Indian Retail Rules Stand In The Way Of The First Indian Apple Store

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It could be several years before India gets its first Apple store.

Apple’s retail stores bring in customers like no other retail outlet on the planet, and so it’s no surprise the Cupertino company is keen to build more of them. One possible market for expansion could be India, where Apple is currently forced to sell its products through distributors. However, one Indian retail rule, which states foreign companies must source 30% of the value of their sales from local firms, could stand in its way.

Until now, Apple has been selling its products in India through local, regional, and national distributors, who take a fee for selling the goods. This eats into Apple’s profits, and that doesn’t sit well with CEO Tim Cook, who said earlier this year that this kind of “multilayer distribution” means the company would prefer to focus on other markets where it has a larger market share.

But according to a new Economics Times report, Apple could be evaluating the possibility of opening its own retail stores in India, which would mean it could cut out the middle man and keep all of its profits. And a recent change to Indian retail law could pave the way for the first Indian Apple store.

Until recently, Indian rules meant that Apple would have been allowed to own only a 51% share in a store selling its own branded goods. But that was changed late last year, and now Apple could own 100% of its stores.

There is a new stumbling block that the company must negotiate, however. Under the new rules, foreign retailers must source at least 30% of the value of their sales from local firms. But with the large majority of Apple devices sourced and manufactured in China, this is a rule that’s very hard to meet.

For an Apple store to open in India, then, local rules would need to be relaxed to allow the company’s outsourcing operations in India to be included as part of the 30% local-sourcing requirement. While this may be possible, the negotiations are bound to take time.

According to G. Rajeev, a senior market analyst at IDC, “the argument may find takers in a couple of years.”

10-1-12

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