Mass Production of iPhones to Start in India(bloomberg.com) |
Mass Production of iPhones to Start in India(bloomberg.com) |
I as a customer am super glad this is coming along. Tired of paying a premium for Apple products in India. In addition to iPhones I seriously hope they start iPad manufacturing as well. IMHO iPads will probably have a better success rate in India once the prices reach parity with US.
Apple prices based on demand curves, not supply costs.
For example: a 64 GB iPhone X is currently selling for around 1100 dollars.
But that doesn't mean it will become affordable, Apple has positioned itself as a luxury brand & is said to have the largest markup among smartphone manufacturers.
Indians looking for cost/value will always have better alternative, but for those 'Who value themselves upon what others see in their hands' will burn lesser cash than before.
I might be wrong but, I think, OP might be referencing to the fact that phones manufactured in India are exempt from import tarrifs (cross trade avg of around 14%).
First of all $300M isn't a lot of money for this sort of operation. I guess it barely buys a good line of equipment, installed with an operable workforce, if that. Secondly, the amount of manual labour in iPhone assembly has to be pretty minimal with respect to margins. Can anyone enlighten us to the management situation?
I guess perhaps the true story behind the 'asserted' transition to an additional base in India includes other factors like: freeing Foxconn capital from China (currently their largest production base, with rising costs, a slowing market and perennial foreign exchange hassles), gaining additional internal production operations experience within a foreign non-'Chinese' (ie. Taiwan/China) environment, and cross-jurisdictional legal/tax/tariff/exchange rate hedging. (The US-China trade war has to have scared the pants off anyone in a consumer electronics this heavily.)
1. Logistics: Cheaper to ship to rich Middle east and maybe even Europe
2. Risk balancing: With uncertainty at political levels about tariffs and trade rules, it makes sense to distribute production to multiple places in the world.
3. New demand: Lower cost of production == lower prices in India. Apple has negligible penetration in the largest fastest growing market. This move is a bet to try to beat android competition in price and raise global demand for IPhones.
Honestly, this move is a no-brainer. The benefits are endless.
It is just the result of protectionism.
India is a huge market. So it‘s all good. Brazil is a good deal smaller and requires the same thing. So does Argentina (and is even smaller). Now imagine every country would do this.
Also how "complicated" is the manufacturing? Is it just lsat-mile assembling of all pre-made components shipped in from the US, China, Germany, et al. or the same technical processes and complexity that goes on in one of these Chinese plants that pump out the iPhone X, XS and XS Maxes?
Apple doesn't manufacture in the US as they are not forced to manufacture in the US. If they were, they'd make it happen and work-around any issues, just as they have in India.
Apple doesn't want to manufacture in India (via Foxconn) but the Indian regulations and government didn't budge which forced Apple's and Foxconn's hand. Result: Apple/Foxconn is now making iPhones in India.
If the US citizens stood up for their own interests more, then there would be a Made in the USA iPhone... perhaps more expensive than a China made one, but Apple may decide to absorb the margin hit to retain marketshare in their largest market.
[1] https://www.theverge.com/2019/1/28/18200330/why-apple-cant-m...
iPhones are a luxury product. A tax on imported high end electronics is a tax on the well-off. Not only that, it's the best kind - a tax that an end-user can choose whether or not they want to pay.
According to the latest market research [1] in China, IPhone are mostly used in China by undereducated people with relatively low income, people with decent education & job mostly use Android phones.
This is consistent with what I see on daily basis - almost all my friends & coworkers use MacBook Pro + Huawei/Xiaomi phone. If I try really really hard, I can probably eventually list 1-2 friends & coworkers who use iPhone, but like I said, I need to try hard to recall that.
[1] https://www.scmp.com/tech/article/2174310/research-highlight...
There was a time when the British destroyed the textiles trade in India and made everyone buy stuff made in Manchester. Before that India had 25% or so of the global market.
With a billion or so people living in the sub-continent there should be an indigenous mobile phone and eco-system that suits the market better than what Silicon Valley can provide. China can do it, Europe used to be able to do it. It is not as if India is short of highly educated software engineers. If, instead of everyone in India having an Indian mobile phone, everyone has an iPhone then everyone is going to be sending off a portion of their wealth off to Cupertino (even if that money ends up in off shore tax havens).
There are national security issues with this, regardless of how well Apple claim they are on the side of privacy. Just for sovereignty reasons the Indian government should be using heir own tech instead of providing incentives for Apple to set up shop.
why would it matter where you're sending a portion of your so-called "wealth" when you're getting something in return?
considering the horrific state India is in (high corruption, high poverty, low healthcare, no infrastructure, you name it), the location of where an iPhone is produced should literally be the last thing the government cares about.
maybe the value of the potential taxes are too much for the government not to stick their hands in?
At least in the context of the last few generations, this is not an unusual avenue to globalization. It's pretty much the template followed by auto manufacturing as it globalised, for example.
Rich countries as well, lot of pharma drugs sold in the US come from India.
And Rich people don't even care about the money. the 50-100 million rich people in india are least bothered about the price tag as long as it signifies luxury and status.
And rich by Indian standards doesn't mean they can afford to spend over $1000 on an iPhone: in India, a top 1% household earns only about $1000/month.
Its not about market size today, you have to look into the future as well.
Volkswagen, Mercedes-Benz and others are making essentially the same play. They must see a valuable enough market to warrant that kind of investment.
Every dollar that leaves India, Nigeria or any other developing country is one less dollar that can pay for jobs (plumbers, electricians, doctors etc) in the local market.
South Africa used to have very restrictive currency export controls partly due to apartheid-era sanctions, and one consequence is that it stimulated domestic production and innovation, perhaps far more than any other African country. They’ve now relaxed those controls but it is arguable that they were necessary at that stage of their economic development.
Perhaps the "wealth" you're sending and what you're getting back are qualitatively different and you have reason to prefer one over the other. Or even more simply, perhaps what you're getting in return isn't worth more than what you're giving. As an aside, in the philosophy of exploitation, it is entirely possible for exploitation to exist even if both the exploiter and the exploited benefit in some way in the transaction.
You missed jobs in that statement, Iphone factory brings jobs directly and indirectly in that region. Try looking at the big picture.
Tata now owns a whole slew of British auto companies in Jaguar/Land Rover. So, despite these horror stories of corruption, someone in the Indian auto sector is doing something right.
I don't see why, given the market size, that India can't have its own full stack of mobile phone tech, operating systems, apps and everything else. Why settle for crumbs from the Apple table? Why settle for a few jobs for the profits to go back to Cupertino? The Tata Steel example is proof that dreams don't have to be downsized and that countries have to be beholden to American corporations.
You may have the luxury to say that, lot of Indians dont. They need that job.
The goal is usually to encourage local firms to grow and compete, and sometimes that happens (e.g. Hyundai). But sometimes the local firms become complacent in their walled garden (e.g. Hindustan Motors).
Import duty on iPhones is 18% and 28% on iPads as of 2015. [2] Wealth inequality in India is pretty high (not as high as in the US, though, GINI 35.6 vs 40.4), and it's GDP per capita is just $1,939. Per your data, they're currently charging $1,100 which is a whopping 57% of GDP per capita.
My gut tells me reducing the price of a super-luxury good by 18% won't increase demand enough to make up for pocketing the 18% savings. That would be like pricing an iPhone at $33,000 in America. I can't imagine reducing the price to $27,000 would dramatically increase the number of buyers. Or a Rolex from $100K to $82K.
I guess we'll see!
[1] https://www.forbes.com/sites/chuckjones/2018/03/02/apple-con...
[2] https://www.labnol.org/india/custom-import-duties/19306/
The import tax in India is now 20%. Lets suppose Apple could increase market share in India to match that in China by reducing prices by the 20% tax, and compare that to keeping the 20% as extra profit but not increasing market share.
2% market share on 50% profit margin (existing 30% margin plus tax margin of 20%) sounds pretty good. However 30% profits on 7% market share yields more than double the overall profits.
Finally, all the arguments you make for charging more apply equally well anywhere in the world. So why doesn't Apple charge India prices everywhere in the world already? A simple argument that increased profit margin always beats higher sales implies that the perfect price point is infinity. At some point this strategy must yield diminishing returns.
They kind of do, except they're slowly easing into it. First iPhone was 499 USD for the base model. iPhone X was 999 USD for the base model.
So over 10 years, they slowly raised their prices 100 %.
Quite a few countries have car industries which work roughly like this -- the local VW plant will cost twice as much to run (per car) as the mothership, roughy matching a 100% import tax. (Although in reality there is often more to the story, like producing exactly one model there & exporting those for credit against imports...)
Then there is 12% tax on top of that.
That isn't right. The iPhone X costs (just under) 1,00,000 INR retail in India, which is over 1400 usd.
This includes taxes.
For reference: https://www.flipkart.com/mobiles/apple~brand/pr?sid=tyy,4io&
I live in Sweden, and the pricing will go like this:
- The US: $999
- The EU: €999
- Sweden: 9900 SEK
Depending on currency rates, it can become up to 30% more expensive.
My favorite discovery was around the time of the trashcan MacPro. It was cheaper to fly to New York, buy the Mac, and fly back than to buy one in Sweden. And you would still have money left over.
It makes no sense comparing US and EU prices directly, as the former are always shown without VAT (which varies state from state), and in the latter the VAT is included (which is specific to each country).
Also, price will fluctuate even across EU countries, on account of different VAT taxes in the individual member states, so that Apple "keeps the same digits" it is simply not true, as a rule:
iPhone X 64GB USA(no VAT): 999$ https://www.apple.com/us_kiosk_5000012/shop/buy-iphone/iphon...
iPhone X 64GB Italy (VAT 22%): 1189€ https://www.apple.com/it/shop/buy-iphone/iphone-xs
iPhone X 64GB Spain (VAT 21%): 1159€ https://www.apple.com/es/shop/buy-iphone/iphone-xs
The only way to compare them is to remove VAT, for example in the case of Italy:
1189/(1+0.22)= 974€ -->> 1100$ (current exchange rate).
So, there is about 10% difference, which could be (partly) accounted for due to the different warranty requirements in EU.
EDIT: Fixed math
US price has no sale tax (which varies per state and county)
To sum up: if you find the goods at any retailer in the EU, buy them online and pay for the delivery - for light products (electronics), the shipment costs are low when not 'free'.
[0]:https://www.amazon.de/Apple-iPhone-X-64GB-Space-Grau/dp/B075...
They do not always use the round numbers.
>>but the price is to be a bit higher due to VAT diff.
Sweden has 25% which is pretty high, compared to the 19% Germany.
That's why you get certain allowances of how much you are allowed to bring back with you - say up to 200 cartons of cigarettes are free to bring over and that's clearly not something that you brought with you.
I'm afraid 'Apple charges more abroad' is largely a fallacy. Where there is a difference, it's almost always pretty clearly due to local taxes or costs of doing business. This used to really piss off Steve J[1] because he saw it as terribly unfair.
[1] https://www.imore.com/steve-jobs-international-ipad-pricing-...
If you factor in sales tax on the US side, you also have to factor in VAT on the EU side, since they are equivalent.
So that 10% difference is correct.
VAT ranges from 17% to 27%.
If you travel to the USA for a week and buy something, that's subject to import duty.
> Other goods (including perfume, coffee, tea, electronic devices etc.)(a) - Up to a value of €430 for air and sea travellers
Of course things you owned, left the country and are returning with are exempt.
Import Duties apply to items purchased while outside the country and that you are returning with.
If you were away long enough to establish residency, there are usually exemptions to items of personal property you are bring back with you.
The duty-free allowance is different for every country, but in Germany for example it is around 450€ per person (the exact number escapes me). Any goods you return with in excess of that amount is subject to duty.. Some items you return with are always subject to duties.
In Germany for example, they very much will check for this and enforce it.