Apple's retail plans in India could hit local-sourcing roadblock

India wants the company to adhere to a policy of buying 30 percent of its components from local vendors, a problem for Apple, which currently sources virtually everything from China.

Apple retail stores may not pop up in India after all.
James Martin/CNET

Apple might have trouble opening the doors to retail stores in India due to local sourcing rules.

The company has been attempting to launch its first retail outlets in India, a country where Apple products are currently sold only online or through third-party retailers. One obstacle is that foreign companies selling products in India must purchase 30 percent of their components from local businesses if they wish to open up retail stores.

Apple, which makes almost all of its products in China, had seemed close to winning an exception to that policy. But that's reportedly no longer the case.

India's finance minister, Arun Jaitley, is supporting a decision made by India's Foreign Investment Promotion Board (FIPB) requiring Apple to follow the country's sourcing policy, Bloomberg reported on Wednesday, citing people familiar with the matter.

Hit by a drop in iPhone sales, especially in established markets, Apple needs to push the phone in developing regions. India is the second-largest and fastest-growing smartphone market in the world. Apple Stores could help sales by giving people the chance to try out devices and speak with customer service reps in person. That in turn might help Apple boost its 2 percent market share in the country.

"The government's decision will have a pretty profound effect on Apple," Neil Shah, research director at Counterpoint Research, told Bloomberg. "The company typically likes to control every piece of the iPhone value chain right from sourcing components to the point of sale. Having complete control has been key to its strategy."

The decision by Jaitley could be overturned, Bloomberg said, but that might require the involvement of Prime Minister Narendra Modi. India can offer exemptions to certain companies that it believes make cutting-edge technology products. But the FIPB has determined that it won't grant Apple such an exemption, Bloomberg's sources said.

iPhone sales are up in India, jumping by 56 percent last quarter. But Apple faces challenges in this market. Indian consumers gravitate to budget-friendly phones, including those made by top vendor Samsung. Apple's iPhone is a premium-priced product, though the company is trying to capture more price-conscious consumers with its 4-inch iPhone SE.

Neither Apple nor representatives from the Foreign Investment Promotion Board immediately responded to CNET's requests for comment.