Daybreak - How Apple is winning India

Episode Date: December 7, 2022

In the year that ended in March 2022, Apple saw its India revenue shoot up to an all-time high by 45%. But for the longest time Apple's growth in India was sluggish.What's making Apple's fortunes in India turn around so drastically?Tune in to find out.For more on this, read this report by Soumyajit Saha: Indians’ love for the iPhone is stronger than ever. But Apple retailers are not happy

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. If you bury an iPhone in the ground, a customer will dig it out and leave money there.

This is what a mobile retailer from Delhi recently told my colleague Somi Jit when he was working on a report. on Apple in India. But wait a second. The price of an iPhone 14 in India is equal to how much an average Indian makes in an entire year. In fact, the price of Apple products in India is among the highest in the world, which is why Apple's growth in the country has been quite sluggish for the 20 years or so that it has been here. So something clearly seems to have changed for Apple in India.

In fact, things have really turned around. Apple saw its India revenue shoot up to an all-time high in the year that ended in March 2022. It went up by 45% to $4 billion, from 20 years of being almost stagnant to the sudden spike. Why is Apple suddenly winning in India? Welcome to Daybreak by the Ken, a podcast where we pull up the curtains on the most significant stories from India at the intersection of business and technology. I'm your host Snigda and today is Wednesday the 7th of December. It was sometime in 2007 that Apple launched in India and for a while it was a leader in India's premium smartphone segment. But Chinese and Korean competitors took the Indian market by stormed towards.

the end of the last decade. They began matching Apple on specs and design and beating it on price too. By 2017, Apple was floundering in the world's most attractive smartphone market. It was so bad that even CEO Tim Cook acknowledged the situation at that time. He blamed it all on currency weakness. He said that Apple was under pressure in emerging markets like India, Turkey, Russia, Brazil, because their currencies had weakened over the recent period. This still holds true.

As of last night, one US dollar was equal to 82.45 Indian rupees. And an iPhone 14 Pro in India currently costs 1,000,000-29,000. But in the US, the same phone costs 81,700 rupees only. In the words of the great Donald Trump, that is a huge difference. Apart from the competition from China and Korea and the weakening rupee, there is another important reason why Apple products have been almost unaffordable for most Indians. Apple has to pay a customs duty of 22% and an 18% GST on its base price in India. That explains a lot, doesn't it?

And unlike other big brands, Apple has always been a bit of worse to discounting its products. So why would it change that for India? And honestly, India has never really been a big market for high-end premium smartphones anyway. Until now. The tables have really turned for Apple in India. Like I told you earlier, Apple made $4 billion from India in the year that ended in March 2022. And that makes up for a whopping 45% rise in the company's India revenue. Analysts estimate that as much as four-fifths of the December,

came from iPhone sales. And this new trend actually started last year in 2021 when iPhone's market share went up to over 4%. This year, it is expected to cross 5%. According to Tarun Pathag, a research director at market research called Counterpoint Research, iPhone shipments to India doubled to 6 million units in 2021. And by the end of this year, it is expected to cross 7 million units. And strangely enough, some of the most expensive iPhones are the ones that are driving Apple's sales in India, the iPhone 14 and the iPhone 13. In the meantime, the demand for refurbished iPhones has also increased.

Secondhand phone sellers are constantly struggling to meet the demand. customers often prefer a refurbished iPhone over a similarly priced first-hand phone from a different brand. This is because of the phones better built and also its resale value. So what is making Apple's fortunes suddenly turn around in this manner in India?

The thing is, Apple knew that its phones were unaffordable for most people in the country. And it also knew that it had to find a way to fix this problem. It found the answer in easy financing. And here is what Apple figured out. Instead of providing upfront discounts, if it covered the cost of zero interest financing,

it could make its products more affordable. And it could also do it without compromising on its value proposition. So after the COVID-19 outbreak in 2020, Apple made financing tie-ups with banks a massive. mainstay. Most major banks offer EMI options on credit cards for Apple products across online and offline channels. Some, like the leading credit card issuer in the country, HDFC Bank, even offers no-cost EMIs for iPhones where buyers actually get back the interest as an upfront discount on the purchase. Former and current banking executives say that brands like Apple often bear the cost of

giving up interest on EMIs since banks are banned from providing zero interest credit. A former AJFC executive told Somerjee that banks too were really eager to boost consumer spending as the pandemic slowed down. And that is why they came up with offers like no-cost EMIs. Plus, Apple customers are rich regular spenders. So the tie-up with Apple was a win-win for both banks and Apple. And the impact is already visible. Tarun Patak, the market researcher, told Somerjid that most iPhone buyers in India are first-time iPhone users, and seven out of 10 buyers prefer buying the iPhone through EMI's. Another reason that analysts point to is this. Apple's core target audience is mostly made up of rich people. And ironically, during the pandemic, it was the rich that

afford the least financially. In fact, Prabhu Ram, the head of industry intelligence at cyber media research or CMR, told Somiuchy that some of these already rich people even saw their income levels rise during the pandemic. And during the lockdown, they did not have much to spend on. So when the pandemic began to dip, Ram says that this segment seemed to have gone on a revenge buying spree. So Apple is really winning in India. And you know what they say about good luck. It comes in threes.

For Apple, though, even two is enough for now. Because of the ever-increasing tension between China and the US, the order of things is changing for the tech giant. And Apple is already facing an increased disruption in its China production. This is because of China's extreme COVID policies. Recently, a massive workers' protests broke out at Apple supplier Foxcorns plant in China over COVID restrictions and claims of overdue pay. So now, Apple is gradually looking to diversify its production units outside of China.

And one country that it is closely looking at, of course, is India. India is all set to become Apple's next manufacturing hub. So will this shift translate into a price cut for Indian customers? Maybe. If Apple, like its rivals, Samsung and Xiaomi, starts completely knocked down assembly or CKD assembly of its products in India. CKD assembly is when all the components are sourced and assembled in the country.

This helps companies bypass the 22% customs duty, though they still have to pay duties on certain components. But this may take time. Until then, the average Indian consumer can keep buying secondhand iPhones and the rich can continue their revenge buying spree. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. Each episode distills years of reportage, narratives and stories from the Ken's experienced journalists and editors. Today's episode draws from my colleague

Somajit Sahas brilliant report titled, Indian's love for the iPhone is stronger than ever, but Apple retailers are not happy. You will find a link to this story in the show notes of this What you're listening to is merely a small slice of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head over to the ken.com slash podcast offer to experience us like a subscriber. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien. Do tell me what you think about the episode at Daybreak at the break at the the ken.com. It is t-he-he-k-en.com.