Yahoo Finance The simple reason tech thinks India is its next big market
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Apple's (AAPL) is increasing its bullishness on India.
The company opened its first retail location in Mumbai on Tuesday — which CEO TIm Cook himself inaugurated — as the company's sales in the country are reportedly approaching $6 billion in the year up to March.
Simultaneously, the company is also in the process of bringing about 25% of its iPhone production to India.
"We actually did fairly well through COVID in India, and I'm even more bullish now on the other side of it or, hopefully, the other side of it and that's the reason why we're investing there," Cook said on the company's latest earnings call.
"We're bringing retail there, bringing the online store there, and putting a significant amount of energy there. I'm very bullish on India."
The simplest explanation for the exciement Apple and Big Tech companies in general have around India is about the size of the market. This month, the United Nations announced that India's population is expected reach 1.43 billion by the end of this year, surpassing China as the world's most populous country.
In a lot of ways, India's population represents an ideal market for Big Tech, and the Indian government is a willing partner, experts said.
"India has a large English-speaking population that's educated, and the country wants to boost its own manufacturing sector," said Darrell West, senior fellow at the Brookings Institution.
"One of India's best assets is that it's not China," he added.
'Strained relations'
Apple has long been one of the world's most visible advocates for China's manufacturing sector.
However, the pandemic changed China. And for Apple and the tech industry at-large, India's on the upswing.
There were two turning points, according to Harvard Business School Professor Willy Shih.
The first was Shanghai's mass COVID lockdowns — which resulted in delayed iPhone shipments. These were followed by November protests over contract disputes that erupted in at a Foxconn factory in 'iPhone City,' Zhengzhou.
"To me, Apple was the [ultimate] champion of the Chinese manufacturing model. Through the Trump trade war, Apple seemed to lose faith in China, but what you saw in the COVID lockdowns has caused this shift," Shih told Yahoo Finance. "Western companies looked at that and said, 'We don't know what to expect now' and that's what's causing this tone shift. This highlights that India is on the rise if it can get its act together."
"Our strained relations with China are making cooperation tenuous, and India is the most populous country in the world," said Carnegie Mellon University Professor Ari Lightman.
"Cooperation in India right now is like what we saw in China with the rise of companies like Tencent, and we're now seeing that in India with the rise of companies like Flipkart."
Daniel Keum, a professor at Columbia University added: "Apple needs a 'new' China to drive future growth. The Chinese market is now saturated, showing slowing growth, and complicated by the political tension."
India's 'big challenge'
However, India has challenges when it comes to making the hype a reality. After all, we've seen the headline 'India is the future of tech' before. And in part, making this time different comes down to infrastructure.
India, as a democracy, has a famously complicated bureaucracy and still has a long way to go to get its industrial and financial infrastructure in order, according to both Shih and West.
"Infrastructure is a big challenge for India, it's an area that they need to invest in," West said. "If they want to attract foreign capital, they also need to make it easier to bring money in and take it out. In India, that's not an automatic process."
Shih agreed. "You try to build a railroad in India, there's pushback. Now, if you try to build a railroad in China, the government can just make those people move," Shih said.
"This is about innovation and scale, but also servicing a vast, diverse population," added Lightman. "We're talking about a very large ship, with 1.4 billion people on board."
And for the time being, Apple is still pretty thoroughly entwined with Chinese manufacturing.
"Will Apple be more dependent on China for some time? Yes, but they're also going to be more diversified," said Shih. To that end, when it comes to manufacturing, Apple is also exploring other China alternatives, with the company actively moving manufacturing operations toward countries like Vietnam, Malaysia, and Thailand.
The reality is that any changes to Apple's manufacturing footprint likely won't be sweeping but incremental, and if Apple decides to exit China all together that will be an even more difficult maneuver.
"The hardest thing is that Apple's spent years building its supply chain in China and you can't transfer that overnight," said West. "Even if you could, that would make the Chinese government angry, so the transition period is very delicate."
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.
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