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Is Apple’s China dream over as it bets on India manufacturing plan?

Apple seems to be growing more frustrated with the rising labour costs in China as it looks to slowly shift its manufacturing base from China to India.

business Updated: Jan 25, 2017 20:04 IST
Anirban Ghoshal and Sanjeev K Ahuja
Anirban Ghoshal and Sanjeev K Ahuja
Hindustan Times
Apple seems to be growing frustrated with the rising labour costs in China as it looks to shift its manufacturing base to India.(HT Archive)

Apple seems to be growing frustrated with the rising labour costs in China as it looks to shift its manufacturing base to India.

“The iPhone-maker is betting big on India as it faces rising employment costs in China. Hence today they presented their manufacturing plan to the government,” a source said adding that the government is yet to take a decision on the issue.

However, the official said that the iPhone-maker was betting on India because of low-cost labour and has said that it wants to shift its manufacturing base despite China’s offer of bigger incentives.

Earlier, in an earnings call Cook has said that he was hopeful of turning around India into the next China for Apple. “Our iPhone sales in India were up over 50% in 2015-16 compared to the prior year, and we believe we’re just beginning to scratch the surface of this large and growing market opportunity.

“Looking ahead, we’re seeing some very exciting developments in India. Reliance Jio is rolling out a first-of-its-kind all-IP network in India with 4G coverage in 18,000 cities and 200,000 villages across the country. They’re offering a free year of service to purchasers of new iPhones and we’re partnering with them to ensure great iPhone performance on their network.”

Apple includes India in its Asia Pacific region, which reported $2.7 billion in sales during the quarter. iPhone sales in China, which slowed down 30% during the July-September quarter, have failed to make a mark in the company’s balance sheet lately.

Overall, the company’s sales declined 9% to $46.85 billion in the three months to September – the third consecutive quarterly fall. The sales fall hit the company’s quarterly profits, which came in at $9 billion - a 19% decline on the same period a year earlier. For the year to September 2016, the iPhone maker reported its first decline in annual sales and profit in 15 years. Net sales stood at $215.6 billion during the period under review, an 8% decrease on the record $233.7 billion of sales in the previous year. Profits declined 14% year-on-year to $45.7 billion during the period.

Apple is expecting India to plug the declining sales. “I think it’s clear that the population of India will exceed China sometime in probably the next decade or so, maybe less than that. If you sort of look at the number of people who are or will move into the middle class sort of over the next decade, and the age of the population… if you look at India, almost 50% of the population is under 25,” Cook said.

“There are enormous investments going in on 4G and we couldn’t be more excited about that because it really takes a great network working with iPhone to produce that great experience for people… I see a lot of the factors moving in the right direction there.”

In India, Apple has a long list of demands before it starts manufacturing. “Apple has been asking for a lot of sops that includes freight subsidy as the country has logistical issues, continuation of differential duty on mobile handsets and components manufacturing even when the GST regime comes in and income tax holiday in the country just as China or Vietnam offers,” an industry expert told HT, adding that “exports should be made a top priority by enhancing sops under merchandise exports from India scheme (MEIS) from 2% to 5%.”

A government official said that Apple wants the higher exemptions because “there are not many high-end phone-component makers in India to buy from.”

“The company will have to manufacture the components in India, and it has to meet international standards.”

First Published: Jan 25, 2017 20:04 IST