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Apple Now Has a Better Chance at Succeeding in India

By Harsh Chauhan – Aug 7, 2017 at 9:42PM

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A new tax regime and better distribution can drive Apple's sales in this fast-growing smartphone market.

Apple (AAPL -1.05%) has struggled to crack the Indian smartphone market so far thanks to weak distribution and premium pricing. The iPhone-maker had previously missed its projected sales target in this market by a wide margin, but recent developments could turn the tide in its favor.

Let's take a look at what has changed for Apple in India and why its chances of making a bigger dent in the Indian smartphone market have increased of late.

The iPhone SE in different colors.

Image Source: Apple 

Apple is set to boost its reach in India

Apple is reportedly in talks with HCL Infosystems, which is an India-based provider of distribution and information technology services. A regulatory filing by HCL in December last year revealed that it had entered into a non-disclosure agreement with Cupertino to distribute Apple's devices in the Indian market.

In February, HCL responded to a request for proposal from Apple to sell its products in the Indian market. Though no definitive agreement has been reached yet, a possible relationship could substantially boost Apple's retail presence in this fast-growing smartphone market. As it turns out, HCL already has agreements with the likes of Motorola, Lenovo, Nokia, and others to distribute their products in India, and has built up a solid base of 13,000 retail points across the country.

Apple's retail presence in India will be greatly enhanced if it pens a deal with HCL. Apple understands it needs to focus on improving the offline sales channel in India -- which accounts for 68% of total smartphone sales in the country.

Apple currently sells around 55% of its products through the online channel in the Indian market. So, it needs to aggressively enhance its physical presence to counter the growth of Chinese smartphone brands that have taken India by storm.

Furthermore, Apple's stronger retail presence in India will help it take advantage of its improving brand equity over there. A Kantar Worldpanel study reveals that Apple is now the second-most preferred smartphone brand in the country after Samsung. More specifically, Apple's brand preference in the Indian market now stands at 15%, which is significantly higher than the 7%-8% brand preference for Chinese OEMs (original equipment manufacturers).

Over half of smartphone owners in India are expected to upgrade their devices in the next one year, so the time is ripe for Apple to boost its presence.

The new tax regime can also push sales

The Indian government recently rolled out the goods and services tax (GST), which has reduced the tax burden on certain items. Apple has decided to pass on the benefits of this new taxation scheme to its customers by cutting prices across all product lines.

The result is a 4%-7.5% reduction on iPhone prices in India after GST implementation. Customers can now buy the 32GB iPhone SE model for just over  $400 (INR 26,000 at the current exchange rate) from Apple resellers, while the online price is lower at $355 (INR 22,799 at the current exchange rate).

Apple's revenue from the region reportedly jumped over 20% during the first quarter of 2017 as per Kantar's estimates. The price cuts could potentially give Apple's sales a big shot in the arm in India going forward.

Consumer spending in India increased 3.7% during the first quarter of 2017. Trading Economics forecasts that consumer spending in India could jump another 13.6% over the next three years, which is a green flag for Apple's growth as customers should continue to become less price sensitive and buy high-end iPhones.

The Foolish takeaway

The smartphone market is currently booming in India as device penetration increased  16% during the first quarter of the year. Compare this to global smartphone growth of just 3% and it's easy to see why the iPhone maker is honing in on the market. India could turn out to be a very important market for Apple, and the recent developments can set the wheel for Cupertino's growth in motion in the country.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

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