India is a hot bed of economic activity and being the third largest in terms of the world’s gross domestic product (GDP) companies targeting growth are keen on gaining entry to that market, but they should be wary over the competitive playing.
As India looks to become an even greater economic force, we’re seeing the country influence the development of mobile banking and payments and look to do the same with 5G wireless standards.
Behind these moves is a rising middle class with improving disposable income that puts India on the desirable list for many companies across food, construction, technology and banking among other industries.
With a built-in customer base of more than 1.3 billion, who can blame them?
We’ve heard Apple CEO Tim Cook describe the favorable demographics inside India on past Apple earnings conference calls, but after posting one of its lowest regional growth rates in five years its’ being reported Sanjay Kaul, Apple’s India chief, is departing.
To garner share in a heavily price focused market, Apple has introduced lower-spec version of existing hardware and is this past June to sidestep India's hefty tax regulations Apple began building iPhone SE units in-country through manufacturing partner Wistron.
Beyond manufacturing, in a move to more effectively compete with lower cost smartphone vendors Apple is reportedly looking to secure government approval to sell refurbished iPhones in India.
More recently, the Indian government raised the customs duty on phones to 15% from 10% on imported phones in a bid to aid domestic phone manufacturing. This has led Apple to boost prices on all its iPhone models sold in India save the locally manufactured iPhone SE model.
With smartphone competitors Samsung and Xiaomi assembling phones sold in the Indian market locally, this looks to be a move by the Indian government to strong arm Apple into expanding its manufacturing presence in the region.
While this is the latest move by India, it wasn’t just for smartphones. As it boosted that duty it also doubled ones on microwave ovens and television to 20% from 10%, and hiked rates for digital cameras, digital video recorders and other consumer electronics to 15% from 10%.
The nuts and bolts of this is it makes imported products more expensive, and likely skews purchasing to lower priced, locally manufactured ones. With GDP per capita around $2,000 according to Moody’s Investor Service, we can understand consumers looking to stretch their spending dollars, but simply put, the government is altering the playing field, indirectly influencing consumer decisions along the way.
It seems clear the Indian government understands that in the coming decade its country will likely surpass China in terms of economic importance and companies like Apple and others desire access to drive future growth.
Yet, India has a lop-sided business model that favors their government while putting a stranglehold on companies that have too much invested in India to walk away.
At this point, they have to take whatever India throws at them.
Over the last several months President Trump has been hitting China hard for unfair trade practices and has recently blamed past U.S. leaders for not securing better deals.
In his own words at this year’s Asia-Pacific Economic Cooperation Summit, "We can no longer tolerate these chronic trade abuses, and we will not tolerate them...From this day forward, we will compete on a fair and equal basis," he added.
"We are not going to let the United States be taken advantage of anymore. I am always going to put America first.”
If Trump is true to his word, then we should see him put India in the crosshairs before too long.
Christopher (Chris) Versace is the Chief Investment Officer at Tematica Research, editor of the newsletter Tematica Investing, co-host of the Cocktail Investing Podcast and is a featured columnist to The Street.com as well as a contributor to Business Insider and Forbes.com
© 2021 Newsmax Finance. All rights reserved.