{"id":24289,"date":"2017-11-15T17:07:59","date_gmt":"2017-11-15T22:07:59","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/an-iphone-made-in-india-should-apple-accommodate-indias-protectionist-agenda\/"},"modified":"2017-11-15T17:07:59","modified_gmt":"2017-11-15T22:07:59","slug":"an-iphone-made-in-india-should-apple-accommodate-indias-protectionist-agenda","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/an-iphone-made-in-india-should-apple-accommodate-indias-protectionist-agenda\/","title":{"rendered":"An iPhone Made in India: Should Apple Accommodate India\u2019s Protectionist Agenda?"},"content":{"rendered":"

On September 25, 2014, Indian Prime Minister Narendra Modi announced the launch of his administration\u2019s \u201cMake in India\u201d 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.[1]<\/a> To enact this vision, Modi\u2019s 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.[2]<\/a> 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.[3]<\/a><\/p>\n

The \u201cMake in India\u201d initiative hopes that these regulations will coerce smartphone companies such as Apple to set up manufacturing facilities in India.[4]<\/a> 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.[5]<\/a>\u00a0These 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.<\/p>\n

Apple\u2019s 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.[6]<\/a> This runs counter to the company\u2019s 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\u2019s standards. Apple\u2019s 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.[7]<\/a><\/p>\n

While Apple\u2019s near-term strategy shows resistance to the \u201cMake in India\u201d 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.[8]<\/a> This strategy follows that of its competitor Samsung, who announced it plans to more than double its manufacturing capacity in India by 2020.[9]<\/a> Huawei Technologies, the third largest smartphone maker in the world, also announced in 2016 that it will start manufacturing headsets in India.[10]<\/a><\/p>\n

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\u2019s own Indian manufacturing capabilities and re-work the company\u2019s manufacturing supply chain to satisfy the \u201cMake in India\u201d 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%.<\/p>\n

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.<\/p>\n

Open Questions<\/strong><\/p>\n

Is producing an iPhone with Indian component manufacturers who may lack technological expertise worth the inherent risks to product quality?<\/p>\n

Is spending years lobbying a country\u2019s government for Apple-only supply chain exceptions worth the risk of delaying entry into a market or losing share to competitors?<\/p>\n

[1]<\/a> “About – Make In India”. 2017. Makeinindia.Com. http:\/\/www.makeinindia.com\/about.<\/p>\n

[2]<\/a> BGR India. 2016. “Government Rolls Back 29.44% Import Duty On Mobile Phone Components\u201d 9th May, 2016.<\/p>\n

[3]<\/a> https:\/\/9to5mac.com\/2016\/05\/25\/report-indian-government-rules-apple-must-sell-30-locally-made-goods-to-open-retail-stores\/<\/p>\n

[4]<\/a> Miller, Chance. 2017. “Report: Indian Government Rules Apple Must Sell 30% Locally Sourced Goods To Open Retail Stores”. 9To5mac. https:\/\/9to5mac.com\/2016\/05\/25\/report-indian-government-rules-apple-must-sell-30-locally-made-goods-to-open-retail-stores\/<\/p>\n

[5]<\/a> Venkatraman, Shriram. “Apple and the Smartphone Market in India.” Blog post. UCL: Social Networking Sites and Social Science Research Project. 6 May 2016. 15 Nov. 2017. ACI Scholarly Blog Index. Web.<\/p>\n

[6]<\/a> Apple plans to make in India. (2017, Jan 03). Global Data Point.<\/p>\n

[7]<\/a> \u201cNot possible to extend concessions to apple under GST regime\u201d. (2017, Oct 09). Businessline.<\/p>\n

[8]<\/a> Agarwal, S. (2017, May 24). Apple makes govt a promise, gets leeway to make in india economy: Macro, micro & more]. The Economic Times.<\/p>\n

[9]<\/a> Aulakh, G. (2017, Jun 06). Samsung’s make in india ringtone gets louder the economic times]. The Economic Times.<\/p>\n

[10]<\/a> Nikkei Asian Review. 2016. “Lenovo, Xiaomi Boost India Smartphone Market Share” 17th<\/sup> November, 2016.<\/p>\n","protected":false},"excerpt":{"rendered":"

The “Make in India” initiative is forcing smart phone manufacturers such as Apple to consider disrupting their supply chain in order to better access the second largest smart phone market in the world. 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