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In this assignment, we have chosen India as the new foreign country to enter into and establish new plant for the manufacturing of the Apples electronic products such as the iPhone, iPad, iPod and etc.
There are many reasons why India was chosen rather than other countries around the world. First of all, it is because of the low labor cost and the unemployment rate in India. Comparing to the existing Apple assembly plant in Shenzhen, China contracted under Hon Hai Precision Industry Co., Ltd. (Foxconn), the cost of living is much lower for India. Entering into the Indian market can also create job opportunities for the populations there, hence helping to decrease the unemployment rate.
However, the major reason why India was chosen is due to the 213 Billion Rupee (Rs) in incentives by the Indian government to attract more electronic manufacturers around the world to set up new production plant in the country in an attempt to boost India's local hi-tech manufacturing ecosystem, reported early in 2013. This is due to India's rapid growing economy and is set to compete against some of the strongest countries in terms of manufacturing such as China which has been showing signs of stagnant growth rate. This is a very good opportunity for Apple Inc. to invest in setting up a new plant in India, partly due to the wide spread controversies surrounding its Taiwanese contracted manufacturer Foxconn.
As of which state and part of India that has the highest potential to be selected to set up the new plant, we propose the assembly plant to be built in Sriperumbudur in the state of Tamil Nadu. Currently, there are a few well known manufacturer plant available around the district of Sriperumbudur such as Nokia, Hyundai Motor and Saint-Gobain. Another advantage of setting up plant in Sriperumbudur is that the nearest seaport and airport is just approximately 50km away. This is a good advantage for Apple Inc since the assembled products are mainly for export to other countries and a near seaport can proved a great strategic advantage for logistic in the long run.
2.1 Relevant gains
2.1.1 Cost saving along the manufacturing chain.
Apple Inc has been looking into expanding its iPhone sales in India because Indian telecom companies don't subsidize the cost of iPhones. By having its manufacturing plant in India, it can save cost along the manufacturing chain, thus lowering the cost and Indian telecom companies doesn't need to subsidize/subsidize less. For this, Apple Inc has brought in two large distribution companies to bring in more points of sale. Furthermore, Apple Inc has been using its existing relationships with the two distribution companies to offer other Apple products such as the iPad.
2.1.2 Risk diversification
Apple Inc's 2012 dispute with a financially troubled Taiwanese PC maker Proview Electronics over the rights of the iPad name has shown the light to Apple Inc that its presence in the well-ordered China is bad as it has too much reliance on that one market. Therefore, having its plant in Sriperumbudur, Tamil Nadu, India, where companies that has the similar production capabilities as Foxconn are present, seems to be a pretty good option.
2.1.3 Financial Stability potential manufacturing companies
Furthermore, manufacturing plants in India's Chennai such as Reliance Communications are listed in the Bombay Stock Exchange just like Foxconn is in China's Shanghai Stock Exchange, and are billion U.S. dollar turnover businesses in their own right. For example, Reliance Communication has their global income reached US$296 billion in 2011.
2.1.4 Huge latent pool of workers
India, a nation famously known for being IT savvy and is developing its own infrastructure to grasp the full benefit of their labor demographic dividend, especially from its sheer population size similar or comparable to of China's.
2.1.5 Indian government liberalization over single brand retail market
The Indian government has come to a trend of liberalizing foreign direct investment (FDI) in its retail sector and has recently changes its policies designed to permit FDI in multi-brand retail trading - up to 51 percent, not to mention the further relaxation of its policies on FDI in single-brand retail trading. In this instance, many foreign brands have been rushing to dive into the consumer market as comparable in size as the ones found in China. Apple Inc is more than welcomed to join in the rush to be the cluster of foreign brands to set up its manufacturing site in India.
2.2 Relevant Shortcomings
2.2.1 Low Education Level
The most obvious drawback for entering India is their education level. In spite of the boom in the services sector, 75% of India's working population is only educated up to middle school levels. This astounding figure of approximately 600 million people is insufficient to benefit from the wide opportunities in the flourishing knowledge sector. In short, only jobs that are labor intensive has the capability to generate employment to absorb the larger labor pool. Therefore, if Apple Inc ventures into having a manufacturing plant in India, they will only provide jobs for labor intensive individuals which are excluded from production. Production will be affected as they will require more highly qualified individuals to perform jobs like assembling and testing of their products.
2.2.2 Low Wage Rate Damaging Reputation of Company
Another drawback for entering the Indian market is that their low wage rate on their employees will severely affect the performance of their company. As according to CY TALK, Apple Inc pays their employees around 100 USD a month. This on the other hand affects their reputation as consumers will feel guilty knowing that their Apple products are made by individuals who are paid below average. Although labor cost is low in India, Apple Inc's production will not increase as employee will be less motivated to work due to the low income.
2.2.3 Political System
Moreover, India is also categorized as a country that constitutes in a collectivism political structure. A collectivism system is when the distribution of wealth is equal in society. Therefore, India itself will face a drop in business opportunities as employees are not rewarded for any innovation. As a drawback, bringing production into India will not be efficient as employees are all paid the same wage rate no matter how much of the Apple products that were assembled during the labor period. Apart from that, employees will not be motivated to produce more as they will not be rewarded with extra wage for the higher output.
2.2.4 Immature Market
Although income tax will decrease which makes it to be more competitive against other countries, this is not an ideal plan for Apple Inc to enter into India to manufacture their products. The reason behind this statement is due to the country's early stages in manufacturing. Apple Inc not only needs to be strong in labour, energy and materials but still need to have a determined workforce with innovative thinkers. Obtaining these sources might end up with a high cost for Apple Inc. Therefore before entering into India, Apple Inc will have to make an additional effort to overcome these constraints, build up suppliers and improve internal processes.
As analyzed in the previous part, Apple might experience high risk due to the unknown experience to venture into India. It might become one of the biggest challenges to Apple Inx as it might either gain competitive advantage and increase productivity or it could become a huge loss to Apple if the venture is unsuccessful. Therefore before venturing into India, Apple Inc should research the market thoroughly by sending experts to India instead of determining the outcome roughly based on certain experiences in the past to determine their manufacturing value compared to other country and every strength and weakness of India.
Location, quality, the supply chain, automation and equipment accessibilities, and capabilities are the factors that Apple Inc should consider during the expansion (Lee, 2012). Circumstantiate the capital needed and estimation of sales and profitability through surveys or previous sales through the partnerships that they had in India. With all these factors, Apple Inc is able to forecast their unforeseen circumstances more accurately and conduct planning extensively to avoid a big downfall. This gives them the chances to see-through the opportunity to venture into India's IT market.
3.0.2 Culture Adaption
Second method to increase the advantage for Apple Inc. in India is changing and adapting their usual strategies used in other countries namely China and USA accordingly with India's culture and economy. Instead of transferring the strategies that they have bring and originated from their own host country, by adapting the Indian's culture they can win the locals. Apart from following the traditional way of Apple's management which is individualism, they must follow India's management culture which is collectivism.
As analyze collectivism will offer a drawback for Apple Inc. they can adapt Google's collectivism culture. The openness in innovation, sharing of property ownership and innovation freedom (Cleland, 2010) will be able to boost India's citizen income earned. Instead of paying wages, the use of other methods to reward their contributions as motivation should also be considered. Furthermore, promotion opportunities and increased salaries will motivate the Indians as a part of recognition and boosts to their economic and class status which it is important in India's culture (www.culturesmartconsulting.com)
During the expansion into India, determinant and implementation on strategies are very important. Despite of India's reputation on expansion on their IT's market, Apple Inc. has little to none experience in the market. The reason behind this is due to Steve Jobs' legacy of not expanding to India as the cost of running operation in India is too high and inefficient comparably to other Asian countries (Staff, 2012). High cost, high turnover and high competition become factors for Apple to have a large possibility for not sustaining in India (Jagannathan,2012).
Therefore, Apple Inc. can try to have partnership and alliance through their top supplier, Foxconn or other suppliers that already have a base in India. Examples of these suppliers are Bharti, HCL Technologies, Reliance Communications, TVS Electronics, Videocon Industries, and Wipro, which are all based in Chennai. They have the same capabilities that can be offered to Apple Inc. as much as China (Briefing, 2012). Their experiences in India will be highly advantageous for Apple Inc. if they were to manufacture in India. In this way, they can reduce the running operation cost as well as hiring cost. This will lead to a reduced in financial losses for Apple Inc. if a downturn were to happen.
3.0.4 Increase in Wages
Employees are the core of an organization. They are the ones who help in improving and producing the products. Hence by giving others the chance of gaining advantage, it would help employees to rebuild their confidence and be loyal to the company. Increase in wages may help in motivating the employees and decrease the turnover rate for Apple Inc. They will also be able to compare against the average wages that are paid by their competitors as well as other American-based manufacturing plants in India.
For example their top rivalry in manufacturing in India would be Nokia with the average wages of $125-$243 per month for their employees (Bloomberg, 2011). In comparison to the wages that Apple Inc paid as analysed, optimising the wages paid for the employees will help Apple Inc to be able to attract more employees to work with them as well as staying loyal to them. With this, they can also sustain their brand longer as they will have a positive reputation amongst the people of India and customers.
As analysed, India has a low education background, Apple Inc. can try to increase the skills and knowledge through training and educating courses. They can definitely hire blue collar workers and provide opportunity to learn and improve skills based on their work requirements. Training-for-work method is a method that varies from formal class to informal self-based method of learning (Danzinger and Dunkle, n.d) that gives opportunity for the employees to learn necessary skills that relates to their job scopes. After the training, managers and supervisors can assess the abilities and skills of the employees to ensure they are keeping up with Apple's quality requirements and maintenance of their product's quality.
Whereas for professional positions such as the management team, Apple Inc. can hire better educated, experienced employees or send their experts from California to India as a way to help with the management for the plant. As India has a huge and growing market of IT developments, they can easily manage in hiring appropriate employees to manage their manufacturing in India as they have abundant of skilled manpower (EconomyWatch, 2010).
After analyzing the gains and shortcomings that poses to Apple Inc in entering into the Indian market in this assignment, our group has come to a conclusion that Apple Inc should definitely consider setting up its manufacturing plant in India, particularly in Sriperumbudur, Tamil Nadu.
One of the major benefits of entering into India is that the political system which is collectivism makes it a good advantage for foreign companies to invest in since all employees' wages are equally distributed. Hence, this can contribute to help in reducing labor cost which is one of every firm's objectives. Besides that, the fact that by setting up manufacturing plant particularly in Sriperumbudur, Tamil Nadu, the nearest seaport and airport is only 50km away from the city. It may seem like a negligible factor in the short run, but in the long run, this can prove to be powerful competitive advantages for the company because of the lower logistic cost the firm is able to benefit from such a short travel distance.
However, there are certain things Apple Inc has to take into consideration before entering into the Indian market. Setting up a new manufacturing plant in a foreign country means that Apple Inc have to subcontract the manufacturing rights to another service provider. With the low labor cost in India, Apple Inc has to make sure the subcontracted company doesn't abuse this exploitation to underpay the employees with unreasonable working hours like what happened to Foxconn in China.