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Apple Commits to India Expansion, While Continuing to Depend on China for ‘Years’

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Apple Commits to India Expansion, While Continuing to Depend on China for 'Years'

Tim Cook has been optimistic about India for quite some time, and now he’s placing a significant bet on the South Asian country as Apple diverts its attention from China and increases its presence in India. However, according to analysts who spoke with CNBC, the iPhone manufacturer’s reliance on China will persist for many years to come.

According to Martin Yang, who is a senior analyst of emerging technologies at Oppenheimer & Co., there is a possibility that India could become the next production hub for Apple like China. However, he estimates that it could take up to a decade before such a shift occurs. Meanwhile, Apple is preparing to launch its second retail store in India, which will be located in Delhi and will open on Thursday, just two days following the opening of its first store in Mumbai.

Despite its efforts to expand its presence in India, the tech giant based in Cupertino still has a robust presence in China, primarily because of its supply chain associates, as stated by Nitin Soni, a senior director at Fitch Ratings. He further explained to CNBC that China’s infrastructure capabilities still surpass what India can provide.

According to Soni, it will take Apple several years to reduce its reliance on China. He stated that China still plays a significant role for Apple, not just in assembly but also in the semiconductor ecosystem and testing. In recent years, Apple has felt compelled to move its product assembly away from China due to the escalating trade tensions between the United States and China, as well as disruptions to its supply chain caused by Beijing’s zero-Covid policy. The company had to decrease production in China as a result of those constraints, which had a negative impact on its financial performance.

Navkendar Singh, an associate vice president at International Data Corporation (IDC) India, has stated that it is highly improbable that Apple will be able to completely eliminate its dependence on China. He emphasized that due to the cost scales, logistics, and the sheer inertia of some of the suppliers in China’s ecosystem, it is improbable that Apple can sever all ties with China.

Despite its dependence on China, Apple’s expansion in India has just started and presents multiple opportunities in both manufacturing and retail sales. According to IDC data, India is the world’s second-largest smartphone market in terms of annual shipments and sales, accounting for almost 12% of the global market.

In 2022, Apple’s iPhone shipments in India surged to 6.7 million from 4.8 million the previous year, according to market intelligence firm IDC. The company now ranks sixth in global iPhone shipments after the US, China, Japan, the UK, and Germany. Analyst Dan Ives from Wedbush Securities believes that India’s population growth and untapped market potential make it a “golden goose” for Apple, despite the challenges it has faced in the country’s smartphone market in the past.

Apple has significantly increased its iPhone manufacturing in India, rising from 1% in 2021 to 5% to 7% currently. The company is also planning to expand its presence in the country. Despite this growth, China and the US, along with Europe, remain the core markets for Apple. However, India is expected to become one of the top five markets for the tech giant, with analysts like Dan Ives predicting that India could be a major source of incremental growth for Apple in the coming years.

According to Dan Ives from Wedbush Securities, the Indian government’s goal of having Apple make 25% of its iPhones in India is “lofty”. He believes that hitting 10% to 15% of production is more realistic in the long term. Furthermore, while India will likely continue to lag behind Vietnam in producing more sophisticated products like MacBooks, Navkendar Singh from International Data Corporation (IDC) India suggested that smaller products like Apple’s smartwatches and AirPods may soon be manufactured in India.

IDC’s Singh noted that Apple’s market in India is highly concentrated in urban centers, with Delhi and Mumbai accounting for almost a quarter of the market. He added that Apple may open more physical stores in India by mid-2024.

According to IDC’s data, Apple currently holds only a 5% market share in India, as consumers tend to prefer low-to-mid-priced devices. However, Fitch’s Soni predicts that as technology adoption and consumer spending power increase in the country, there will be a rise in iPhone sales.

Soni stated that the middle class in India is becoming wealthier and transitioning to the upper middle class, leading to a rise in consumers purchasing high-end smartphones. This trend is supported by the widespread availability of 4G networks throughout India.

According to Singh from IDC, even though labor costs are lower in India, it’s unlikely that it would lower the prices of Apple’s iPhones. This is because Apple customers are willing to pay premium prices for their products, and the brand wants to maintain its premium image. Therefore, Apple will not reduce the prices to reach the mass market. However, Singh suggested that Apple could provide financing schemes or bank tie-ups to make their products more affordable.

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