and security than Apple in India, so churning out phones from here is a de-facto marketing victory for a country that has long been beset by image problems arising from its inadequate infrastructure, frequent power outages, and crowded and chaotic cities.
So far so good, but here’s the unvarnished truth: For all its hype about the Indian market, Apple will have to undertake a big leap in product innovation and pricing if it hopes to tap into India’s vast, promising market and best the fierce competition that exists among smartphone makers there.
YESTERDAY’S MODELS VERSUS TODAY’S BEST
The basic problem with Apple’s India thrust, as I said here a few years ago, is that its phones are just too expensive and only occupy the premium category — unlike Samsung, which sits across the whole range. Therefore, Apple’s success in China is a poor indicator of its potential in India.
India is not China, and that is putting it mildly. China’s ‘great leap forward’ in the 1980s propelled it from a sleepy agrarian country to a manufacturing giant, taking its per capita income from around $1,000 to over $8,000. India missed the manufacturing boat and its current per capita income is a measly $1,500, with the bulk of its population still stuck in unproductive farming thanks to significantly fractured land holdings and a reliance on the fickle monsoon rains.
This means the opportunity for a phone maker is in the $115 to $250 sweet spot (or even in the budget segment of up to $100, if you want to go for an economies-of-scale strategy targeting the 600 million who are yet to buy a smartphone). Apple, for years, was peddling smaller outdated models like the iPhone 4S and the iPhone 5C in India as its ‘affordable‘ units. Now, it has begun hawking a discontinued version of the iPhone 6 through online channels for a discounted price of $450. That will not be good enough to boost phone sales from the 2.5 million sold in 2016 in India to any kind of meaningful figure.
Apple’s brand name may be great, but in the last few years, Chinese phonemakers have flooded India with fabulous devices that sport similar specs and features to Apple’s flagship phones but at a fraction of their prices. Today, Chinese smartphone makers Xiaomi, Lenovo, Oppo, and Vivo are all going gangbusters in India, firmly entrenched in the top 5 in terms of market share and collectively north of 50 percent, having easily ousted Indian brands such as Micromax and Intex. Samsung, the current leader, also continues to suffer from incursions made by them.
It is a significantly different landscape today from two years ago, so a $450 iPhone 6 will not impress Indians as much as the Cupertino company thinks it will. Even in China, where the iPhone 6S was always regarded as the unrivaled queen of premium smartphones, the Financial Times reports that last year it was bested in a shocker by Oppo’s R9, which became the new best-selling smartphone. “We see a significant challenge for Apple in China,” says Tarun Pathak, analyst at Counterpoint in the FT. “Chinese consumers have shown a greater affinity to buy premium phones from local players.” Additionally, Pathak says that Chinese manufacturers’ handsets have the same form factor as iPhones but are priced way lower, he adds. The same problems happen to apply to India, where Apple hasn’t even begun its adventure.
Apple needs its India foray to become a success to ease its growing China jitters. Yes, sales in China were blockbuster last quarter, ringing in $78.4 billion in revenue, which was a 3.3-percent increase over the previous year’s period, but for much of last year, Apple was looking at a steady decline. The quarter, which ended in September 2016, was the first time since 2001 that Apple showed a decline in both revenue and in profit and was the third-consecutive quarter of decreasing revenue. In other words, a tectonic change that could be a foreshadowing of things to come.
INNOVATING FOR THE MARKET
It is one thing to be stuck in the innovation game — as many observers have mentioned, Apple’s cash cow, which is the iPhone, hasn’t really changed that fundamentally since it was introduced in 2007, and with Steve Jobs now gone, it may not be able to conjure up another dimension-leaping product. Moreover, it is becoming more and more difficult to differentiate subsequent models from prior ones, as phone features, chip sets, and displays are plateauing in terms of relative progress over their previous incarnation.
However, what will prove to be Apple’s most significant and potentially disastrous stumble, is what Vivek Wadhwa, professor at Carnegie Mellon University Engineering at Silicon Valley and a director of research at Center for Entrepreneurship and Research Commercialization at Duke, identifies as its inability to innovate for a local market, which is where the next surge in smartphone growth will happen globally: “Apple has not customized its phones or the applications for them to the needs of Indian consumers; they are the same as in the US. Try asking Siri to recognize an Indian name or city, and it is clueless. Try asking it to play a Bollywood tune, as I have, and you’ll also be banging your head against the wall. And forget having support for Indian languages: Everything is in English.”
By contrast, not only are Android phones — with 97 percent of the market — available in every Indian language you can think of, says Wadhwa, they can communicate with their users via a multi-lingual Google Assistant. Plus, with so few Apple phones in the hands of Indians, there is very little motivation to write cool apps for the local market on the iOS platform.
Would Steve Jobs have thought about this problem differently? I imagine him eating his Indian vegetarian thali, as he was often did, and then in a eureka moment, diving into the next logical leap in innovation from the other end of the economic spectrum by coming up with a device that was frugal, cutting-edge, and cheap — something that would empower the world’s disadvantaged while bringing about yet another product revolution.
Maybe that’s asking for way too much from a company that has made its fortunes off a premium pricing model. A cheap phone would be a good start, though.
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