Business

Tim Cook of Apple is Here and There’s More on His Plate Than Mac in India

The Apple CEO’s goal could also be about demystifying the company while making it more accessible to the government, the country’s tech ecosystem and Indian consumers.

Apple CEO Tim Cook. Credit: Mike Deerkowski/Flick CC 2.0

Apple CEO Tim Cook. Credit: Mike Deerkowski/Flick CC 2.0

New Delhi: If one goes by the media blitz surrounding Tim Cook’s India visit, the Apple CEO is a man on a mission.

The company reportedly plans on clinching a deal with the Maharashtra government to set up a massive iPhone manufacturing plant, laying the ground-work for three new Apple stores in various metros, grappling with government officials over the setback to its iPhone refurbishment strategy, inaugurating a new development centre in Hyderabad, launching a start-up accelerator and nudging India’s telecom titans into speeding up their 4G-LTE rollout plans.

And oh, he’s probably going to want to squeeze in a little time for sightseeing too.

Apple’s focus on India, which has always been explicitly referred to in the company’s quarterly earnings conference calls over the last five years but never followed up seriously in terms of action until now, has been a topic of debate over the past few months. The general consensus is that with the China region slowly hitting a saturation point (especially when it comes to upgrade cycles), Apple is hoping that India will naturally become its next biggest source of growth. Unfortunately for Apple, not only does India look a bit like how China did in 2005 in terms of GDP per capita, it also currently has a lot fewer people who can afford an iPhone when compared to China.

Which brings us back to Cook’s visit to India. Let’s address the company’s objectives one by one. Firstly, Apple’s run-ins with the government (both positive and negative), which are solid aspects of the company’s India charm offensive, and which desperately require resolution and Cook’s attention.

Government run-ins

The company’s refurbishment strategy was its way of retaining high margins while selling more iPhones to Indian consumers. The plan was simple: Take the iPhones that American consumers trade-in every year as they upgrade to newer models, refurbish those phones, and then ship them off to developing markets where they can be sold at a cheaper place.

Unfortunately for Apple, the telecom ministry threw a wrench in these plans. There are two possible reasons for the rejection of Apple’s proposal, both of which are not overly convincing. The first, which has been put forth by the Android smartphone maker lobby, is that it would lead to a growing amount of electronic waste. The second is that it would undermine Prime Minister Narendra Modi’s ‘Make-in-India’ campaign.

Nevertheless, if Apple wants to start making serious inroads, its refurbished iPhone strategy is a strong pillar. How does Cook plan on convincing Modi? What may tip the scales in that conversation will almost certainly involve Apple’s other issue with the Indian government.

There have been a number of indicators that Apple is planning on opening a manufacturing plant in Maharashtra. How much sense does a Make-in-India iPhone plant make? It’s certainly a little puzzling when one considers that the company was allowed to open its retail stores without having to adhere to the 30% sourcing norm rule – after all, if Apple is planning on making its phones in India, wouldn’t it be able to easily satisfy that rule? Especially when one considers that apart from accessories, Apple sells only four major products (iPhones, iPads, Macbooks and the Apple Watch)?

Leaving that aside for a moment, how much business sense does it make for Apple to set up an iPhone assembly plant in India? Local manufacturing set-ups help in bringing down product costs, increasing product localisation and in catering to huge demand more efficiently. While India’s import duties on electronic items are definitely high, which could be reduced by manufacturing locally, the expensiveness of an iPhone mostly stems from the company’ appetite for sky-high margins. On similar lines, product localisation isn’t how Apple operates and the demand for iPhones in India doesn’t nearly justify a plant by itself.

An export strategy is an option, and perhaps a combined manufacturing-Apple Store retail plan is what will make it work if the plant is set up in 2017.

Ambani, Mittal and Cook

There are some who doubt Cook’s visit to India is about ‘Make-in-India’, most notably the Economic Times, which ran a curiously un-bylined story titled ‘The Real Reason Why Tim Cook is Heading Here and it Has Nothing To Do with Make-In-India’.

The story primarily addresses why Cook plans on meeting India’s top telecom industrialists – Airtel’s Sunil Bharti Mittal and Reliance Jio’s Mukesh Ambani. The angle here is one that was first brought up by Cook during the company’s most recent earnings call with analysts and investors. Simply put, Cook apparently believes that the slow 2.5G and 3G networks of India don’t “unleash the power and capability of the iPhone.” With 4G-LTE mobile internet speeds being rolled out by Reliance and Airtel, Indians will realise what an iPhone can do and then presumably head to the nearest Apple Store and purchase one.

Cook’s argument has been repeated ad nauseam by a number of commentators and analysts. Unfortunately, this argument isn’t airtight: many of the more popular applications that Indian smartphone users use (Facebook/Social Networking, Uber/Ola) work just fine with lower internet speeds. But more importantly, Apple’s secret sauce rests on its impeccable hardware and the way it gels with the company’s iOS software; not the difference between a 3G and 4G connection. While 4G-LTE is a small piece of the puzzle, the price of an iPhone is by far the biggest factor affecting purchase decisions.

Development centres, start-up accelerators and more

From business strategies and wireless infrastructure, Apple has moved on to tapping India’s intellectual talent. The company plans on opening up a development centre in Hyderabad that will focus on “digital maps development”. Apple Maps, while getting better, was an unmitigated disaster when it first launched. It was part of a series of fumbles that underscored the concerns surrounding the company’s software development capabilities.

The Hyderabad development centre, however, is a curious development. Unlike other Silicon Valley companies like Google and Microsoft, Apple has largely kept its white-collar and software development workforce limited to the US (California primarily, with a few teams in Austin and Boston). Does Apple plan on hiring a new team or relocating a part of its existing Apple Maps team from the US to India? Or is it about providing space to a potential acqui-hire?

Its other plan is a little more puzzling and is very similar to its position on 4G-LTE. According to multiple reports, Apple will open a start-up accelerator which will presumably encourage developers to create India-specific apps.

In order to realise just how surprising this sounds, it’s important to understand that Apple very rarely involves itself with start-ups. It doesn’t acquire them; the company by and large does very few acquisitions when compared to Google and Microsoft. It doesn’t operate a separate venture capital arm that looks out for its parent company’s interests. It doesn’t even partner and work with other companies in the pursuit of mutual goals.

Like the 4G-LTE argument, does Apple believe that India-specific smartphone applications will boost iPhone sales? Or that the Android-first development strategy that most Indian app developers take is truly hurting its ecosystem?

Whither Apple?

It is certainly possible that each of these individual steps – the new Apple Stores, the iPhone plant, the Hyderabad development centre, the 4G-LTE rollout and the start-up accelerator – will help in moving the sales and profit needle for Apple. What also seems plausible is that Apple’s charm offensive is just that – an attempt at having the company engage more closely with the government, with India’s start-up and software development ecosystem and with the country’s consumers.

Google and Microsoft have over the last two decades done the same, helped of course by the general ubiquity of their products and software. These two companies have set up massive development centres that tap into India’s talent. They engage regularly with various state governments and Central government departments (even if it isn’t always under the best of circumstances). They, both as a corporate presence and through specific employees like Rajan Anandan,  also play influential roles in India’s start-up ecosystem as venture capitalists and mentors.

While Apple may have had the most well-known human face in the form of its former CEO Steve Jobs, in India the company doesn’t register a very human presence. This isn’t to say that Apple is planning on dropping its well-documented shroud of secrecy in India. The company’s India head is unlikely to start giving media interviews or commenting on developments in India the way Microsoft’s senior management does. But engaging a little more with the Indian market is unlikely to hurt. Looked through this perspective, the meetings with Reliance/Airtel, the Hyderabad development centre and the start-up accelerator programme make more sense.

While some of the more significant parts of Apple’s strategy – the retail stores, the refurbishment strategy and the Apple plant – will position the company more aggressively in the smartphone market, Cook’s visit may ultimately be about establishing its corporate presence in India.