Apple’s R&D spend will keep iPhones on sale in Indonesia

With Chinese mobile growth slowing, smartphone vendors are wooing India and Brazil, and next in line for their affections is the huge and largely untapped market of Indonesia. No surprise, then, that Apple has announced an investment in R&D in the world’s third most populated country, which will enable it to keep selling iPhones beyond next year – when rules on foreign mobile sales are set to toughen up.

The Indonesian government is following in the footsteps of India, Russia and others by introducing a requirement for local manufacturing if foreign suppliers want to sell their devices. Of course, such rules, designed to stimulate local industry and keep some of the rewards of the mobile boom at home, are always subject to compromise, especially when local carriers and consumers want to have high profile devices like the iPhone.

So Apple and its manufacturing partner Foxconn will not have to build plants in Indonesia in order to keep selling the handsets from 2017. Instead, the US firm’s planned R&D investments will satisfy the new requirements, said the minister of communications and technology, Rudiantara.

He told Bloomberg that he had informed Apple executives, while he was on a trip to Silicon Valley last month, that the iDevice maker would be able to “take the hardware route or the software and development route” to comply with the proposed new rules, which would require foreign phone vendors to source at least 30% of their components locally. But it seems that R&D and software content will count, at least in Apple’s case. “Apple said it would like to establish the R&D facilities,” he said in the interview.

The Trade Ministry will release a formula later this month outlining how much companies would need to invest in R&D to meet the new rules.

This new approach will please the American Chamber of Commerce in Indonesia, which has been lobbying to relax the planned regulations, saying they would be “a considerable hindrance” to attracting inward investment into the country and failed to consider the realities of global supply chains. They would also be a blow to the whole smartphone supplier market, since Indonesia imported $5bn of the devices last year, and yet is still a largely untapped market of 250m people.

Foxconn was in talks earlier this year about building a manufacturing plant in Indonesia, which could have produced iPhones, but the government said in August it could not grant the Taiwanese firm’s request for a “large amount” of land for the facility.

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