Bandra Kurla Complex, Mumbai’s industrial hub, oozes luxurious. Affluent customers stroll out and in of shops like Emporio Armani, Satya Paul, and Swarovski. The company headquarters of tech large Amazon towers over the upscale shops. The massive plaza within the BKC, because it’s identified, hosts live shows and sports activities occasions. The Backstreet Boys carried out there lately. 

On a Tuesday in April, swarms of Indians streamed into the plaza to glimpse a pop star of a unique type: Apple CEO Tim Cook, who was there to open one of many tech large’s first two shops in India. After a quick countdown, Cook thrust open the doorways of the 22,000-square-foot BKC location. Surrounded by cheering, green-clad Apple associates, the chief government high-fived and posed for selfies with a few of the first guests. 

Cook was all smiles. Rightfully so. The Indian market presents an unprecedented alternative for progress: Only half of India’s 1.4 billion folks personal a smartphone, and Apple is only now gaining a real, direct foothold in the retail market. 

Months later, Cook was gone, however the BKC Apple retailer nonetheless buzzed. Its triangle shape resembles New York City’s Flatiron constructing; two sides are eight-meter-high glass home windows; its stone wall is sourced from India’s Rajasthan state. A ceiling of 1,000 hand-crafted oak tiles organized in a lattice sample pays tribute to the Rattan weavers of Mumbai. Just a few dozen prospects browsed its shows.   

Preeti Shah, a jewellery designer from Ahmedabad, has owned an iPhone for a decade, a rarity in Android-dominated India. “When I saw that they had opened an Apple store here, I just had to visit,” she stated. Shah, 69, first visited an Apple flagship retailer in New York in 2018 and stated the Mumbai retailer was similar to it. Now she hopes Apple opens a retailer in her hometown. 

Most prospects are like Shah; they “walk in out of curiosity,” a retailer employee instructed Fortune. The signature Apple retail expertise is lastly obtainable to them. They fiddle with Apple’s newest iPhone, demo Macbooks, or sit in on complimentary coaching periods. 

Hardik Chhabra—The India Today Group/Getty Images

If Apple prospects are strolling in out of curiosity, they’re strolling out with new purchases. Apple gross sales in India are hovering. The Mumbai retailer alone reportedly performed $1.2 million in gross sales on its opening day. In its first month of operation, the shop reportedly generated $2.6 million, as did Apple’s second India retailer in New Delhi. 

“We had an all-time revenue record in India. We grew very strong double-digits,” Cook said during Apple’s fourth-quarter earnings name in early November. Apple doesn’t disclose India-only gross sales in its earnings, however analysis agency International Data Corporation (IDC) stated the corporate offered round 6.7 million iPhones in 2022. That quantities to an estimated $5.6 billion, a sum equal to roughly 1.5% of Apple’s 2022 income of $394 billion. In a submitting with India’s Ministry of Corporate Affairs, Apple reported $5.9 billion in income from April 2022 by way of March 2023. 

Apple had tried to broaden its retail presence in India for years, however the nation’s stringent local-sourcing guidelines for overseas retail companies barred Apple—and different worldwide firms like Ikea—from promoting on to prospects. Even apple.com, the corporate’s e-commerce website, was unavailable in India till September 2020. Instead, Apple relied on third-party retailers and web sites in addition to a community of mom-and-pop retailers to get its units into the palms and onto the desks of Indian shoppers. 

That lastly modified in 2019, when the federal government of Prime Minister Narendra Modi up to date India’s overseas direct funding guidelines, paving the way in which for Apple’s long-awaited, full-blown entry into the nation’s retail scene.

Two a long time in the past, it was China that helped Apple stage a turnaround that in the end put it on a path to turning into a multi-trillion-dollar firm. And whereas China and Apple are nonetheless deeply intertwined—on the tech large’s steadiness sheet, in its provide chain, and within the public creativeness—Apple’s ties to India are rising quickly, giving the corporate a lift that it desperately wants proper now. 

Global smartphone progress is stalling: In the second quarter of 2023, 268 million smartphones have been shipped globally, a 9% decline from the 294 million shipped within the second quarter of 2022, based on analysis agency Counterpoint. The slowdown has hit Apple laborious. In November, the corporate reported that income had declined for the fourth straight quarter. On the earnings call, Cook framed India, in addition to different rising markets, as vibrant spots in an in any other case powerful atmosphere. 

Dhiraj Singh—Bloomberg by way of Getty Images

Apple’s timing has been advantageous on different fronts too. Its broader entry into the nation coincides with a increase in India’s center class and Indian shoppers’ budding allegiance to Apple, a noticeable shift in a rustic the place 90% of smartphones are Android.

“India has been a tough nut to crack for Apple over the last five to six years. But there’s been a clear shift within India over the last few years,” stated Daniel Ives, an Apple analyst and a managing director at monetary advisory agency Wedbush Securities. “We think the retail stores built in India are the first step on a much broader and aggressive strategy of focusing on expanding their footprint with consumers in the Indian market.”

Apple didn’t present solutions to Fortune’s questions for this story. 

To Apple, India doesn’t simply current a possibility to promote iPhones and AirPods. Apple can also be turning to India to fabricate its merchandise. The tech large began manufacturing iPhones in India in 2017, and in recent times its contract producers like Foxconn, Wistron, Pegatron, and Tata Group have expanded their presence within the nation. India at the moment makes 7% of the iPhones for Apple, according to Bloomberg. That share is predicted to hit 18% by 2025, based on a report by the Bank of America. For the primary time, the iPhone 15 was being manufactured in India on the time of its launch in September.

Apple is increasing manufacturing in India because it faces challenges in its fundamental manufacturing hub, China. But there’s one other upside: manufacturing extra iPhone components in India might make it simpler for Apple to decrease the value of the system in India over time, making it extra inexpensive in a rustic the place the common citizen earns $2,000 per 12 months. 

“There’s a huge part of the Indian population that now wants to move on to iPhones,” Ives says. “Apple recognizes it, which is why now they’re betting big on India.”  

One of the dearer iPhones on this planet

Four miles from Apple’s new retailer in New Delhi, Sunil Motwani sits on a stool behind a counter at Excel Communications, the cell phone store he’s run for the final 20 years. The 450-square-foot retailer is plastered with advertisements for the iPhone, however the small store sells all Apple merchandise.

For years, Indian shoppers purchased their Apple items by way of accredited retailers like Motwani. The 47-year-old was one of many earliest; he started promoting the iPhone 3G, the primary product Apple launched in India, in 2008. 

At the time, Motwani might solely promote iPhones as a part of a bundle with India service Airtel. That modified two years later when Apple arrange a community that allowed licensed sellers like Motwani to promote units on their very own. For years, his store would promote between 150 and 200 iPhones 1 / 4; that whole would spike to 300 when Apple launched a brand new model.  

But throughout its first decade promoting iPhones in India, Apple’s share of the smartphone market by no means surpassed 1%, based on Counterpoint. The iPhone had one massive strike towards it: It was—and nonetheless is—costly. It price the equal of $850 in 2016, and upstart rivals like China’s OnePlus and Xiaomi have been growing dependable fashions for roughly $350 or much less. India slaps import tariffs as much as 20% on fully-assembled smartphones and part components, making the nation one of many dearer locations to purchase an iPhone. Today, the fundamental model of the iPhone 15 prices roughly $960 in India versus $799 (excluding taxes) within the U.S. 

On an earnings name in 2018, Cook instructed analysts he anticipated the Indian authorities to permit Apple to open shops within the nation “at some point.” That second arrived the following 12 months. In July 2019, India relaxed its native sourcing guidelines, permitting single model retailers to launch an e-commerce retailer, offered they open brick-and-mortar retailers inside two years.

“If you look at Apple retail stores [worldwide], less than 10% of sales come from actual retail stores; the vast majority of sales come from e-commerce,” stated Ives. “[But] the retail stores are how consumers come in; they feel the products. That’s been the key DNA of Cook-Cupertino, and why Apple is where they are today.” He expects Apple to open eight extra shops in India by 2025, up from the present two. 

Apple’s new retail shops have stoked curiosity in Apple merchandise, Motwani says, however that buzz hasn’t translated to gross sales for retailers like him partly as a result of prospects can now purchase straight from the corporate. He’s beginning to diversify his inventory in latest months, including manufacturers comparable to OnePlus, Motorola, and Honor. “We haven’t been able to benefit from the company’s growth in India, despite being one of their earliest authorized retailers,” he says. 

Capitalizing on India’s maturing smartphone market

Apple has caught one other break in recent times: India’s center class, whose annual family earnings is between $6,000 and $37,000, more than doubled from 2005 to 2021, and now accounts for one-third of India’s inhabitants. What’s extra, the smartphone market has matured to the purpose that customers in rising international locations like India are upgrading their units from their introductory fashions, a pattern that Apple will profit from as a “premium-aspiration brand,” says Anil Gupta, a professor on the University of Maryland’s Smith School of Business and creator of a number of books on India and China.

IDC expects Apple to notch one other 35% in iPhone gross sales progress in India this 12 months, reaching 9 million units offered. Last 12 months, Apple led the market of smartphones that price greater than $500 with a 60% share. And its share of the general smartphone market had grown to 4% in 2022, up from 2% in 2020, per Counterpoint.

Dhiraj Singh—Bloomberg by way of Getty Images

Morgan Stanley estimates that India might account for 15% of Apple’s income progress within the subsequent 5 years, up from the two% income progress the financial institution estimates India has accounted for over the previous 5 years. The financial institution expects Apple’s India enterprise to contribute $40 billion in income progress over the following decade, the equal of “Apple ramping [up] an entirely new product category.”

Diversifying away from China

Sixteen miles northwest of Bangalore is the sprawling industrial space of Narasapura. Factories right here churn out all types of products, from stress cookers to planes. Forty-three acres of the world are occupied by a stark white manufacturing unit with blue home windows. Inside, over 10,000 Indian staff work throughout three shifts every day assembling iPhone 14s and iPhone 12s.

Wistron, a Taiwanese producer and one in every of Apple’s largest suppliers, opened the manufacturing unit—the primary in India to fabricate iPhones—in 2017. Since then, Apple’s largest contract producer, Foxconn, has opened an iPhone manufacturing unit in India, as has one other provider, Pegatron. Foxlink makes cables for iPhone chargers. And India’s 150-year-old Tata Group runs a manufacturing unit that makes iPhone chassis. None of the Apple suppliers responded to requests for remark.

Foxconn, Tata, and Pegatron all have plans to broaden their Apple manufacturing in India. In reality, Tata in November purchased Wistron India, together with the Narasapura plant, and is planning to assemble one in every of India’s largest iPhone services in Tamil Nadu to be operational in 12 to 18 months, Bloomberg reports. All the motion displays Apple’s rising dependence on India.

Chris Kleponis—CNP/Bloomberg by way of Getty Images

Moving extra manufacturing to India will assist Apple hedge towards the dangers posed by China, whose factories nonetheless manufacture practically 90% of all iPhones, based on Counterpoint Research. Beijing’s strict COVID lockdowns jammed up Apple’s provide chain, underscoring the draw back of over-relying on a single provide supply. Escalating U.S.-China tensions are additionally fueling enterprise uncertainty. In September, media stories that Beijing deliberate to broaden a ban on iPhones at government-backed businesses and firms shaved $200 billion off Apple’s share price. (Beijing denied the existence of new bans but cited unsupported claims of security flaws within the iPhone.) “They didn’t want to put all their eggs in one basket,” stated Tarun Pathak, a senior analyst from Counterpoint Research.

What’s extra, labor prices have risen in China. The minimal wage there now ranges from $190 to $360 per thirty days, considerably increased than India’s charges, which range from one state to a different however hover between $84 to $250 for expert staff. In reality, Foxconn’s chairman Young Liu touted India’s labor price benefit on an earnings name in May.

The Indian authorities has additionally sweetened the deal for manufacturers which can be contemplating increasing their manufacturing within the nation. A 2020 program to spice up India’s “self-sufficiency” guarantees small payouts primarily based on the gross sales of products manufactured in India.

Then there’s an incentive that’s farther down the road: Selling iPhones manufactured in India would allow Apple to decrease the tariffs of as much as 20% that India applies to imported handsets and part components, making them that less expensive.

Yet a 100% made-in-India iPhone is years away. Apple’s manufacturing enterprise in China has been particularly profitable as a result of China has established tier-2 and tier-3 degree suppliers that feed into the Foxconn and Wistron factories in China that assemble iPhones, says Amitendu Palit, a senior analysis fellow and analysis lead at Institute of South Asian Studies. For now, factories in India are assembling iPhones from components shipped into the nation from elsewhere.

Two elements holding again that kind of manufacturing in India are labor legal guidelines and the nation’s manufacturing abilities hole.

Manjunath Kiran—AFP/Getty Images

In China, staff can log shifts so long as 12 hours a day. For years, staff within the Indian state of Karnataka, as an example, might solely work eight hours at a time, and ladies have been barred from working night time shifts. Earlier this 12 months, the state handed a brand new legislation that allow staff log as many as 12 hours without delay (as much as 48 hours per week), and dropped the ban on ladies’s night time shifts. (The legislation has not but taken impact.) Apple and Foxconn reportedly lobbied for these modifications, which India’s labor unions and different politicians opposed. Labor rights activists staged protests and filed a complaint with the International Labor Organization. The backlash was so extreme that neighboring Tamil Nadu has put the same laws on maintain.

Then there’s the manufacturing abilities hole. Lior Susan, managing accomplice at Eclipse Ventures, holds up his Apple AirPods to show the gulf. “To get into the finishing from a plastic point of view, from the shininess [point of view], you need mechanical engineers and process manufacturing engineers.” Those kinds of staff “have been working in China for three decades,” he says.

India doesn’t have sufficient of this sort of expert employee but. Last 12 months, India was quick 30 million expert staff in comparison with demand, based on a report from the National Skill Development Corporation. “The most critical challenge is likely to be on the supply side, in terms of availability of appropriately trained labor. I’m doubtful if such labor is in ample supply in India,” stated Palit. Most blue-collar jobs in India are centered round development, outsourcing, buyer care, and information entry.

Karnataka’s minister for data know-how Priyank Kharge is optimistic that India can pivot, citing authorities coaching initiatives. “Ramping up that skill set will not be difficult. We have the demography with us,” Kharge stated.

Expanding India’s Apple ecosystem

Forty miles west of Bangalore, a inexperienced billboard greets drivers on National Highway 75: “Welcome to Milk and Silk City Kolar.” Just a few blocks from Kolar’s fundamental transit hub, dozens of staff, most of them ladies, collect thrice a day for a bus that may ferry them the 12 miles from Kolar to the Narasapura iPhone manufacturing unit. There, they’ll assemble the units for eight hours a day.

Kolar’s proximity to Narasapura has made the hub of two million a form of firm city. You can simply spot the iPhone manufacturing unit staff by the inexperienced ID playing cards dangling round their necks.

Narayani was one in every of them. She began there after finishing her bachelor’s diploma in enterprise administration in 2021. As an “operator” on the plant, it was her job to offer assembled iPhones a ultimate inspection. “I would take it, check for the screen for scratches and the camera for any damage and then send it,” stated Narayani, 21, who requested to make use of a pseudonym since she just isn’t allowed to talk with the media. During a mean shift, she’d test 600 iPhones. She earned $180 a month. She lives along with her mother and father—her dad is a farmer, her mother a homemaker. They have been grateful to have the additional earnings. Narayani was completely happy for the camaraderie of her colleagues.

“It felt like college because everyone around me was my age, and I became friends with them,” she stated.

For younger residents of rural Karnataka, the state the place Kolar is situated, the iPhone manufacturing unit and different industrial vegetation have offered higher pay than the area’s agricultural jobs. Pankaj Mohindroo, head of the Indian Cellular and Electronics Association (of which Apple is a member), estimates that India has added 1 million jobs in telephone manufacturing within the final six or seven years. The nation’s biggest iPhone manufacturing facility continues to be to return. According to stories, Foxconn has invested $700 million to construct an iPhone manufacturing unit close to Bengaluru that may employ 60,000 people.

Workers like Narayani are one cog in Apple’s bigger India ecosystem that would sooner or later feed itself. “A large installed base of iPhones in India will also create a large and growing market for Apple to capture revenues from services consumed by iPhone users on apps downloaded from the App Store,” says Gupta. “Given India’s economic growth, I consider it highly probable that, within 10 years, iPhones could have a 15% market share in India.”

But that’s nonetheless some years off. “Right now, we are assembling iPhones, and R&D and everything is happening elsewhere,” Navkendar Singh, affiliate vp at IDC India. “It’s not happening in India.”

Narayani from Kolar doesn’t plan on being a part of Apple’s India push going ahead. Assembling iPhones was, in her view, a dead-end job. She stop the iPhone plant earlier this 12 months to hunt for a software program engineering job that “adds more value.” She recalled all this whereas speaking on her smartphone from Vivo, a Chinese firm. She can’t afford an iPhone.