Apple CEO Tim Cook's India visit Biting the FDI Pie

Industry By Surbhi Arora

Apple is setting up a new, bigger team that will look after its business in India. It is opening, to start with, a development centre where it will utilise the Indian engineers. Tim cook has said the centre could employ as many as 4,000 people. It wants to talk to developers making apps for iOS and is opening a new facility to work with them in Bengaluru.

Apple CEO, Tim Cook’s India tour started with an obeisance to Lord Ganesha in Mumbai’s Siddhivinayak temple. His schedule included meeting India’s top business leaders, partying with the King Khan, meeting with the crew of Azhar – a movie on the life of former cricketer Mohammad Azharuddin, watching an IPL cricket match in Kanpur and the final meeting with Prime Minister Narendra Modi. He ran into Anant Ambani, whose father Mukesh is rolling out a massive telecom service, and launched the new Modi app at the Prime Minister’s residence in New Delhi. The most important meetings of Cook were with Reliance Jio executives and Airtel's chairman and CEO, Sunil Mittal.

Cook's visit is seemingly the manifestation of Apple's decision to put India on its map. Apple is now ready to do business in the country the way other technology companies do it. Apple is the world's biggest technology company in more than one way. Although it sells its products in India, unlike say Google or Microsoft, it does not have a big office or development centre in India. It has only a few people looking after the company's operations in the country and the scale of this operation is minuscule.

Apple is setting up a new, bigger team that will look after its business in India. It is opening, to start with, a development centre where it will utilise the Indian engineers. Tim cook has said the centre could employ as many as 4,000 people. It wants to talk to developers making apps for iOS and is opening a new facility to work with them in Bengaluru. It has indicated that the company hopes to increase the size of its corporate office in Gurgaon. It is hiring more people for this office and by the end of the year could have a big number of employees who are on its payrolls. Apple finally understands that India is a big and a unique market, which requires full-scale operations instead of the usual import of a few iPhones and selling them to rich consumers.

Apple is looking to better its pricing strategy and manufacturing or at least ‘making’ products such as the iPhone in India. It is also getting ready to open its first retail stores in the country, which are expected to come up in Delhi and Mumbai next year. In India, phones are sold in brick and mortar shops and now online at their full prices. There is no operator subsidy model here and that makes the iPhone expensive for most consumers. Apple can look into ways to price it more aggressively but that would also mean significantly lower margins.

The iPhone has been doing well in markets, where it has managed to get the operator tie-ups going and it has done poorly in other markets where such a model has not worked. The reason for this is simple. Even in the US, iPhone is an expensive device. Apple sells it so well because operators absorb the initial cost. They buy the iPhone at the full price then sell it to consumers at a very low price. The rest of the money they recoup by selling data, which a consumer has to buy from them for one or two years of contract that they sign while buying the phone.

In India, carriers in general sell virtually no phones and it is out in retail. Smartphones are low-end, primarily because of the network and the economics. In India, the contract model has not worked so far. But Tim Cook's visit and his thoughts about 4G rollout in India implied that Apple wanted to give it another try. For India, this is a new technology and Apple can partner with the operators at a time when they are pushing it to consumers.

Apple's traditional markets, in Western Europe and the US are now saturated. Even in Japan, Hong and China, the sale of the iPhone is becoming difficult. India is a big, untapped and a unique market for Apple. To do business in India, Apple now realises that it needs to be here in a way that India accepts and recognises. The government did not waive the 30 percent local-sourcing norm for Apple in setting up its retail outlets, nor did it allow the company to sell refurbished phones in the country.

The numbers in India suggest a huge potential market. Less than two in every 10 of the country's 1.3 billion people have a smartphone. In meetings with Bharti Airtel and Vodafone, Cook discussed ways to work more closely to sell iPhones, including whether a contract pricing model could work in India. Another challenge for Apple is how to be a premium-end player in a low-income market. India is a more price-sensitive market than China and Apple's relatively expensive iPhones are out of reach to most Indians.

With per capita income of $1,570 as of 2014 and the average smartphone selling for less than $90, a third of the global average, India's market growth is predominantly led by cheaper phones. High-end smartphones account for only 6 percent of the market or just 6 million units, according to Morgan Stanley. Government officials have pressed Apple to set up manufacturing facilities in India, a move that would create jobs and boost PM Modi's ‘Make in India’ initiative.

Apple also announced the opening of a new office in Hyderabad that will focus on development of its Maps product. This investment will accelerate Maps development and create up to 4,000 jobs, according to the company. The opening of a Maps-specific office in Hyderabad means that Apple will finally be taking a neglected domain in India more seriously. In the US, Europe and China, Apple Maps include features such as 3D views, Public Transit system, options for shopping, coffee, restaurants, etc. The new facility, located on the Waverock campus, will provide a world-class, LEED-certified home for the expanding Maps team.

Tim Cook visited the country for supporting the company’s plans to offer refurbished iPhones in the price-sensitive market and to get permission to set up its wholly-owned stores in the country. Both deals, initially, did not get a positive response by regulators. However, in late June, the Indian government eased FDI restrictions in various sectors to increase inflows, a move that could pave the way for Apple Inc. to open its own stores in India.

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