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Good Morning Dear Reader,
Today’s newsletter is about two smartphone companies that were in the news last week, for vastly different reasons. Apple—one of the world’s most powerful companies, is finally finding traction in India. And Nokia—the company Apple disrupted and destroyed, is finally closing the chapter on a long, troubled history in India.
The two stories could not be more different.
The two stories could not be more similar.
Let’s dive in. |
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The e-commerce store and the factory |
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If you followed the news last week, two things happened.
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On the face of it, especially if you don’t own an Apple product, you’ll be forgiven for wondering why this matters.
Well, what if I told you that Apple has been trying to open that e-commerce storefront for nearly a decade now? And that it represents the culmination of the beginning of a new India-focused strategy for one of the most powerful smartphone companies in the world?
Before we get into that, though, let’s not forget what else happened. It concerns a factory plant.
Last week, The Hindu reported that a factory plant located in the small town of Sriperumbudur, Tamil Nadu, which was shut since 2014, was finally going to resume production. It wasn’t even a major story. It didn’t make it to any of the major newspapers. Only The Hindu, also headquartered in Tamil Nadu, bothered to report it. Even then, as a brief report.
But if you ask me, it’s quite significant, and oddly poetic.
You see, the Sriperumbudur plant was originally owned by Nokia, the Finnish smartphone company.
In many ways, it represents another culmination—of the end of an India-focused strategy for one of the most powerful smartphone companies in the world.
The early years : Apple dismisses India
Back in 2012, Apple was on the upswing. The iPhone-led expansion was in full swing, and the smartphone maker was registering high double-digit percentage growth in most markets. However, they had just had a relatively bad quarter, particularly in Europe, which was going through some economic trouble thanks to Greece and Italy. Some were calling it a crisis, but looking back at it from 2020, it actually feels more like a minor wardrobe malfunction.
Anyway, in the investor conference call, Tim Cook was asked about the possibility of expanding into other countries, specifically India.
Here’s what he said |
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Nokia announced its plans of commencing manufacturing in India. It considered several states. Many lost out due to a combination of unfavourable policies, poor infrastructure, and bad locations. Finally, the winner was Tamil Nadu. The story goes that this happened because the state’s Chief Minister, J. Jayalalithaa, after seeing some news reports about Nokia scouting for a location, told her bureaucrats three simple words.
“Go, get Nokia.”
As Business Today reports — “within two days of Nokia’s announcement, Tamil Nadu officials were in Delhi, making a presentation before its executives.”
In less than a year, Nokia signed a memorandum of understanding with the Tamil Nadu government to set up a factory plant in the Sriperumbudur Special Economic Zone (SEZ). The factory was set up. At its peak, it employed 8,000 people—70% of whom were women.
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Nokia’s initial plan was to make 4-5 million phones a month, and export these to nearby countries.
It ended up manufacturing 15 million phones a month and it exported phones worth $2 billion every year.
Nokia was having a great time in India.
Apple’s crunch problem
By 2016, Apple found itself facing a problem in India.
Remember, by this time, India was flooded with a bunch of Chinese brands like Oppo, Vivo, Xiaomi, OnePlus, etc. All of them were aggressively fighting a pricing war, making it cheaper than ever for millions of Indians to buy a smartphone.
Apple was nowhere to be found in this segment. Which makes sense, because Apple is a premium product.
The problem is that the premium segment in India wasn’t small. It was insignificant.
Here’s what Cybermedia Research found out about Apple in India in 2016
Over 96% of all sales of mobile phones in India were for purchases of less than $400, and Apple didn’t have a single product below this price point.
Prasanto Roy, writing for the BBC, sums it up best.
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Apple had a solution for this.
Refurbished phones.
From Apple’s standpoint, this was the situation. It couldn’t make cheaper phones. It couldn’t make older phones more palatable. So the best option was to try to create a new category. It would take pre-owned phones, put them in new cases, polish them up, give them a one-year warranty and sell them in India, at a significantly marked down price. Its brand would be protected, and it would gain entry into the cheaper segment. Makes perfect sense.
In 2015, it placed a request with the Indian government to let it import and sell refurbished phones in India.
It was rejected by India’s environment ministry, citing e-waste concerns.
In May 2016, it made a second request.
Two weeks later, Tim Cook did what no Apple CEO in history had ever done.
He scheduled a visit to India.
Nokia’s crunch problem
As with Apple, Nokia also faced some headwinds in India.
There are many accounts of what happened at Nokia’s Sriperumbudur factory, but the one you should absolutely bookmark to read later is the one that was published in Livemint.
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There were other problems, also from local politicians. Some asked for contracts for the scrap. Others for free phones. Nokia refused and auctioned the scrap, refusing to send any freebies out as well.
Then came the big one.
In the span of a year, Nokia was hit by not one, not two, but three major blows.
It all concerned something that foreign companies know and fear about India.
The tax system.
“India for a thousand years”
Tim Cook’s five-day visit to India began with a visit to the Siddhivinayak Temple in Mumbai, which is the sanctum of Lord Ganesha—the remover of obstacles.
Five days later, Tim Cook’s India visit ended in failure.
To be fair, Tim Cook made all the right noises. In an interview, when asked about how Apple would approach India’s complex and difficult market, this is what he said.
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He said other things, too. He reiterated Apple’s commitment to India. He opened a development centre for maps, which he promised would ramp up to 4,000 employees. He also announced an app accelerator in Bengaluru. He even attended an IPL match in Kanpur. He probably didn’t even know the rules of cricket.
When asked about manufacturing smartphones in India, though, he was non-committal. From Cook’s standpoint, this made sense. Why manufacture in a country that was responsible for just 1% of your sales? What for?
But that was reportedly where the visit really fell apart. Cook wanted permission to sell refurbished phones in India. India wanted him to manufacture phones here. And India was prepared to make life difficult for Apple to get what it wanted.
By all accounts, over the next several years, Apple tried to manufacture phones in India but failed. The Information, a subscription-based media publication from San Francisco, has done the most well-researched story about Apple’s desperate attempts to make India a part of its supply chain.
It failed for many reasons. From the big to the trivial. |
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By the end of 2018, The Ken reported that Apple’s sales in India would drop by as much as 25%.
Nokia’s troubles come in threes
In February 2013, the Income Tax department conducted a raid on Nokia’s factory in Sriperumbudur. Two blows followed soon after. And very soon, Nokia was facing three cases.
Here’s a quick summary.
First, the Income Tax Department asserted that Nokia had to pay Rs 21,153 crore, alleging that it failed to withhold tax on payments made to its parent company in Finland as ‘royalty for the software’ used in its mobile phones manufactured in India. For good measure, it backdated these claims all the way to 2006.
The next year, the Tamil Nadu government’s tax authorities sent another bill for Rs 2,400 crore, claiming that smartphones manufactured in India were sold in India and not exported.
Here’s what Nokia said.
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Then, just for fun, there was a third case. This time, it was for the charger that was shipped with every Nokia phone. The phone was taxed at 4%, said the tax department, but the charger that accompanied it was separate and had to be taxed at a higher rate. Nokia hadn’t paid that tax. Nokia owed money.
An argument ensued about whether the charger was a part of the phone or not. The case went all the way up to the Supreme Court.
In 2014, Nokia suspended manufacturing in India.
Shortly after, it was acquired by Microsoft, which paid $7.5 billion for all of Nokia’s assets.
Except the factory in Sriperumbudur.
Microsoft didn’t want anything to do with it, or its alleged tax liability. Apple’s good news come in threes
By early 2019, The United States and China got into an intense trade war.
India sensed an opportunity.
And almost instantly, Apple’s troubles in India simply vanished.
Remember that entire problem with refurbished phones?
Well, in May 2019, India decided that it wasn’t a problem anymore. Apple could import refurbished phones if it wanted. All it needed were some minor approvals.
Two months later, India changed another rule which had prevented Apple from having its own online store in India. Until now, the rule was that if Apple, a single-brand retailer, had to do that, it needed to source 30% of its production locally. India quietly removed this requirement for Apple.
It’s almost as though someone had given an order to go get Apple.
Then, by the end of 2019, Apple found the perfect phone for India.
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Nokia pulls itself out
In 2018, just when Apple’s fortunes were about to turn in India, Nokia finally settled its case in India. The Finnish government had to get involved.
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Only one question remained. Who would now buy the factory?
Apple’s good news come in threes…continued
By 2020, Apple was doing other things to make some people in India very happy.
It had started assembling the iPhone SE, one of its major phones, in India. |
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Image Credit : The Indian Express
Then in July this year, Foxconn, one of Apple’s largest manufacturers, announced that it would spend $1 billion to set up a factory to manufacture iPhones in India.
A week later, Pegatron, another Apple manufacturer, announced it would also set up a plant in India.
As always, the third piece of news is the clincher.
As Bloomberg reported earlier this week:
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Then, just yesterday, Apple announced it would launch its online store.
The story of Apple and Nokia is about two smartphone giants and their experiences with India. It’s about how the state creates incentives when it suits them, and withdraws these when it doesn’t. While Apple spent years desperately trying to get into India, Nokia was desperately trying to get out.
I think there are lessons here.
Oh, I never mentioned who eventually bought the factory at Sriperumbudur.
It was sold to a company called Salcomp—that’s the company that said last week that it would resume operations and get the factory functioning for the first time since Nokia shuttered it in 2014.
Salcomp manufactures chargers for phones.
Apple. |
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That’s about it from me.
Write back. Let me know what you thought.
If you liked what you read, just use the link or tap any of the buttons below and tell others about it. Remember, we have a free trial for The Nutgraf, so anyone can read this edition after giving their email address.
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Take care.
Regards, |
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