Nimish Sawant

Apple iPhones will be made in Karnataka. The government of Karnataka on Thursday said that it welcomed a proposal from Apple Inc to begin initial manufacturing operations in the state, in a sign that the tech company is slowly moving forward with plans to assemble iPhones in the country.

“Apple’s intentions to manufacture in Bengaluru will foster cutting edge technology eco system and supply chain development in the state, which are critical for India to compete globally,” the government of the south Indian state said in a statement.

While no deal or memorandum of understanding has yet been signed, it is being said that Apple will go ahead with contract manufacturer Wistron to make iPhones in the country. The plant is being set up in Peenya, on the outskirts of Bengaluru.

Has Apple got its way?

Apple has declined to comment on the opening of the new Wistron plant in Peenya, which would assemble iPhones. However, after the 25 January meeting with government and DIPP authorities, Apple had this to say: "We've been working hard to develop our operations in India and are proud to deliver the best products and services in the world to our customers here. We appreciate the constructive and open dialogue we’ve had with government about further expanding our local operations."

Apple had a lot of 'demands' going in. Some of these included, wanting an indefinite exemption from the 30 percent domestic sourcing rule, it would only make iPhones for the Indian market, among other things. At this point it is not clear if any one or all of these demands were fulfilled. We hope none of them were, as we have argued in the past how it would set a bad precedent and why Apple needs India more than the other way round.

Officially there is no data out on what has been agreed upon. "There is still no clarity on what has happened with the demands yet. But one thing is clear: India is now a very critical market for Apple. So as much as Apple needs India to increase its bottomline, India also has got a great value proposition with Apple coming here. It will give a boost to the 'Make in India' program and increase its credibility on a global platform," said Tarun Pathak, senior analyst with Counterpoint Research.

Pathak says however that it is unlikely that the government must have agreed to all of Apple's demands as there are around 40 other companies as well who make in India.

"While there is no clarity on the matter, there is absolutely no intent to give waivers in complete to Apple," says Sanchit Vir Gogia, chief analyst at Greyhound Research. "There may be some waivers, sure. But the government's focus is the need to offer a level-playing field to all participants," said Gogia.

Anshul Gupta, research director at Gartner also echoes the sentiment that there is no incentive for the government to favour Apple over others.

"There could have been demands which could make sense for the government to accept for the benefit of the entire device market, not for Apple alone. They might have come up with some fair arguments, but that's a different thing," said Gupta.

Should other smartphone makers feel the heat?

"Absolutely, they have all the reasons to feel threatened," said Gogia. According to Gogia, most of the local assembling units are not that sophisticated, and an iPhone assembling unit will have state of the art technologies which could change things.

"What could happen is that the component manufacturers who were earlier supplying to other manufacturers, will start focussing on Apple. This factor of exclusivity between component manufacturers can become very high with Apple coming in," said Gogia.

Pathak of Counterpoint Research believes that there shouldn't be much of an effect on other smartphone makers in India, as they have been around for a while now. "Apple is immune to competition, so in that sense it shouldn't pose as a challenge to other smartphone makers here," said Pathak.

Gupta sees no reason why Apple coming to India would threaten other smartphone makers in any way. "Apple's volumes are very low as compared to other smartphone makers here. So whatever demand they will have, can never exceed the supply. Currently, it is a small market for Apple and investments are happening looking at the future. And of course, to minimise the cost." said Gupta.

Lead analyst for Mobile phones at IDC, Jaipal Singh says that the average selling price for an Android phone is $130 whereas that for an Apple iPhone is $400. "So Apple will be competing in a particular segment and would not a big threat for vendors who are focusing in the entry and mid-level segment," he said.

Ecosystem benefits

Most of the people we spoke to agreed on the fact that Apple making iPhones in India, would certainly give a boost to the creation of an eco-system here in India.

According to Gogia, the ecosystem does exist in some fashion in India. "I think it would be fair to say that the ecosystem will have more opportunities and hence become stronger. But it would be wrong to say that the ecosystem will come because of Apple."

Currently, most of the smartphones made in India basically focus on assembling the components imported from other countries. There isn't a thriving ecosystem of component makers in all areas that exists in India. "As the demand grows and as assembling plants keep growing, definitely component manufacturers will also be attracted to this market. That ecosystem will slowly build up," said Gupta.

Pathak said that the creation of ecosystem will happen in a phased manner, over a period of around five years. According to the findings of a study conducted by Counterpoint Research and IIM Bangalore, the next phase of 'Make in India' will focus on making mobile phone components taking that market to around $15bn over the next five years.

Additional secretary DeITY had said, "During the last 18 months, 40 new mobile phone assembly units and 12 new component/ accessory manufacturing units have started in the country as part of Digital India initiatives. But mobile phones itself have potential to create electronic manufacturing to the tune of over $250bn industry."

According to Singh it would be too early to say if Apple coming to India would lead to the formation of an ecosystem of component manufacturers. "The mobile manufacturing is at very nascent stage confined till assembling of parts and depends largely on China for components import. However, it will surely boost the confidence of ecosystem. Apple’s entry into local manufacturing will start the conversations, some will start exploring India as a possible hub for mobile manufacturing. But it will take few years to staging till components manufacturing," said Singh.

The creation of ecosystem will also give a boost the job creation in not just Bengaluru but other parts of India as well.

"Karnataka will of course be a big beneficiary, but component markets are spread out all across India, so it would mean job creations in those markets as well. They may have a liasion office in Karnataka, but job creation would not be limited to Karnataka," said Gogia.

According to Gupta, the jobs creation rate will slowly go up and not see a sudden increase. He feels that it is in India's interest to attract players such as Apple to make in India, as this would make the manufacturing base grow, add more vendors and also boost the job market. It would add manufacturing, to the list of income generators in India alongside IT and Services.

As to when the first made in India iPhone will come out and when the assembling of iPhones will begin in India, only time will tell. We have reached out to Bengaluru IT minister Priyank Kharge, and will update the story when we hear back.