On September 25, 2014, Indian Prime Minister Narendra Modi announced the launch of his administration’s “Make in India” initiative, a national program intended to make India into a global manufacturing hub by encouraging both domestic as well as multinational companies to manufacture their products within India. To enact this vision, Modi’s government enforced strict regulations which provide economic advantages to local smart phone manufacturers and encourage international smart phone manufacturers to shift production to India. As part of the initiative, the Indian government raised the import tax rate on finished smart phones to as high as 29.44% as of 2016. In addition, Indian law was implemented requiring that single-brand retailers (such as Apple Inc.) source at least 30% of their components from India in order to open a retail outlet.
The “Make in India” initiative hopes that these regulations will coerce smartphone companies such as Apple to set up manufacturing facilities in India. In the context of increasing nationalist politics and related growth in protectionist economic policies, Apple and its competitors are being forced to decide how and to what degree they will rearrange their manufacturing supply chain to enter and grow in new markets. India is now the second largest smart phone market in the world (second only to China), with significant room to grow as less than a fifth of the Indian population owns a smart phone currently. These qualities make India a uniquely attractive market opportunity which may warrant the risks and difficulties which come with reworking a supply chain to satisfy protectionist policies.
Apple’s near-term India plan has been to sell its products through distributors such as Redington and Ingram Micro rather than attempt to satisfy the 30% component sourcing rule. This runs counter to the company’s global strategy of selling through company-owned retail stores in the US, Europe and China, and reflects the difficulties Apple has had in locating high quality Indian components manufacturers that meet the company’s standards. Apple’s near-term strategy has also included lobbying for special treatment from the Indian government, with the hopes of being at least temporarily exempted from the 30% local sourcing mandate until it can either locate domestic suppliers that meet its quality standards or build out its own Indian manufacturing capabilities.
While Apple’s near-term strategy shows resistance to the “Make in India” initiative, the company has announced that its long-term plan is to invest heavily in its Indian manufacturing capabilities in order to satisfy government regulations. This strategy follows that of its competitor Samsung, who announced it plans to more than double its manufacturing capacity in India by 2020. Huawei Technologies, the third largest smartphone maker in the world, also announced in 2016 that it will start manufacturing headsets in India.
As it pertains to the India market opportunity, I agree with the strategy taken by Apple both in the short term and in the medium term. In the short term, there is too great a risk to product quality and brand in partnering with subpar domestic component manufacturers just to satisfy government regulations. In the long term, however, the Indian market opportunity is too attractive to not make serious investment in Apple’s own Indian manufacturing capabilities and re-work the company’s manufacturing supply chain to satisfy the “Make in India” initiative. I would also encourage Apple to maintain its balanced effort of lobbying for special government treatment while at the same time making the investment needed to satisfy regulatory requirements. To give up its lobbying effort would signal to the Modi administration that it could hypothetically increase the local sourcing requirement beyond 30%.
On a global level, however, I would caution Apple management to not view the India strategy as a blueprint worth repeating should other less attractive countries also implement protectionist policies with the hopes of boosting local manufacturing. The attractiveness of the Indian smartphone market is unique both in size and expected growth, and therefore can be worth the risk to supply chain disruption. Should the current global trend in protectionism continue to grow, global companies such as Apple will need to decide on a case by case basis when supply chain disruption is or is not worth entering new markets.
Is producing an iPhone with Indian component manufacturers who may lack technological expertise worth the inherent risks to product quality?
Is spending years lobbying a country’s government for Apple-only supply chain exceptions worth the risk of delaying entry into a market or losing share to competitors?
 “About – Make In India”. 2017. Makeinindia.Com. http://www.makeinindia.com/about.
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