Apple plans Indonesia R&D investment to meet new phone sales rule
According to a report on Wednesday, Apple's plan to build research and development facilities in Indonesia, a move formulated to satisfy a new rule requiring that foreign made phones contain a percentage of domestically produced components, has been approved by that country's government.
Indonesia's Minister of Communications and Technology Rudiantara, who is addressed by only one name, informed Apple of the upcoming edict during a trip to California last month, reports Bloomberg.
The stipulation, which takes effect in 2017, requires foreign phone makers source at least 30 percent of components from domestic products. Rudiantara said Apple can "take the hardware route or the software and development route" to meet that criteria.
"Apple said it would like to establish the R&D facilities," he said.
The U.S. government is also apparently on board, as Rudiantara said both U.S. Assistant Secretary of State for Economic & Business Affairs Charles H. Rivkin and U.S. Ambassador to Indonesia Robert Blake were "okay" with Indonesia's plan after being briefed on the matter. Indonesia, long reliant on imports, is attempting to bolster domestic manufacturing assets with the new rule.
For Apple, building out local R&D capabilities might be worth the investment, as Rudiantara said Indonesia imported some $5 billion worth of smartphones last year.
Apple is looking beyond developed markets like North America and Europe to areas that can maximize iPhone's growth potential. China is foremost among these emerging markets and the company has dedicated massive resources to building out its retail presence in the country. The gambit is paying off, as Apple reported China revenue hit $12.5 billion for the most recent fiscal quarter, a year-over-year increase of 99 percent.
Indonesia's Minister of Communications and Technology Rudiantara, who is addressed by only one name, informed Apple of the upcoming edict during a trip to California last month, reports Bloomberg.
The stipulation, which takes effect in 2017, requires foreign phone makers source at least 30 percent of components from domestic products. Rudiantara said Apple can "take the hardware route or the software and development route" to meet that criteria.
"Apple said it would like to establish the R&D facilities," he said.
The U.S. government is also apparently on board, as Rudiantara said both U.S. Assistant Secretary of State for Economic & Business Affairs Charles H. Rivkin and U.S. Ambassador to Indonesia Robert Blake were "okay" with Indonesia's plan after being briefed on the matter. Indonesia, long reliant on imports, is attempting to bolster domestic manufacturing assets with the new rule.
For Apple, building out local R&D capabilities might be worth the investment, as Rudiantara said Indonesia imported some $5 billion worth of smartphones last year.
Apple is looking beyond developed markets like North America and Europe to areas that can maximize iPhone's growth potential. China is foremost among these emerging markets and the company has dedicated massive resources to building out its retail presence in the country. The gambit is paying off, as Apple reported China revenue hit $12.5 billion for the most recent fiscal quarter, a year-over-year increase of 99 percent.
Comments
I'm hoping this doesn't become a trend.
That would cost many many times more than simply setting up R&D facility. Not to mention the fact that Apple doesn't produce its own components. They rely on outside suppliers which change based on the technology. Bids are also competitive. Your plan would be a better fit for an inefficient centrally planned economy than a dynamic tech company.
I'd have told them to pound sand.
I'd have told them to pound sand.
1. You can set up a small R&D facility and tell them that they are developing a SoC component.
2. Let locals to develop some nonessential components of that SoC.
3. Then let Cupertino engineers to check the design and verify it doesn't do any harm and fix it if it does.
4. Claim that certain components were developed by Indonesian SoC design team.
5. Sell iPhones in Indonesia
6. Profit.
R&D can include a lot about designing a specific UI that makes the iPhone more desirable to a country like Indonesia where multiple languages and writing scripts are normal. When Apple writes iOS is is very much aligned with American needs and ideas. The research arising out of the Indonesian culture and designed to fulfill needs the USA culture may be blind to, can do nothing but fuel sales in that part of the world. In passing, what is learned there, may be applicable to other countries as well.
If it comes down to building an in-country assembly plant, such as Apple did to satisfy Brazilian import tariffs - it's a no brainer. The local iPhones cost more to assemble, but the costs are born locally —plus the net cost, without the punitive tariffs are still lower, meaning Apple wins anyway.
If more countries adopt the restrictions similar to what Indonesia has done, then it will be a win for Apple, as Apple may be the only company large enough and with the Tim Cook method of scheduling to pull off such a requirement. Remember, in most cases the extra costs of doing local R&D raises the iPhone's presence (and hence, sales) inside that country... and if it involves manufacturing, the extra costs are born within the prices within that country, like as in Brazil.
I'm hoping it does, for lots of products, especially in the USA where manufacturing is almost nonexistent anymore (thanks to greedy corporations that eliminated domestic manufacturing to evade unions and paying US employment rates).
Businesses and capital go where they are most "welcomed". The US has become very anti-business, so it's not at all surprising that the industrial base has largely dusappeared.
im guessing foreign companies are out? Who can afford this besides Apple?
I'm hoping this doesn't become a trend.
This has been the tend for a long time, this nothing new. what usually happend the country grands waivers since it can never be accomplish, it if fact company meets the quota, the costs are high the local customers complain, the economy begins to hurt and they back off. Some of these countries lack the resources both in human capital and materials to make it happen.
Yeah the US government is on board because they know it will not hold and this allows Apple to burn through some off shore capital and they get to expense the costs.
Quote:
I'd have told them to pound sand.
Why leave a billion on the table when it's there for a likely not bad investment in the first place (Apple's ever more a truly global business both in terms of import - both of physical components and IP - and export)? E.g........
For Apple, building out local R&D capabilities might be worth the investment, as Rudiantara said Indonesia imported some $5 billion worth of smartphones last year.
Via (sort of).....
1. You can set up a small R&D facility and tell them that they are developing a SoC component.
2. Let locals to develop some nonessential components of that SoC.
3. Then let Cupertino engineers to check the design and verify it doesn't do any harm and fix it if it does.
4. Claim that certain components were developed by Indonesian SoC design team.
5. Sell iPhones in Indonesia
6. Profit.
Basically right chain, except a little condescending. Indonesians are just people in another country - with plenty equally as smart and creative as any anywhere......
....and doubtless have original things to teach us.......
Quote:
R&D can include a lot about designing a specific UI that makes the iPhone more desirable to a country like Indonesia where multiple languages and writing scripts are normal. When Apple writes iOS is is very much aligned with American needs and ideas. The research arising out of the Indonesian culture and designed to fulfill needs the USA culture may be blind to, can do nothing but fuel sales in that part of the world. In passing, what is learned there, may be applicable to other countries as well.
If it comes down to building an in-country assembly plant, such as Apple did to satisfy Brazilian import tariffs - it's a no brainer. The local iPhones cost more to assemble, but the costs are born locally —plus the net cost, without the punitive tariffs are still lower, meaning Apple wins anyway.
If more countries adopt the restrictions similar to what Indonesia has done, then it will be a win for Apple, as Apple may be the only company large enough and with the Tim Cook method of scheduling to pull off such a requirement. Remember, in most cases the extra costs of doing local R&D raises the iPhone's presence (and hence, sales) inside that country... and if it involves manufacturing, the extra costs are born within the prices within that country, like as in Brazil.
im guessing foreign companies are out? Who can afford this besides Apple?
I'm hoping this doesn't become a trend.
Here's an interesting question: If the US adopted a "local content" standard, (depending on closely they resembled typical provisions elsewhere) would US headquartered Apple be able to sell any of its products (other than the Mac Pro) here....??
"requires foreign phone makers source at least 30 percent of components from domestic products."
30 percent? How could that even be possible?
This has been the tend for a long time, this nothing new. what usually happend the country grands waivers since it can never be accomplish, it if fact company meets the quota, the costs are high the local customers complain, the economy begins to hurt and they back off. Some of these countries lack the resources both in human capital and materials to make it happen.
Yeah the US government is on board because they know it will not hold and this allows Apple to burn through some off shore capital and they get to expense the costs.
Some markets just aren't large enough for companies to justify the investment. These policies more often actually protect local business (usually owned by oligarchs and the politically connected) from outside competition.
Apple's CPU, made by Samsung, is manufactured in a Texas factory. In addition the glass touch screen is as well. There are one or two minor components fabbed in the USA too.
Apple's CPU, made by Samsung, is manufactured in a Texas factory. In addition the glass touch screen is as well. There are one or two minor components fabbed in the USA too.
GTK, and of course Apple could claim that the vast majority of the software and other IP is "produced" here (as in the Indonesian solution)....
...and btw, back to the general discussion, before getting medieval on Indonesia (and telling them to go pound sand), it should be remembered how much pressure the US put on the Japanese manufacturers to increase local content on cars they sold in the US - some via "jawboning" and some via legislation as I recall - so what's fair for Goliath should be fair for David, yes/no....??
Some markets just aren't large enough for companies to justify the investment. These policies more often actually protect local business (usually owned by oligarchs and the politically connected) from outside competition.
Given that Indonesia has a population in excess of 255,000,000 it's probably a reasonably sized market.
Levels of corruption, deforestation and the ongoing genocide in West Papua make it a fairly questionable direction though.
If Bhutan, Palau, Saint Lucia, and Djibouti all passed similar laws then there would be no Apple products in Bhutan, Palau, Saint Lucia, and Djibouti. Heck, there might not be any more phones available in those countries after that. If a country wants to have a hand in producing a product then they need to be competitive on a global scale. If you're not good at producing an item then produce something that you are good at.