Anti-China Sentiment Could Unlock A Big Opportunity For Apple In India

The call for boycotting Chinese goods in the Indian market has gained a lot of steam in recent weeks on account of the novel coronavirus pandemic and a border dispute between the two countries. This could give the likes of Apple (NASDAQ:AAPL) an opportunity to make a bigger dent in the country's smartphone space, which is currently dominated by Chinese OEMs (original equipment manufacturers).

The good part is that Apple could already be taking steps to bolster its position in the Indian market to widen its reach, and the anti-China sentiment could turn out to be yet another tailwind for the company. Let's see why.

Chinese phones dominate the Indian smartphone space

According to data from Counterpoint Research, Chinese phones are dominating smartphone sales in India. Xiaomi controlled 30% of the market at the end of the first quarter of 2020. Fellow Chinese manufacturer Vivo was second with a 17% market share. Samsung came in third with a 16% share, down significantly from the prior-year period's share of 24%.

Chinese manufacturers Realme and Oppo were the last two entries on the list of the top five smartphone OEMs in India, with a combined market share of 26%. So, Chinese companies accounted for nearly three-fourths of smartphone sales in India in Q1 2020.

The reason why Chinese manufacturers hold such great sway over the Indian smartphone market is because of their ability to deliver well-equipped phones at aggressive price points. As a result, they continue to sell well in India despite the anti-China sentiment, as they offer consumers good value for money when compared to the likes of Samsung or Apple. After all, the average selling price of a smartphone in India is expected to hit just $170 this year.

Not surprisingly, the iPhone is considered an aspirational purchase in India. It dominates the premium smartphone segment in that country. The good part is that Apple has taken a step to move down the value chain to bring more Indian consumers into its ecosystem with the latest iPhone SE.

But Apple blundered by pricing that device at a substantial premium, thanks to import duties and a weak Indian rupee when compared to the international market. Local manufacturing is the only way Apple can price its phones aggressively in India to take away share from Chinese OEMs. There have been rumors that the company could start making the iPhone SE in India to bring down the price. And now, the latest chatter indicates that Apple is looking to broaden its manufacturing footprint over there.

Apple contractor could move some manufacturing from China to India

The Indian government has been wooing companies looking to move their manufacturing out of China, and Foxconn could be making the jump, according to a Reuters report. The Apple contractor is expected to inject $1 billion in India to boost its manufacturing facilities and add around 6,000 jobs over the next three years.

Such a move could help Apple to substantially reduce the price of its phones in India, as it currently pays huge duties for importing assembled units. The basic duty on an imported smartphone in India stands at 18%. But after adding other charges and taxes, Apple could probably be paying around 30% in duties.

Not surprisingly, the iPhone SE retails at almost $565 (or 42,500 Indian rupees) in India as compared to $399 in the U.S. -- a difference of around 40%. The 64GB variant of the iPhone 11 is sold for just over $908 (68,300 Indian rupees) on Amazon as compared to $699 in the U.S., a difference of nearly 30%.

The Indian government has set up a production-linked incentive plan worth $54 billion. This will only be available to five global smartphone makers making devices with freight on board value of $200 over the next five years. So, it is not surprising to see why Foxconn has committed a big amount to beef up its manufacturing over there.

At the same time, the Indian government seems to be curbing imports of components used in making Chinese smartphones. As a result, Chinese smartphone manufacturing facilities in India are reportedly operating at just 20% capacity.

In all, the time seems ripe for Apple to expand its presence in the Indian market, where it currently holds just 1% share, especially considering that the 5G revolution is yet to arrive in the country. Sales of 5G smartphones are expected to account for just 1% of total shipments in India this year, but they could rise to 144 million units by 2025.

Apple could win big if it can take advantage of the anti-China sentiment in India by boosting its manufacturing footprint and lowering prices, which could eventually lead to a bump in sales.

This article originally appeared in the Motley Fool.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Apple and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.