What Apple Gains From FDI Reforms?
Apple CEO Tim Cook’s recent India visit seems to have proved fruitful for the company. Apple has gained a lot from the major policy reforms of the Indian Government in Foreign Direct Investment (FDI). After the government cleared roadblocks, Apple is expected to open up exclusive retail outlets across regions and strengthen its service support for Apple lovers in the country.
Bringing major reforms in the FDI policy, the Indian government has allowed 100 per cent FDI in single-brand retail trading in the country among other sectors. The decision was taken at a high-level meeting under the chairmanship of Prime Minister Narendra Modi on Monday.
The new rules exempt foreign retailers for three years from a requirement to source 30 per cent of the goods sold in company-owned stores locally.
“It has now been decided to relax local sourcing norms up to three years and a relaxed sourcing regime for another five years for entities undertaking Single Brand Retail Trading of products having ’state-of-art’ and ‘cutting edge’ technology,” said a press release from the Prime Minister’s office.
Apple had approached the government to launch its own retail stores in the country and sought to be exempted from the local sourcing norms under the ‘state-of-art’ and ‘cutting technology’ category. While the Departments of Industrial Policy and Promotion (DIPP) had approved Apple’s application, it later got stuck with the Foreign Investment Promotion Board (FIBP) which struck down Apple’s claims for being exempted from local sourcing norms.
Interestingly, the norms have now been relaxed for products that are said to come with ‘state-of-the-art’ and ‘cutting edge’ technology. The new norm will allow single-brand retail trading and exemption from local sourcing norms for ‘state-of-the-art’ and ‘cutting edge’ technology with a waiver for three years, and the option to extend it for five years.
Apple’s Gains From FDI Reforms
The new reforms have given a green signal to Apple to expand its retail reach that had first applied for store licenses in this January. Apple currently sells iPhones, iMacs and iPads through its distribution network comprising of Optiemus, Brightstar, Redington, Ingram Micro and Bettel. With Apple enhancing its retail presence, it is also expected to benefit end users in terms of better after sales service support from the vendor.
Apple has been reportedly criticized for poor after sales services with its resellers refusing to offer services on products, especially those bought online. During his India visit, Tim Cook admitted that poor after sales support adversely impacting end users’ preference to Apple offering and also committed to resolve the issue.
To enable this, Apple is heavily concentrating on its retail strategy in India. The company has accelerated expansion in the last 18 months, including widening its retail reach to smaller shops. The company is expected to open Apple Stores in Delhi, Bangalore and Mumbai by 2017. With the company having direct presence in major metros and cities, Apple is expected to build its brand image with direct assistance to end users.
With Apple expanding its direct presence in the country, it is also expected to affect the pricing policies of the company. Apple has been remained a ‘class product’ due to its premium pricing. However, considering the downward trend in the sales, Apple might consider to make theirs offerings affordable for midrange market segment.
Why India Matters?
Since Apple has posted its first ever decline in iPhone sale and drop in revenue in Q2 of 2016, India has emerged as the new hope for the company. Surprisingly, while Apple revealed first ever drop at 9 per cent in iPhone sales, its India business grew by 56 per cent. Though iPhone currently holds only about 2 per cent market share in India, the company expects a double digit growth in coming years.
The Smartphone maker is also optimistic about the 4G rollout and its potential in the coming months. With telcos extending 4G networks across the country, Apple expects better network and broadband connectivity unleashing the power and capability of the iPhone.
The recent developments are very crucial for Apple as its two growth engines, China and US have stalled and India has emerged as the next growth destination for the company. Apple has not yet disclosed its marketing and distribution strategy, but all the company’s efforts are directed towards creating a brand presence which currently has less than two per cent market share, which is expected to boost further with its proposed plans to manufacture in India.