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Apple's Indian charm offensive has one goal: Sell more iPhones

India is arguably becoming the world's most important phone market. Apple, struggling behind Android makers there, is making significant investments.

James Martin

While Google was laying out its agenda this week in California, Apple was making some serious moves of its own halfway 'round the world.

With Apple CEO Tim Cook in India to meet Prime Minister Narendra Modi, Apple said Wednesday it would establish an iOS design and development accelerator in Bengaluru, the country's home of startups. A day later, Cook revealed that a second development center, this one for the Maps app, will open in the city of Hyderabad. It will employ up to 4,000 people, according to the company.

These announcements are ostensibly just about software, but they could very well have a big impact on Apple's iPhone business.

"India is the next China," said Neil Shah, research director at Counterpoint Research. He said that India has overtaken the US to become the world's second biggest smartphone market, and that success in a nation of 1.3 billion people is crucial because its growth phrase has just begun.

"India is still under-penetrated and growing, while the rest of the world's smartphone demand, especially in key markets such as China and the US, has waned," said Shah.

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Most smartphones in India cost under $150. The cheapest iPhone in Apple's newest batch of products starts at $580 there.

Sarah Tew/CNET

Despite enjoying tremendous popularity around the world, Apple's impact in India has been uncharacteristically weak. Shah said the Cupertino, California-based company sold 2 million smartphones in India in 2015. When Counterpoint Research released its data on the top smartphone brands in the region for 2016's first quarter, Apple didn't crack the top five.

The problem is price, with Shah explaining that "more than 75 percent of the phones [sold in India] are under $150." Budget buyers either have to go for iPhones from four or five years ago, or for the iPhone SE, the cheapest new iPhone, which retails in India for around $580.

All this comes as the perennially successful company's global iPhone sales dropped for the first time ever.

"The talent here in the local area is incredible," Cook said in a statement alongside the news of the Hyderabad center. "We are looking forward to expanding our relationships and introducing more universities and partners to our platforms as we scale our operations."

On the Maps development center, Shah said that recruiting India's talented, "cheaper" workforce "could fill the huge gap from a resource perspective for Apple, where quality and accurate maps has been one of its weaknesses."

The investments could also be the first in a series of moves to secure a better spot for itself in the market.

Apple has been rumored to be lobbying for two crucial advancements in India: to open its own Apple Stores and to get permission to sell refurbished iPhones.

Prospective customers in India can currently only buy iPhones through authorized resellers. Official outlets would give the company an opportunity to sell its products directly to consumers, cutting out the middleman. Government policy in India is that foreign companies setting up their own stores buy at least 30 percent of their parts from local suppliers.

That hump could soon be overcome though. A government panel, led by India's Department of Industrial Policy and Promotion Secretary Ramesh Abhishek, last month recommended that Apple be exempted, the Economic Times reported.

Unfortunately for Apple, its plea to sell refurbished iPhones -- allowing it to cater to the cost-sensitive market without offering a budget device -- was rejected earlier this month.

In a public campaign, Apple's rivals asserted that selling refurbished iPhones in the country would lead to an excess of used devices, according to Bloomberg. The companies also argued that Apple's move would hamper the government's Make-in-India program, which encourages multinationals that sell in India to make their products there too.

Apple declined to comment.

The company wants to establish itself in India while it's still growing rapidly. Cook's visit and the two development center announcements are big advancements, but it looks like the biggest moves are yet to come.

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