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Apple Must Pledge India Manufacturing Before Stores Get Approval

June 13, 2016
Apple wouldn’t have to own the plant itself, but could work with a manufacturing partner like Foxconn Technology Group as it does now in China.

India is seeking a commitment from Apple Inc. (IW 500/2) to bring manufacturing facilities to the country before the government will approve the iPhone maker’s request to open its own retail stores, according to a senior government official with direct knowledge of the matter.

The government may loosen existing policies that require local sourcing for companies that want to open stores if Apple announces a timeframe for some domestic manufacturing, said the official, asking not to be identified because the matter is private. The country’s Finance and Commerce Ministries are in talks about adjusting current policies to allow Apple to make a revised application, even if those facilities aren’t complete, said the person. Apple wouldn’t have to own the plant itself, but could work with a manufacturing partner like Foxconn Technology Group as it does now in China.

Apple is pushing to increase its presence in India as the country is poised to become the fastest-growing smartphone market in the world and sales slow in the rest of the world. Last month, Chief Executive Officer Tim Cook visited the country for the first time and met with Modi. The Cupertino, California-based company has used flagship stores in New York, Tokyo and Shanghai to promote its products and boost sales, but in India it sells through partners such as Redington India Ltd. as well as the retail units of Indian conglomerates Tata Group and Reliance Industries Ltd.

Apple has little market share in India now, as consumers opt for less expensive devices from rivals such as Samsung Electronics Co. and Micromax Informatics Ltd. The country is projected to have a billion smartphones sold over the next five years. A network of prominent stores could help not just burnish the brand, but also push the benefits of services from iTunes to Siri to potential customers.

“Apple’s challenge in a price-conscious market like India is to weave a strong sense of value proposition around its expensive devices, and move beyond the image of being ‘just another luxury brand’ in the market,” said Rushabh Doshi, a technology industry analyst at research firm Canalys.

India requires companies to procure at least 30% of their components locally if they want to sell through their own retail stores, with some exceptions. Apple makes most of its products in China and doesn’t currently meet that criteria. Apple did not respond to an e-mail seeking comment.

Last month, Finance Minister  Arun Jaitley decided to support a decision by India’s Foreign Investment Promotion Board that Apple will have to comply with the local sourcing rules. India seeks to encourage companies to make products in the country as part of its industrial policy, aimed at reaping the benefits that come from manufacturing facilities and jobs. It doesn’t want technology companies to sell products and take advantage of its vast consumer base without making their own capital investments.

Still, Apple ships only about 2% of the phones in the country. Its devices are priced beyond the reach of average citizens, with more than 80%  of phones sold in the country at less than $150. The cheapest new iPhone from Apple is the 4-inch iPhone SE at 39,000 rupees ($581). The company’s push to bring in and sell lower-priced refurbished iPhones was rejected after competitors objected, a telecommunications ministry official said earlier this year.

Foxconn -- Apple’s main manufacturing partner -- has expressed plans to assemble phones in the country for brands like China’s Xiaomi Corp., but most iPhones are put together at its plants in China. The Taiwanese company only began making its first smartphones in India in the middle of 2015.

Foxconn declined to comment on its business partners on Monday. Longer term, it has said it expects to open as many as 12 factories and create one million jobs in India by 2020.

By Unni Krishnan and Saritha Rai

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