• Company said poised to qualify for easier local sourcing rules
  • Apple sees potential to expand small share of major market

Apple Inc. is on course to win clearance to open its first retail stores in India, a person with knowledge of the matter said, as Chief Executive Officer Tim Cook seeks growth opportunities in a nation of 1.3 billion people.

The Indian government plans to push through Apple’s application to set up outlets, the person said, asking not to be identified as the information isn’t public. The company is resubmitting the request as it wasn’t in the right format, the person said, without giving a time-frame for final approval.

Apple should qualify as a provider of cutting-edge technology, the person said. That would exempt the maker of iPhones and iPads from a rule forcing foreign businesses that retail a single brand in India to procure 30 percent of a product’s inputs locally. The company makes most of its devices in China.

Cook is hunting for fresh sources of growth after Apple last month forecast a sales decline for the first time in more than a decade. India now has the world’s fastest-growing major economy and about 220 million smartphone users. The challenge is that Indian consumers tend to prefer cheaper devices, leaving Apple with only about 2 percent of the market.

"Most of the growth in India will come from new users coming into the Apple ecosystem, unlike in the West where growth is mainly from existing users upgrading," said Tarun Pathak, a senior analyst at Counterpoint Technology Market Research, based near New Delhi. “You can expect the stores to focus mostly on iPhones.”

The company will likely continue a policy of major discounting on older models -- such as the iPhone 5s -- to bring more new users into the fold, Pathak said. Chinese volumes are 15 times that of India, signaling room to grow, he added.

Apple uses re-sellers in India for its products. Domestic distributor Redington India Ltd. has dropped about 5 percent since Apple in January confirmed it had applied to open stores in Asia’s third-largest economy.

Business Environment

The stores, estimated by some analysts to produce the highest revenue-per-square-foot in the U.S. brick-and-mortar retail industry, also promote the brand by holding workshops for customers. The Cupertino, California-based company currently has at least 24 stores in China as part of a global network of more than 460.

Cook said last month after Apple’s earnings statement that he’s optimistic India’s business environment will improve and that he’s looking to step up investment there.

The Foreign Investment Promotion Board, housed in the Finance Ministry, processes applications such as Apple’s based on guidance from India’s Department of Industrial Policy and Promotion in the Commerce Ministry.

Rajinder Chaudhry, a spokesman in the Commerce Ministry, and D. S. Malik, his counterpart in the Finance Ministry, said they couldn’t immediately comment as they need to check the status of Apple’s application. Alan Hely, a spokesman for the company, didn’t respond to an e-mail sent over the weekend seeking comment.

Make in India

Prime Minister Narendra Modi has sought to cut red tape and open up the economy since taking power in May 2014. But India remains a comparatively difficult place to do business, according to World Bank rankings, and the path to permits can be long and winding.

The local smartphone sector is dominated by Samsung Electronics Co., Micromax Informatics Ltd. and Intex Technologies India Ltd., which together control about half the market, according to Counterpoint. Apple had about a 2 percent share of smartphones sold last year, but was the third-biggest brand by revenue because of higher product prices.

About 50 mobile-phone factories were set up in India in the past 10 months, and total national production capacity is now 9 million units monthly, the person familiar with the matter said. 

A six-day so-called "Make in India" expo in Mumbai from Feb. 13 is designed to trumpet manufacturing potential, the person said. The budget speech at the end of February will take steps to spur local production, and the nation retains the goal of seeing Apple products made locally, the person said.

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