This is the scene from the financial capital of India, Mumbai.
On April 18th, Apple opened its first flagship store in all of India.
Amid huge fanfare, Ceo Tim Cook was there to celebrate this milestone.
He also opened up an Apple store in New Delhi, the capital of India.
It was Tim Cook's first visit to India in seven years.
And a lot of people may be saying, okay, why is he going in India?
What this tells me is if they're opening two retail stores within 48 hours of each other, they see
data that the Indian consumer is ready to afford Apple products.
The Apple iPhone is a status symbol for a lot of youth and everyone wants to have the best
brand on them.
And they're very brand savvy.
All these millennials as well as Gen Z.
iPhone is their most aspirational phone.
Ceo Tim Cook actually traveled to India because of the massive opportunity that he sees out
in India in many respects.
The reason really underscores Tim Cook's vision of India, that he sees it as a key market for the
future in two ways.
Firstly, for the consumers and the growing appetite for consumers there to buy more expensive phones.
But secondly, he sees potentially a very key hub for Apple in terms of manufacturing those iPhones in the
future.
Whenever people talk about Apple, the iPhone quickly becomes the main story.
The iPhone remains the company's most important product.
Its revenue exceeds the combined revenue of iMac, iPad and other products and services.
iphones are manufactured and made in quite a complex way because the supply chain is so diversified.
Apple designs the entire product in-house, but it doesn't own a manufacturing facility.
So Apple might get the chips that power the iPhones made in Taiwan by
TSMC, which is the world's largest contract chip manufacturer.
However, the screens for the iPhones might come from a range of suppliers in, say, Japan and South Korea.
Got those memory producers out there in the likes of Samsung, among others, that helped kind of produce the
displays which are among the most expensive components.
In a nutshell, it takes manufacturing bases spread across several different countries to produce a single
iPhone. Three Taiwanese companies, Foxconn, Pegatron and Wistron, are major players in iPhone
production, where the assembly is done and shipped worldwide.
Apple has been manufacturing older models of iPhones in India since 2017, but only a very small
fraction gets produced there.
In 2022, only about 3.5% of the world's iPhones were made in India.
India produced more than 6.5 million of the 200 million iPhones made globally.
India wants its factories to eventually produce 25% of the world's iPhones.
It's a goal that analysts at JP Morgan say the company could reach by 2025.
Well, Apple began assembling the flagship iPhone 14 in India last year, and it was the first time,
actually, that the company produced its latest devices in the country so close to its initial
launch. Currently, only around 5 to 7% of iPhones globally are made in
India.
The major factor behind Apple's decision to diversify their production was they
saw the impact of some of these disruptions in China that had to do with their Covid zero policy and a
recognition of how vulnerable they were if they didn't have kind of a broader supply
base. Without that broader supply base, they had production shortfalls which impacted their sales, which
they might not have suffered as much had they had multiple sources.
Being in India is vital to Tim Cook and Apple for the production, right?
We saw that at the end of 2022 with the lack of iPhone 14, you can buy specifically the pros, those
high end. Couldn't find them anywhere.
And that was because of the China issue.
So moving to India, moving out of China for production vital.
In addition to that, there are geopolitical factors at play right now.
There also needs to be accounted for.
And that's also kind of created a lot of risk out there for the supply chain and for Apple.
And an additional reason why a company like this needs to kind of shift some of their manufacturing
capacity outside of China here.
India is also keen to attract foreign investments.
(Narendra Damodardas Modi)
When Prime Minister Narendra Modi came into power in 2014, he initiated 'Make in India' campaign.
The campaign aims to promote the country as a global manufacturing hub and attract foreign investment
for new industries.
Apple's partner, Foxconn, which recently announced investing $500 Million to set up manufacturing plants
in India, has also been awarded tax benefits.
In his first state visit to the US this June, Modi met several top CEOs making a pitch for
investments in India.
He really cares about India because he is pushing us to make significant investments in India,
which is something that we intend to do.
He wants to be open. He wants to be supportive of new companies, obviously, but at the same time make sure it
accrues to India's advantage, which is obviously that's the job.
Real exciting to see the progress, his commitment towards the economic growth for India.
And we are glad to be partners in that journey.
Credible discussion and great state visit, I think.
Plans to further expand in the country.
Well, you know, we opened two stores there when I was over there and we'll see.
But I think it's a huge opportunity.
It's just too expensive, up until now, basically, for many Indians to be able to afford Apple products.
Can you guess what Apple's phone market share is in India, Brian?
No. 4%.
4%. 4%.
And that's not a lot of percent.
So Apple hasn't quite yet cracked the smartphone market in India.
It has just about a 4% market share.
Android and in particular Chinese smartphone players are dominating the Indian market because they provide
quite low cost handsets, but with very good specs that are appealing to the Indian consumers.
Still, smartphones priced under around $400 account for a huge bulk of the market, and that's where
the Chinese players like Xiaomi have been very dominant.
Well, I think the second hand market has been really very good for Apple because what it does is it brings
customers into their ecosystem, into using their software and using some of their applications.
And by the way, some of these 3 to 5 year old iPhones, they're really still very capable
phones. And to the extent that they can run the key apps and make those people, Apple customers,
maybe those customers can graduate to new iPhones over time.
If people are buying second-hand phones or not, the top-of-the-line phones, they're still buying AirPods,
they're still buying iPads.
They're all buying all around the ecosystem, which is what obviously Apple and Tim Cook want.
The middle class is growing. And that's why I think in order for Apple to be successful there, it very much
will come down to price point.
Listen, 95% of smartphones in India are Android phones, many of which are Chinese companies,
Chinese smartphones.
So it's going to take a lot of work to convince customers there that they should switch to Apple.
Moving more iPhone manufacturing from China to India sounds like a good idea on paper.
In the real world, it's plagued with serious challenges infrastructure, talent and regulations.
Number one is infrastructure.
I realize there's a lot of construction of infrastructure going on in India now, but
China built a lot more infrastructure, especially in support of export operations when they
could. And India is really frankly, quite far behind them.
And that means things for ocean shipping, container shipping of cargo, air
cargo and so on, and road transport to efficiently move goods around.
So infrastructure is a big problem.
As far as finding the workforce out in India and kind of finding the right talent out there.
Again, it's going to be extremely difficult.
It might be kind of their most toughest challenge out there.
And, you know, we do think they are looking to kind of get employees in different areas of the world, bring
them to India and try to create the right atmosphere, get the right people to kind of get on board and
try to resolve that issue.
But it's not something that you can necessarily solve overnight.
It's a multi-year kind of effort for the company.
There's not necessarily a solution out there.
It's one of those things where it's something they're just going to have to work, work through and work hard
through.
For Apple, most difficult has been having a more control over its
suppliers in India.
It's a more of a democratic country and there are state level regulations, there are federal level
regulations. So obviously there will be a lot of issues which needs to be actually ironed out by Apple
or Apple suppliers when they set up their facilities, when they look at for talent or hire the
talent, increase their wages.
India is so important to Apple because it gives the iPhone-maker a new manufacturing hub to
diversify away from China, where there are many risks.
Also, India could unlock hundreds of billions of dollars of new sales for Apple, as well as create
hundreds of millions of new Apple users.
Whether Apple can succeed, only time will tell.