India’s finance minister has ratified a decision that Apple Inc must meet local sourcing rules to open its own stores, according to people familiar with the matter, dealing what might be a fatal blow to the iPhone maker’s effort to open retail outlets in the country.
Indian Minister of Finance Arun Jaitley decided to support the decision by India’s Foreign Investment Promotion Board (FIPB) that Apple would have to procure 30 percent of components locally if it wants to sell through its own retail stores, said the people, asking not to be identified because the matter is private.
The company makes most of its products in China and does not currently meet that criteria.
Apple chief executive officer Tim Cook went to India last week for the first time as he seeks to capitalize on the market’s prospects and revive his company’s growth.
India has become the world’s fastest-growing smartphone market, with 1 billion devices forecast to be sold over the next five years. Apple has little market share in the country now, as consumers opt for less expensive devices from rivals such as Samsung Electronics Co and Micromax Informatics Ltd.
The finance minister’s decision could still be overturned, but that might require intervention from Indian Prime Minister Narendra Modi.
“The government’s decision will have a pretty profound effect on Apple,” said Neil Shah, research director at Counterpoint Research. “The company typically likes to control every piece of the iPhone value chain right from sourcing components to the point of sale. Having complete control has been key to its strategy.”
India seeks to encourage companies to make products in the country as part of its industrial policy, aimed at reaping the benefits that come from manufacturing facilities and jobs. It does not want technology companies to sell products and take advantage of its vast consumer base without making their own capital investments.
India can provide waivers to the manufacturing rules for cutting-edge technology companies. However, the FIPB decided it cannot certify Apple for that exception, people familiar with the matter said.
Apple currently sells its iPhones and iPads through franchisees as well as the retail units of India’s biggest conglomerates Tata Group and Reliance Industries Ltd. Still, its devices are priced far beyond the reach of average citizens. More than 80 percent of phones sold in the country cost less than US$150, while the cheapest new iPhone from Apple is the four-inch iPhone SE at 39,000 rupees (US$577).
“Apple has to continue retailing in India through a variety of avenues like premium resellers, online retailers and multi-brand stores,” Shah said. “The multi-brand stores, for example, can steer customers away from costly iPhones to less expensive, but high-margin brands.”
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