Why Apple is boosting iPhone production in India

July 16, 2019 13:41
Having become an insignificant player in India, Apple is realizing that it needs to step up its game in the world’s second-biggest smartphone market. Photo: Bloomberg

As the US-China trade war drags on, Apple is tweaking its iPhone manufacturing strategy, aiming to reduce the firm's over-reliance on production at Chinese factories. To cut the potential risks, the firm has begun to focus more on an alternative low-cost location -- India.   

Apple has been producing older versions of iPhones in India in the last two years, but now the company apparently wants to also churn out top-end models in the South Asian country.

According to a Reuters report late last week, Apple is preparing to roll out locally-made iPhone XR and XS devices in the Indian market as soon as next month.

The phones will be assembled at a factory of Foxconn -- Apple's main global contract manufacturing partner -- in the southern Indian state of Tamil Nadu.

The enhanced India output will not only help Apple scale back dependence on China manufacturing, it will also offer scope for the firm to bring down its product prices in the Indian market.

By producing locally, Apple can avoid import duties, putting it in a better position to redraw its pricing in a market where it has become an insignificant player.

Despite its brand allure, Apple's share in India's smartphone market is just at around 1 percent. Android phone makers dominate the scene, with Chinese brands such as Xiaomi, OnePlus, Huawei and Oppo and Korean rival Samsung lording over the high-growth sector in the South Asian nation.

Now, Apple seems to have realized that it needs to do something to shore up its position in the key market and that it cannot afford to let things slide.

Stepping up local assembly of iPhones will enable Apple to save on levies imposed by the Indian government on import of fully-built handsets, boosting margins.

It could also potentially pave way for the iPhone maker to bring down its prices in the world's second-biggest smartphone market.

Moreover, Apple can try to beef up local sourcing, something that authorities in New Delhi are seeking amid their "Make in India" drive.  

Reports suggest that Foxconn has decided to allocate some of its existing Xiaomi smartphone production lines to produce the latest iPhone models in its India manufacturing plant. 

Once the plan is approved by the government, manufacturing will kick off in earnest on iPhone XR and XS devices. 

Apple has been making older iPhone models in India through partnership with a Wistron unit, assembling the SE, 6S and 7 models. Recently, Apple began exporting some iPhone 6s and iPhone 7 units from India to Europe.

The addition of Foxconn into the India supply chain suggests that Apple has done a serious review on its manufacturing operations amid the trade war between the US and China.

Also, as smartphone growth cools in many developed markets, the company needs to redouble its efforts on high-growth emerging economies such as India.

According to Counterpoint Research, Apple sold only 220,000 iPhones in India in the first quarter of this year, down 42 percent compared to the same period in 2018. For the full year, sales are seen at just 1.5 million to 1.6 million units, down 10-17 percent from the previous year. It would mark the worst performance of iPhones in India in five years.

The emergence of Chinese brands like Xiaomi, Huawei and OnePlus saw Apple losing out in the market, leaving Apple with no choice but to redraw its India strategy.

Apart from offering a huge domestic market, India could also serve as a low-cost export base, particularly to Europe.

It is against this backdrop that Apple is said to be preparing to roll out India-made iPhone XR and XS devices. 

Once it makes that move, it will be interesting to see if, in the next step, Apple decides to also put some of its upcoming 2019 flagship phones in the India production lines.

If that happens, it will serve as proof that Apple has indeed done a significant retooling of its global supply chain and manufacturing.

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EJ Insight writer