Apple’s McDonald’s solution?
After spending $1 billion to buy long-term access to the Chinese consumer market, Apple must be wondering how much a retail presence in India will cost.
The U.S. company wants to open its own stores in the country. Doing so would allow Apple to better promote iPhones, and control the sales and service experience amid a flood of cheaper alternatives. Indian law requires such single-brand stores to procure at least 30 percent of a product's components locally. Companies with cutting-edge technology can get a waiver, but India's Foreign Investment Promotion Board has decided that Apple doesn't meet that benchmark, Bloomberg's Siddhartha Singh and Saritha Rai reported Tuesday.
The reasoning is straightforward. The government wants to boost the economy and limit the amount of money flowing out of the country via local shopfronts. The size of the check Apple needs to write would therefore, in theory, be equal to the amount of money India expects to keep locally. Let's do the math. Apple's iPhone sold for an average $671 globally last year and corporate gross margin was 40.1 percent. So the manufacturing cost of an iPhone is $402. This doesn't take into account operating expenses, but it's a good a place to start.
IPhone sales in India -- now the world's second-largest smartphone market -- surpassed 2 million devices last year, according to Counterpoint Research. That gave it a 2 percent share in the country, well outside the top five. Unit sales work out to a wholesale value of $804 million, assuming Indian average prices are in line with the global average, which isn't likely. Based on these figures, the 30 percent requirement would be equivalent to $241 million. That number is based on a number of assumptions, and doesn't take into account future growth of the market or Apple sales, but is a starting point for how much money India should expect to reap from letting the U.S. company operate its own stores. It also indicates how much Apple should be expected to contribute to the Indian economy. Manufacturing is the obvious route, and for some brands such as Burberry, Bulgari or Ikea, it may be the only path.
