Analysis of Apple iPhone's Indian market entry

Analysis of Apple’s Market Entry in India
EIB B231, Spring 2017
Abraham Cherian
Nitesh Gupta
Fannie K Weaver
Elisa Wilkins

2 | A p p l e ’ s M a r k e t E n t r y i n I n d i a
Contents
Executive Summary .............................................................................................................. 3
Industry Analysis................................................................................................................... 4
Barriers to Entry in India........................................................................................................ 7
Company and Product Analysis ............................................................................................ 9
Market Expansion in India................................................................................................... 12
Adaptation to Indian Market Conditions............................................................................... 14
Conclusion.......................................................................................................................... 16
Appendix A ......................................................................................................................... 17
Appendix B ......................................................................................................................... 18

Executive Summary
As sales mature in the West and dwindle in China, Apple is looking to India as its next big
frontier for market growth and expansion. India offers great promise with about 20% of the
world’s smartphone users and a prediction of half a billion expected smartphone users in the
next three years. However, with the great market potential comes hurdles that are unique to
the Indian market for Apple to surpass. Indian FDI regulations require foreign companies that
want to set up single brand retail stores to locally manufacture at least 30% of their input in
India. Local regulations also require extensive labeling on the product itself. Mobile phones
are predominantly bought prepaid as opposed to the postpaid culture in the West. Above all,
the average smartphone in India sells for about $90 and the current price of the iPhone 7 in
India is about $900.
Apple’s value proposition is in its elegant product design and quality which it couples with its
extensive ecosystem offered at a premium price. The average price of an iPhone in the West
is about $750 which far exceeds what the average Indian can pay. Therefore, if Apple is to
become a major player in India and gain major market share while capturing volume, there
will have to be a significant variation in how it conducts business in India. Apple will have to
be creative in increasing the customer’s willingness to pay.
We recommend that Apple play in the mid-market segment of mobile phones ($150-$300).
Although, this may initially seem to contradict Apple’s premium pricing and brand strategy,
based on our analysis, we believe that the company would be able to achieve sales of 173
million units by the end of 2025. We do not recommend that the company reduce the price
of its flagship phones (currently the iPhone 7) instead, we suggest that the company assemble
previous generation phones (iPhone 5c - 6) in India. Since the value created in assembling an
iPhone is only about $8-$10, we expect that the real cost savings in moving assembly to India
will be realized from the import tax savings (import taxes on electronics are deliberately high
in India) and in the optimization of logistics and warehousing- currently, Apple assembles the
phones in China, from where they’re shipped to its warehouses in the US, before being
shipped out all over the world.1 However, by assembling in India, Apple could also establish
warehouses and distribution channels in India which could be used to establish new markets
in Africa and South Asia.
1
How & Where iPhone Is Made: Comparison Of Apple’s Manufacturing Process, accessed March 16, 2017.
Available from http://comparecamp.com/how-where-iPhone-is-made-comparison-of-apples-manufacturing-
process/

Industry Analysis
As per the forecast made by the International Data Corporation (IDC) in June 20162, the
shipments in the smartphone industry is expected to grow at a rate of 3.1% worldwide in
2016, which is a drop from growth of 10.5% in 2015. One of the key aspects to look at in the
industry is the volume and price break-up between the different geographical areas.
As per the data for quarter 4 of 2016, the highest average price for a smartphone is paid in
Canada followed by Japan and United States, but in terms of total sales for the quarter, Asia
(ex-Japan) leads the chart with sales of $ 56 billion, followed by United States with sales of $
26 billion for the quarter. The following table compares them for the various areas:
3
This can be attributed to the volume of sales and improving purchasing power capacity in the
region. This primarily has been driven by the growth in the China and India region. Both
countries together house approximately 36% of the world population and therefore, are the
biggest market in the world.
For Apple, Asia has been as big of a market as US has been. The following shows a comparison
between sales for Apple in both the regions:
2 “Worldwide Smartphone Growth Forecast to Slow to 3.1% in 2016 as Focus Shifts to Device Lifecycles”,
Accessed April 16, 2017. Available at http://www.idc.com/getdoc.jsp?containerId=prUS41425416
3 Data from Bloomberg
0.00
100.00
200.00
300.00
400.00
500.00
600.00
0.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
60,000.00
Asia
Pacific ex
Japan
United
States
Western
Europe
Middle
East and
Africa
Latin
America
Central
and
Eastern
Europe
Japan Canada
Sale
Average price
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
2016 Q4 2016 Q3 2016 Q2 2016 Q1 2015 Q4 2015 Q3
US
Asia (ex japan)

This paper investigates a possible market penetration strategy for Apple in India, while trying
to draw comparisons with China. Currently, Apple manufactures its iPhones via a factory in
China which is managed by Foxconn and sells them worldwide. Due to regulatory
environment in India, it doesn’t sell directly to its customer but uses the ‘Premium Re-seller’
model.
Smartphone Market Conditions in China. Despite all the major global hurdles smartphones
industry are facing in new markets, Samsung (Apple’s main competitor) has a major global
market share and high penetration in these markets. In China, there is a fierce competition
among major players in the smartphone industry. Apple topped the number one spot until
2016, when its major opponent “Oppo Electrics” sold close to 17 million phones, capturing
4% of the market share while Apple closed out with 12 million sales on the iPhone 6s capturing
2 percent market share.4 This marks the first-time Apple is not the best-selling smartphone
in China in five years. China’s smartphone shipments reached an all-time high growth of 6
percent year-on-year to 465 million units. China is ultimately the world's largest smartphone
market and manufacturers still see it as a big growth driver for their business. However, the
matured state of the market makes conditions tougher for revenue growth. The slow state of
smartphone growth in China is due to market saturation, inventory buildup and economic
headwinds.
Reasons for Apple’s Success in the Chinese market. Apple has been extremely successful in
the Chinese market due to its well-structured strategy from their entry point to getting the
iPhones into the hands of their valuable customers. In mainland China, almost everyone has
an iPhone irrespective of their income differences. To get their products in every household,
Apple built most of their iPhone assembly plants in China creating over one million jobs in
China. Apple CEO, Tim Cook made frequent visits to China and met with heads of China mobile,
China Unicom and China Telecom to work on successful distribution agreements.5 China
became the forefront of Apple’s overall strategy. Apple retail outlets allowed the Apple retail
experience being made accessible to a million more customers each year. Several marketing
campaigns were used in making iPhone into a “milestone product” were rolled out the
Chinese customers worldwide. They targeted young customers entering the labor force and
owning an iPhone was an aspiration. Apple also stayed in compliance with the Chinese
government request provided they do not conflict with Apple’s internal guidelines on
encryption, etc.6 Continuous improvement in user experience also influenced their success in
China and allowed them to stay ahead of competitors. The overall brand value of Apple
products helped shaped their success in China, which has led to a high willingness to pay. Part
of the success is also due to the rising economy in China (growth in middle class affluence)
and the high demand for consumer electronics, mostly manufactured in China itself.
4
“Apple iPhone toppled from No. 1 spot in China for the first time in 5 years making firm ‘vulnerable’:
Research“, accessed April 16, 2017. Available at http://www.cnbc.com/2017/01/27/iPhone-toppled-from-top-
spot-china-for-the-first-time-in-five-years-report.html
5
Guglielmo, Connie. "Apple's Cook Says iPhone China Mobile Deal Is The Beginning of A Beautiful Friendship."
Forbes. January 15, 2014. Accessed April 18, 2017
https://www.forbes.com/sites/connieguglielmo/2014/01/15/apples-cook-says-iPhone-china-mobile-deal-is-
the-beginning-of-a-beautiful-friendship/#60474afb3fd6
6
Apple Inc.’s Ethical Success and Challenges, Accessed April 28, 2017. Available at
https://danielsethics.mgt.unm.edu/pdf/apple%20case.pdf

Source: https://www.macstories.net/news/apple-q1-2017-results-billion-revenue-million-iPhones-
million-ipads-sold/
Top Five Smartphone Vendors in PRC, Shipments, Market Share, and Year-Over-Year Growth, 2016
Preliminary Data (Units in Millions)
Source: https://www.idc.com/getdoc.jsp?containerId=prAP42292517
Smartphone Market Conditions in India. Western smartphone manufacturers such as Apple
look east for growth and expansion, giving countries such as India a significant influence over
the features to be built into their phones. The June 2016 Ericsson Mobility report projected a
total of 810 million active smartphones in India by end of 2016.7
The Indian handset market is dominated by feature phones, a phone which provides calling
and texting service and basic multimedia capabilities, and this trend is expected to continue.
This continuous relevance of featured handset phones makes India stand out as the largest
phone market globally. Also, improved feature phone specifications and the fact that they
are typically as much as half the price of good quality, low end smartphones are among the
7 “India to have 810 Million smartphone subscriptions by 2021: Ericsson Mobility Report”, accessed April 16,
2017. Available at https://www.ericsson.com/in/news/160607-india-to-have-810-million-smartphone-
subscriptions-by-2021_254740127_c

key barriers preventing upgrades to high end smartphones. Functional benefits, combined
with their durability, longer battery life and ease of repair, were the key reasons for the users
to stick to feature phones, according to the study ‘Smartphones and Feature Phones Usage
and Behavior 2016-17’. “With support for mobile banking and 4G capabilities (likely in 2017),
feature phones will remain popular in the Indian market even in 2017,” JP Morgan said. The
Indian smartphone market saw a 6% slowdown in growth in 2016, on a year as per IDC, as
opposed to double digits’ growth that was seen in the previous years. Analysts attribute the
slowdown to fewer feature phone players moving to smartphone as the key reason. Despite
all the major global hurdles smartphones industry are facing in new markets, Samsung has a
major global market share and high penetration in these markets.
Barriers to Entry in India.
a. Regulatory Issues. Apple ran into multiple bottlenecks trying to solve the Indian equation.
It initially tried to enter the market by selling refurbished products in India. The Indian
government does not allow import of refurbished products as it ran the risk of making
India a dumping ground for used electronic products. The second mode has been to open
retail stores in India, which requires foreign operators to procure 30% of their products
from the domestic market. This has been a major hurdle, since all of Apple products are
assembled in China and manufactured around the world. The ‘Make in India’ plan from
the current government has come in the way of Apple’s expansion in India. The result has
been a higher priced product due to increased tariff - an iPhone 7 in India starts at $900
while it starts at $750 in the US.
Despite such bottlenecks, Apple has been immensely successful in the Indian market. In
the third quarter of 2016, Apple managed to grab a 66% market share of the premium
smartphone market.8 With such a success and large market size, Apple is in talks with the
finance ministry to secure subsidies or tax benefits to build an assembly plant inside India.
The Indian government has, however, recently eased its rules on local sourcing by foreign
retailers. Under the amended policies, foreign companies running single brand stores now
have a three-year grace period before they meet local sourcing quotas.9 Furthermore, if a
company sells state-of-the-art equipment, the waiver is extended to five years. This
implies that Apple could go ahead and open retail stores in India, as it attempts to capture
a large volume market segment.
However, building an assembly plant in India will not solve all the country’s potential
regulatory hurdles. There is also the case of India’s strict labeling laws. Indian law currently
requires that certain product details be printed on the device itself. Apple however, wants
the government to relax labelling rules so that it doesn't have to print product-related
information directly onto devices to avoid cluttering up their minimalist design.10 Apple's
distinctive design is integral to product appeal and it strives to keep surfaces as free of
artefacts as possible. As part of the negotiations, India's Department of Industrial Policy
and Promotion (DIPP) sent Apple's waiver request to the Department of Revenue and
8
Industry Analysis. “Telecom Industry in India.”March 2017. Accessed April 16, 2017, Available at
https://www.ibef.org/industry/telecommunications.aspx
9
Ibid
10
See Appendix A (Picture of iPhone)

Department of Electronics and Information Technology (DEIT) for debate and assessment.
The company would prefer to provide the product details that are required by law in India
as part of the software of the device or on the packaging. The labelling issue will be dealt
with by DEIT.11
b. Demographic and Infrastructure Challenges. One of the key challenges for Apple will be
the demographics of the country. While India has a population of over 1.3 billion people,
the current per capita income is less $1,600. The market is dominated by feature phones
and lacks adequate telecom infrastructure to experience the full iPhone experience. High-
end smartphones—costing from $300—make up only 6 % of the market, or just 5 million
units, according to Morgan Stanley.12 As per current estimates, the premium smartphone
market is sized at 5 million units per year, of which Apple already has a market share of
approximately 50% with sales of 2.5 million units in the year 2016.
The other challenge which Apple faces is the telecom infrastructure. While most operators
are ramping up their infrastructure to provide high speed internet, the roll out has been
slow and unconvincing. Currently, India has only 70 million 4G subscribers, against 700
million in China, but this is growing as people adapt to new technology.13 Lack of an
extensive 4G network in most parts India can be a big factor in holding back the sale of
Apple products, since the iPhone experience is dependent on network connectivity to a
great extent. However, huge investments are currently being made by all the major
telecom carriers to rollout 4G infrastructure in major cities.
c. Apple’s Traditional Model of Contract Pricing. Apple's traditional model in the US is to
sell its phones at full price to local telecom carriers, who then sell them on a multi-month
contract to end users. Such plans have not been very successful in India. Most such plans
are for the postpaid subscribers, whereas India is primarily a prepaid market (as per TRAI
reports, approximately 94% of the subscribers are prepaid users). Although carriers like
“Reliance Jio” have begun offering contract-like schemes that are bundled with carrier
services to make devices affordable, it could also be a tactics that exploits consumer
aspirations and burden users with unmanageable debt.14 India has been likened to the
Chinese market 7-10 years ago.
d. Lack of Brand Awareness. Apple's brand awareness ranks 10th in India, trailing Samsung,
Sony, Blackberry and some local rivals.15 In fact, in a recent Morgan Stanley survey, nearly
half of the responders said they do not know Apple. The implication of this is the need for
a significant initial investment in marketing to gain market share that will meet Apple’s
ambitious goals. This also indicates a lower threat of new entrants. Apple operated within
the premium market segment and therefore, brand recognition is of prime importance.
11
Chitravanshi, Ruchika. “Apple Seeks Relaxed Labelling Rules.” The Economic Times. Dec 29 2016. Accessed
April 16, 2016. Available at
http://economictimes.indiatimes.com/articleshow/56229190.cms?utm_source=contentofinterest&utm_medi
um=text&utm_campaign=cppst
12
Fortune Magazine
13 “India’s 4G user base approaches 70M”, December 16,2016. Accessed April 24 2017. Available at
https://www.mobileworldlive.com/asia/asia-news/indias-4g-user-base-approaches-70m/
14
“Ten Challenges Apple CEO Tim Cook will Have to Overcome in India.” May 18,2016. Accessed April 16 2017.
Available at http://tech.firstpost.com/news-analysis/ten-challenges-apple-ceo-tim-cook-will-have-to-
overcome-in-india-315487.html
15
IDC

e. Industry Rivalry. One of the biggest rivalries that exists in the Indian market is that of iOS
and Android (Apple and Google mobile operating systems). While Apple has restricted the
use of its OS to itself, Google has allowed its operating system to be open source and has
led to quick adoption by other players. As a result, Samsung has come up as the largest
competitor to Apple. One must also consider that Samsung is also one of the key suppliers
for iPhone components.16
f. Consumer Driven Market. Consumer needs drive the smartphone market. The presence
of Android market has given consumer an easy option to switch, and hence, improves the
power with the consumer. Apple has tried to control this by offering a standard iOS
experience across the Macintosh and Apple watch.
g. Apple Ecosystem is not Geared for the Indian Market. The Apple ecosystem, and delivery
of apps and services is built around an economy based on the use of credit cards. Usage
of credit cards in India has traditionally been low. Credit card usage peaked in India just
before the global financial crises and has not yet recovered.17 Apple will therefore have to
enable new ways to allow users without credit cards to make payments on its ecosystem.
Furthermore, there is also the issue of lack of local applications on the Apple ecosystem.
Whereas Android phones have a plethora of applications designed specifically for the
Indian market, the same cannot be said for Apple. The high cost of entry for publishing on
the Apple store as compared to the Goggle Store is one reason.18
Company and Product Analysis
Attractiveness of Apple iPhone’s Value Proposition in the Indian market.
a. iPhone’s Value Proposition. What sets the iPhone apart from the (literally) hundreds of
competing devices on the market is a sleek, elegant product design and the quality of its
actual products. Apple firmly reiterates its value proposition about its iPhone range of
products – specifically, the design of the device itself, the ease of use that has been a
cornerstone of Apple’s design aesthetic since the launch of OS X, and the aspirational
qualities that an iPhone supposedly offers the user.19 Apple believes a phone “should be
more than a collection of features” – yet this is precisely what a smartphone is. Since the
smartphone market is crowded with numerous competitors, Apple does not focus on
features of the iPhone, but the usage experience itself to sell its phones. Apple’s value
proposition is as unique as its approach to product design and aesthetics.
b. Value Proposition as it Applies to India. An Apple iPhone addresses the customer need
for high quality smartphone with great features and experience of use. This comes at a
high price even in markets where people have much greater capacity to pay. Apple
attempts to differentiate its smartphones from its competitors as an aspirational product,
16
Samsung Will Be Apple's Top Supplier For iPhones Again In 2017, accessed April 18, 2017. Available at
https://www.forbes.com/sites/johnkang/2016/12/16/samsung-will-be-apples-top-supplier-for-iPhones-again-
in-2017/#4b8ec2ad1fb0
17
NS Vageesh. “Credit Card Penetration Remains Dismally Low.” June 15, 2015, accessed April 16, 2017.
Available at http://www.thehindubusinessline.com/money-and-banking/credit-card-penetration-remains-
dismally-low/article7318930.ece
18
Ibid.
19
“Value proposition examples – iPhone”, accessed March 16, 2017. Available at
http://www.wordstream.com/images/value-proposition-examples-iPhone.png

and in India it translates into a class statement. However as stated above, on average,
disposable incomes are much lower in India, and that has a dramatic impact on the
prospects for a company like Apple. It is obvious that Apple would have to modify its value
proposition (user experience) to capture a larger share of this market, not just in the 6%
high end market, which is very small in absolute terms.20 It is important for Apple to
convince people to spend more for the iPhone experience (willingness to pay - revenue),
and lower its prices to capture a larger market (volume). In addition, a flawless iPhone
experience requires 4G data connectivity, which is not commonly available except in some
Indian cities. Without seamless data connectivity, the iPhone experience is likely to be
only marginally better than competitors, not delivering on its value proposition of a
dramatically better user experience. The Apple iPhone ‘experience’ is based on a well-
developed ecosystem, which includes iTunes with music and other content, maps, Apple
Pay (all catering to local tastes and needs) and after sales service. The components of the
ecosystem are not yet developed enough in India to command a premium price, affecting
the value proposition negatively.
c. Major Issues with the Growth Strategy in India.21 To grow its share in the middle
segments of smartphones($100-$350), Apple needs to reduce prices to align its value
with the Indian market, achieve better quality for its bouquet of services bundled with
every iPhone (services that define the iPhone experience), better localization of services
and features, and improve its distribution model. Apple can sell its phones cheaper by
manufacturing phones in India (leading to reduced taxes and costs), or selling refurbished
phones from other countries at a lower price point that is comparable with competition.
However, the latter is currently not an option because refurbished phone sales are not
permitted by the Indian government. Creating new, cheaper country specific products in
India might affect Apple’s premium brand image. This implies that Apple has to largely
grow market share of its existing products rather than increasing its addressable market
with new, low priced products. Looking at the other themes, an iPhone’s value proposition
is not very attractive in a market which is culturally and linguistically varied, because it
does not have adequate services and content within its ecosystem, like Siri languages,
maps to cover all parts of India, iTunes and iBooks content. With limited service in these
areas, Apple will find it difficult to increase the willingness to pay for its customers, except
the English-speaking elite population in the larger cities. A major part of the Apple value
proposition is its distribution network of Apple stores that reinforce the image of a high
end, high value product. However, Apple is not permitted to run its own stores in India for
more than three years, unless it manufactures 30% of the product within India. As a result,
Apple is considering setting up its own manufacturing facilities in India through Foxconn.
This will have two effects on the sales and distribution - the iPhone prices will come down
because of lower taxes, and it will be able to establish its own stores. However, what
remains to be seen is, “if the drop in the costs are able to drive the price into the sub $300
segment, then, which ids the volume and growth market?”.
iPhone Value Chain and its Application to India. The iPhone’s value chain is dispersed and
designed so that the maximum value is captured by Apple, and not by its suppliers or
20
“How Apple can Grow in India”, accessed March 16, 2017. Available at https://techpinions.com/how-apple-
can-grow-in-india/46440
21
ibid

distributors. The cost of inputs of an iPhone is just 22% of the price, while the cost of labor is
only 5%. A major of profit is captured by Apple (58% of the price of an iPhone is profit to
Apple). The remaining 20% of the price is shared among other suppliers of various
components in the US, Japan, South Korea and other countries. To understand the value chain
of Apple, one must understand that Apple is a technology company which develops and design
products rather than manufacture them. Assembling of components itself is outsourced,
currently to Foxconn in China. Apple controls the product components to ensure that quality
is maintained. Therefore, as a company it has two major roles: product development and
marketing and sales.
Capturing Value in Global Networks: Apple’s iPad and iPhone22
Value Creation and Capture, iPhone 423
a. Inbound Logistics: Parts and components are manufactured in China, Taiwan and Japan
(design and software in California, chips in Texas, screens in Japan or Korea and other
parts in China)
b. Operations: Currently, iPhones are assembled in China24, and approximately $10 of value
is created in the assembly process. The high value parts of the value chain are in the US.
22
Capturing Value in Global Networks:Apple’s iPad and iPhone, accessed March 16, 2017, available at
http://pcic.merage.uci.edu/papers/2011/Value_iPad_iPhone.pdf
23 “Value Creation and Capture, iPhone 4”, accessed March 18, 2017, available at
https://people.hofstra.edu/geotrans/eng/ch5en/conc5en/iPhone_3g_components.html
24
Apple Manufacturing iPhones Locally Would Be A Fascinating Test For The Indian Economy, accessed March
18, 2017. Available at https://www.forbes.com/sites/timworstall/2016/09/07/apple-manufacturing-iPhones-
locally-would-be-a-fascinating-test-for-the-indian-economy/#1792186b44e9

However, import taxes add to the price of iPhones sold in India. Assembling components
in India would reduce the taxes on the phones, thus reducing their price to the customer.
In addition, the cost of assembly itself may be lower than $10, thus marginally reducing
prices further. Actual manufacturing of parts and components in India will definitely
affect costs and will reduce the price of iPhones. However, quality control and
development of the complex supply chain required to sustain such manufacturing
resources need to be developed in India. With a potential market of 600 to 800 million
smartphone owners in the next 10 years, a manufacturing facility for iPhones in India
would seem to add value for Apple, provided suppliers can actually set up plants.
c. Outbound Logistics: Apple assembles the phones in China, from where they’re shipped to
its warehouses in the US, before being shipped out all over the world.25 If assembly takes
off in India, Apple would most likely have to also establish warehouses and distribution
channels that are India centric. These could also be employed for establishing new
markets in Africa and South Asia. Currently, Apple operates through its reseller program
in India. An Apple Authorized Reseller (AAR) is a business partner that enters into a
contractual relationship with Apple, to sell software and/or hardware products. The
company cannot sell its phones through flagship stores for more than three years, since it
does not manufacture/procure more than 30% components in India. An upfront
investment in flagship stores will be subject to achieving volume sales in three years that
justify the move.
d. Marketing and Sales: Currently Apple ecosystem is not India friendly. Its map system
cannot be used in India, Siri is English language based. It is not user friendly for most
Indians in tier 2 and 3 cities who are comfortable communicating in local languages.
iPhone pricing is also at the higher end of the spectrum for smartphones in India. A typical
smartphone with most features is available for around $350 while the cheapest Apple
offering is the iPhone 5c at $400, which is known as an ‘older’ model. However, since the
rest of the world has moved on to the 6 and 7 models (the 5c is nearing its end of product
life), Apple could consider selling it in India for a much lower price, without affecting its
brand image.
e. Service: Apple needs to improve its ecosystem in India to make an impact in the market.
Till now, Apple had not given much thought to wooing the Indian consumer because of its
large growing markets in China and the US. Accordingly, its ecosystem was oriented to
those markets. India has a vibrant entertainment industry and the Indian consumer
prefers local programming, which needs to be included in the content available over
iTunes and Apple news. Apple is known for very good after sales service, a fact that can
be leveraged and highlighted to attract customers.
Market Expansion in India
Aspects of Apple’s Aggregation Strategy that can Drive Growth.
a. Retain Centralized Research and Development. As indicated, research and development
is one of the key roles of the company. One of the key features of its products has been
25
How & Where iPhone Is Made: Comparison Of Apple’s Manufacturing Process, accessed March 16, 2017.
Available at http://comparecamp.com/how-where-iPhone-is-made-comparison-of-apples-manufacturing-
process/

standardization and ease of access, i.e. an iPhone in the US is the same as the iPhone in
China, Australia etc. It’s size and market power motivates suppliers to pitch the company
their biggest breakthroughs. Apple only spent 3.5 percent of its $233 billion revenue on
R&D in 2015 while its biggest rival, Google, used 15 percent.26 Based on such numbers,
we believe that Apple should retain the R&D component close to its headquarters. Moving
R&D to India or any other country enhances risk because of lax intellectual property rights
law enforcement.
b. Maximize Advantages of an International Supply Chain that Optimizes Cost and Labor
Arbitration. For Apple, demand management is easier, since it doesn’t have to get the
demand forecast for a new product right. As long as it underestimates demand for a new
product, Apple will have loyal customers wanting new devices and willing to wait. Because
Apple has become so large, it has procurement advantages smaller rivals can’t match.
Apple has price advantages in securing key components, manufacturing capacity, capital
equipment, and airfreight capacity.27 They have huge procurement clout, and demand a
detailed accounting of how the manufacturer arrived at the quote for a component,
including estimates for labor and material costs and projected profit. As a result, Apple is
able to keep cost of components down because of the scale of its contract with suppliers.
According to Apple’s supplier responsibility progress report, the company’s standard labor
policy is for workers to work a maximum of 60 hours per week and to get at least one day
off per week.28 Like many companies in the electronics industry, it has a supply chain with
a high-risk profile. One of its key suppliers is Samsung, which is also its competitor.29 Many
of its key components come from northern Taiwan, from where the company sources
several customized components, and it relies on massive factories located in Shenzhen,
China for final assembly. Apple should retain its supply chain strategy for entering India.
Even if some amount of assembly of phones does shift to India, Apple should continue to
source components from its regular suppliers, till it can achieve scale in the short term by
capturing part of the mid segment smartphone market in India.
c. Leverage the Apple Brand Value. Apple's brand has evolved as it has expanded its range
of products and services. Its core competence remains delivering exceptional customer
experience through superb user interfaces. The company's product strategy is based on
this, with the iPhone (with its touch screen "gestures" that are re-used on the iPad), Mac,
iCloud, iTunes, and the Apps Store all playing key roles.30 The brand personality is about
lifestyle and simplicity of use, which is the same across all its markets. Apple does not sell
low end phones in any market retaining its brand identity even in markets where
customers have low purchasing power. However, this brand value comes at a premium
price, which the Indian market is not ready to pay at a scale that it wants. Apple will be
26 Apple’s R&D spending proves innovation isn’t all about money, accessed April 18, 2017. Available at
http://www.cultofmac.com/399899/apples-rd-spending-proves-innovation-isnt-all-about-money/
27
The Apple Supply Chain: The Best in the World?, accessed April 18, 2017. Available at
https://logisticsviewpoints.com/2012/07/02/the-apple-supply-chain-the-best-in-the-world/
28
Supplier Responsibility 2016 Progress Report, accessed April 18, 2017. Available at
http://images.apple.com/supplier-responsibility/pdf/Apple_SR_2016_Progress_Report.pdf
29
Samsung Will Be Apple's Top Supplier For iPhones Again In 2017, accessed April 18, 2017. Available at
https://www.forbes.com/sites/johnkang/2016/12/16/samsung-will-be-apples-top-supplier-for-iPhones-again-
in-2017/#4b8ec2ad1fb0
30
"Apple's Branding Strategy." Marketing Minds | apple branding strategy. Accessed April 18, 2017.
http://www.marketingminds.com.au/apple_branding_strategy.html.

challenged in its ability to retain this brand identity while adapting to the Indian market
in most other aspects - supply chain, product price, and ecosystem. Their advantage as
compared to competition in India, especially Chinese manufacturers is a reputation for a
quality product that is reliable and provides a much better experience than its closest rival.
The key question is whether this brand identity will be enough to increase the mass
market’s willingness to pay a little more, or whether it will retain its identity if it sells a
lower priced phone that’s aligned with market conditions in India.
Adaptation to Indian Market Conditions.
a. Pricing. One of the key factors for success would be Apple’s ability to bring down prices
for its customers. India is a price sensitive market and therefore, continuing in the
premium market segment would not be lead to increase in sales volume. The company
would not be able to drive economies of scale for its assembly line in India. In India,
volume market for smartphones is in the range of $150-300(Rs 10,000-30,000), with 75%
of all smartphones sales being in this segment (81 million phones in 2016). However,
iPhones with a current price tag upwards of $700 (for an iPhone 7) do not have a real
market share in this segment, although they have captured approximately 50% of the
premium market (5 million phones in 2016). If Apple lowers the price for its current
models, it also runs the risk of losing its premium brand identity. It appears that Apple
needs to cut costs of distribution and manufacturing, so that it can sell at below $350
prices in India. While the latest phones can be retained at a higher price, earlier models
can be assembled and sold specifically in India and other countries with lower disposable
incomes, albeit at a lower price.
b. Apple Ecosystem. The value proposition of an iPhone includes access to its rich and
exhaustive ecosystem, which by itself has premium and high quality products like iTunes,
Apple Pay, maps and the app store. None of these are currently oriented to India, since
inadequate volumes meant low priority for development of an ecosystem that attracted
Indians. To back up its claim of a superior experience, Apple will have to ramp up its
ecosystem so that users have a seamless experience. For instance, iPhone users currently
use Google Maps in India, which is a rival product with much better features and usability.
“Tim Cook said that the plan was to bring all of the existing services to the local market,
and if new ones were found, unique to India, to develop those as well. Apple Pay,
specifically, is also on the table, with talks going on with Indian banks.” 31
Recommendations for Market Entry in India. Based on our understanding of the company
and the market, we recommend the following market entry strategy:
a. Establish Single Brand Retail Stores for the iPhone Buying Experience. The major priority
for the company should be to establish its own retail outlets in the country. As noted
earlier, Apple operates via its reseller model in India due to regulatory limitations. Since,
the Indian Government has offered flexibility in terms of the local sourcing rule, Apple
should take this opportunity to establish its retail outlets. This move, while not increasing
31
Apple CEO shares plans for the company's future in India, accessed April 19, 2017. Available at
http://www.gsmarena.com/apple_ceo_shares_plans_for_the_company_future_in_india-news-18341.php

the sales dramatically, would improve customer experience leading to capture of a larger
market share and improve revenues in the medium to long term. It would also allow Apple
to market its products more effectively. If we assumed that the premium market would
increase at 7% annually and Apple ability to maintain its market share between 50-60% of
premium segment, we foresee a sale of 36.4 million units between 2018 and 2025.
b. Set up Assembly and Manufacturing. As per the current regulations, to operate in the
retail section, a foreign entity should locally source 30% of its procurement. In case of high
tech, the company is allowed retail sales through flagship stores for five years, which
should be possible for Apple. In addition, the assembly line in China adds $5 to the total
cost of production for the iPhone.32 We do not see a major change in the cost structure
for the product by establishing an assembly partnership in India. Any cost benefit which
accrues out of savings in terms of internal logistics, etc. are minimal. In the medium to
long term, Apple can align with Indian strategic interest by moving its component
manufacturing to India, thus creating jobs in the economy and indicating a long-term
engagement. This would depend on initial success in sales volumes, which is needed to
justify the investment. Moving component manufacture to India may not result in direct
cost reduction, but would help reduce taxes, thus reducing overall price of the iPhone in
India.
c. Enter the Middle Market Segment of the Smartphone Market. Marketing is one of the
key roles played by the company. Therefore, we conducted a market segmentation
analysis, which indicates that the middle segment ($150-300) needs to be captured for
growth. Compared to the current $900 price for an iPhone 7, entering this segment
involves reducing cost of manufacture and sales, and selling older model phones that are
still relevant as compared to competition. Selling refurbished phones has been ruled out
due to regulatory aversion. Selling older models seems to be a viable option and can be
achieved in the following ways:
i. Market and Sell Prior Version of the Product: One of the key factors that Apple looks
for when setting up a manufacturing unit would be economies of scale. We see that
Apple could capture a significant share of the premium market, which alone is not
sufficient. Therefore, we recommend that Apple enters the middle market segment
with older models. By doing this, Apple would appear not to have compromised its
brand identity. The cheaper version would allow Apple to tap into a larger customer
base and drive economies of scale for its assembly and manufacturing, possibly
allowing sale of newer models at lower prices in future. Based on our analysis, the
company would be able to achieve a sale of between 35 to 85 million units by the end
of 2025 if priced at $300 or below. It would lead to revenues between $13 bn to $28
bn from India alone in 2025, a six to twelve-fold increase. A detailed worksheet on
pricing is given at Appendix B.
ii. Bundling with Post-paid Mobile Connection: Approximately 94% of the current
subscriber are prepaid users in India. Majority of post-paid subscriber are in the
metropolitan area and therefore, would have access to basic infrastructure like 4G,
credit cards etc. These would be the ideal customer for an iPhone. Therefore, to push
the sales in this market we suggest that Apple markets its traditional contract plans
32
Here’s How Much the iPhone 7 Cost to Manufacture, accessed April 19, 2017. Available at
http://fortune.com/2016/09/20/iPhone-7-cost/

with multiple subscribers. In the past, there has been various attempt at these with
little success. We believe an expert marketer like Apple would be able to bring success
to such schemes and drive results.
Conclusion
In a new data report from GSMA, 20% of the world’s mobile phone subscribers recorded
reside in India with a prediction of half a billion smartphone users expected in the next three
years. With the market size and smartphone demand, India can become a powerhouse in the
mobile market and Apple is looking to capture this growth in terms of revenue. The Indian
market demand for high-technology goods is very high and exceeds manufacturing
infrastructure. India’s mobile market is larger than the US market and continues to exceed
boundaries with its rapid adoption of smartphones. If Apple is to see a resurgence in its iPhone
sales, India is the market given the current ecosystem. It remains to be seen if Apple can cash
in on India without losing its brand identity.

Appendix A
iPhone Sleek Minimalist Design

Appendix B
Sales Projections for Prepaid iPhone Sales in India33
2016-2025
Smartphone Market Growth 2018 2019 2020 2021 2022 2023 2024 2025
15% High Middle Segment Growth Rate 30% 25% 20% 15% 10% 10% 10% 10%
10% Low Middle Segment Growth Rate 10% 10% 10% 10% 10% 10% 10% 10%
33
130 million smartphones to be shipped in India this year: Report, accessed April 18, 2017. Available at
http://www.livemint.com/Consumer/tEEtDHvc3xkuTG2By1G71L/130-million-smartphones-to-be-shipped-in-India-this-year-Re.html
$2,100
$4,348
$5,864
$7,882
$10,146
$13,026
$16,692
$21,354
$27,278
$2,100 $3,276
$4,625
$6,341
$9,165
$13,298
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Comparison of Revenues ($ mn)
High Market & Segment Growth Low Market & Segment Growth
3.0
6.6
9.9
14.6
21.0
28.7
37.9
49.8
64.9
84.2
3.0
6.6
8.4
10.5
13.1
16.0
19.9
24.7
30.5
37.6
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Comparison of Sales Volume (mn phones)
High Market & Segment Growth Low Market & Segment Growth

1. High Apple Middle Segment Share, High Smartphone Market Growth
Values 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Annual Smartphone Sales (mn phones) 113 130 150 172 198 227 261 301 346 398
Postpaid Market share (9.5% annual growth) 9.5% 5.5% 6.0% 6.6% 7.2% 7.9% 8.6% 9.4% 10.3% 11.3%
PostPaid Market (mn phones) 5% in 2016 6 7 9 11 14 18 23 28 36 45
Prepaid market share 95% 95% 94% 93% 93% 92% 91% 91% 90% 89%
Prepaid Market (mn phones) 95% in 2016 107 123 141 161 184 209 239 272 310 353
PrePaid Market Breakdown of Sales and Revenue
Lower Segment <$150 75% 81 79 77 76 74 73 71 70 68 67
Middle Segment $150-$300 18% 27 46 66 90 117 148 183 223 269 321
% of Middle Segment captured by Apple 8% 10% 12% 15% 17% 19% 20% 22% 25%
Apple Market Share Growth Rate 30% 25% 20% 15% 10% 10% 10% 10%
Middle Segment Annual Sales(mn phones) 3.4 6.5 11.0 17.1 24.8 33.8 45.3 60.2 79.1
Pricing ($300, Assumed constant over the period) 300$ 300$ 300$ 300$ 300$ 300$ 300$ 300$ 300$
Middle Segment Revenues (mn $) 1,029$ 1,944$ 3,291$ 5,129$ 7,446$ 10,137$ 13,601$ 18,046$ 23,739$
Premium Segment >$300 7% 5 5 6 6 7 7 8 8 9 9
% of Premium Segment captured(55-60%) 60% 60% 60% 60% 60% 55% 55% 55% 55% 55%
Premium Annual Sales(mn phones) 3.0 3.2 3.4 3.7 3.9 3.9 4.1 4.4 4.7 5.1
Pricing (Assumed constant over the period,$) 700$ 700$ 700$ 700$ 700$ 700$ 700$ 700$ 700$ 700$
Premium Segment Revenues (mn $) 2,100$ 2,247$ 2,404$ 2,573$ 2,753$ 2,700$ 2,889$ 3,091$ 3,308$ 3,539$
Total Annual Sales(mn phones) 3.0 6.6 9.9 14.6 21.0 28.7 37.9 49.8 64.9 84.2
121% 49% 48% 44% 36% 32% 31% 30% 30%
Total Annual Revenues (mn $) 2,100$ 3,276$ 4,348$ 5,864$ 7,882$ 10,146$ 13,026$ 16,692$ 21,354$ 27,278$
Overall Smartphone market growth 15% Market Segments
Postpaid connections annual growth rate 9.50% Lower segment <$150 Apple does not enter this market
Middle segment $150-$300 Growth from 48% to 20%, declining
Premium segment >$300 7% Annual growth, based on GDP growth rate

2. Low Apple Middle Segment Growth, Low Smartphone Market Growth
Values 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Annual Smartphone Sales (mn phones) 113 130 143 157 173 190 209 230 253 279
Postpaid Market share (9.5% annual growth) 9.5% 5.5% 6.0% 6.6% 7.2% 7.9% 8.6% 9.4% 10.3% 11.3%
PostPaid Market (mn phones) 5% in 2016 6 7 9 10 12 15 18 22 26 32
Prepaid market share 95% 95% 94% 93% 93% 92% 91% 91% 90% 89%
Prepaid Market (mn phones) 95% in 2016 107 123 134 147 161 175 191 209 227 247
PrePaid Market Breakdown of Sales and Revenue
Lower Segment <$150 75% 81 79 77 76 74 73 71 70 68 67
Middle Segment $150-$300 18% 27 46 60 75 92 111 131 152 176 202
% of Middle Segment captured by Apple 8% 8% 9% 10% 11% 12% 13% 15% 16%
Apple Market Share Growth Rate 10% 10% 10% 10% 10% 10% 10% 10%
Middle Segment Annual Sales(mn phones) 3.4 4.9 6.8 9.2 12.1 15.8 20.2 25.8 32.5
Pricing ($300, Assumed constant over the period) 300$ 300$ 300$ 300$ 300$ 300$ 300$ 300$ 300$
Middle Segment Revenues (mn $) 1,029$ 1,484$ 2,053$ 2,762$ 3,642$ 4,730$ 6,074$ 7,728$ 9,759$
Premium Segment >$300 7% 5 5 6 6 7 7 8 8 9 9
% of Premium Segment captured(55-60%) 60% 60% 60% 60% 60% 55% 55% 55% 55% 55%
Premium Annual Sales(mn phones) 3.0 3.2 3.4 3.7 3.9 3.9 4.1 4.4 4.7 5.1
Pricing (Assumed constant over the period,$) 700$ 700$ 700$ 700$ 700$ 700$ 700$ 700$ 700$ 700$
Premium Segment Revenues (mn $) 2,100$ 2,247$ 2,404$ 2,573$ 2,753$ 2,700$ 2,889$ 3,091$ 3,308$ 3,539$
Total Annual Sales(mn phones) 3.0 6.6 8.4 10.5 13.1 16.0 19.9 24.7 30.5 37.6
121% 26% 25% 25% 22% 24% 24% 24% 23%
Total Annual Revenues (mn $) 2,100$ 3,276$ 3,888$ 4,625$ 5,514$ 6,341$ 7,619$ 9,165$ 11,035$ 13,298$
Overall Smartphone market growth 10% Market Segments
Postpaid connections annual growth rate 9.50% Lower segment <$150 Apple does not enter this market
Middle segment $150-$300 Growth from 48% to 20%, declining
Premium segment >$300 7% Annual growth, based on GDP growth rate

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