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Apple's iPhone Plans in India Remain Stalled

By Adam Levy - May 11, 2016 at 3:37PM

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Apple failed to get approval to sell refurbished iPhones in India.

Image Source: Apple.

iPhone sales make up just 2% of the smartphone market in India. While Apple's (AAPL 1.62%) iPhone sales in the country are growing -- up 56% year over year last quarter -- it's looking to do more to take advantage of the huge growth opportunity in the country.

One opportunity is to sell refurbished iPhones in India, but the nation has now rejected Apple twice. Earlier this month, India's telecommunications ministry rejected Apple's request to import and sell refurbished iPhones, and last year, the environmental ministry rejected a similar request. With Apple's phones priced at a premium, especially compared with phones made in India, it will have a hard time penetrating the massive growth market in India.

Why India won't sell refurbished iPhones
There are a couple of reasons for India's opposition to Apple's proposal. Prime Minister Narendra Modi launched the Make in India initiative in 2014, encouraging both national and multinational companies to manufacture their products in India. A coalition of Indian electronics manufacturers have lobbied the government, noting that Apple's iPhone refurbishment plans directly oppose Modi's initiative. It seems the government agrees.

Additionally, India suffers from a massive e-waste problem. Not only has the increase in electronics use caused the amount of e-waste to accumulate rapidly in India, but developed countries often find it more beneficial to ship their e-waste to India instead of dealing with it themselves. Refurbished iPhones -- with their relatively short lifecycles -- would only contribute more to India's e-waste problem.

Apple is working on technology to help resolve both issues. Its Liam robot tears iPhones apart, separating out components, metal, cobalt, and lithium, enabling easier recycling and refurbishing processes. Theoretically, Apple could ship recycled components to India for assembly there and provide Liam robots to help manage e-waste.

iPhone SE doesn't solve Apple's problems, either
When Apple unveiled the iPhone SE in March, many pundits noted that it was a play on emerging markets such as India. The device is priced as low as $399 in the United States. The problem is, the phone starts at 39,000 rupees ($586) in India. Indian consumers can buy an older iPhone 6, with its more appealing large screen, for less from secondhand smartphone stores.

The price inflation largely stems from Apple's refusal to offer wholesale pricing to its retail partners in India. As such, those retailers are forced to mark up the price to make a profit.

Apple is working to get around that obstacle by establishing its own retail presence in the country. Bloomberg reports that the company is on course to qualify as a provider of cutting-edge technology, exempting it from certain restrictions placed on foreign retailers that Apple currently doesn't meet.

Establishing its own retail presence would do a lot to reduce the price inflation Apple products currently see in India. Apple could cut prices by more than 25%, putting prices more in line with the U.S., if it sold directly to consumers. That would have no impact on margins, but it would naturally increase demand.

Apple CEO Tim Cook sees India as a huge opportunity for the company, and the market is still largely untapped. "I view India as where China was maybe seven to 10 years ago from that point of view," he told analysts on Apple's second-quarter earnings call. "I think there's a really great opportunity there." China, for reference, has grown to become Apple's second-largest market after the Americas. That makes India a key to Apple's future growth.

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