Making Guesses About Apple’s India’s Intentions

May 24th, 2016

On Monday, I read an article from an author who seems astonished that Apple CEO Tim Cook treated his hosts in India with respect. The headline included the phrase, “from arrogance to servility,” as if to imply that acting as a respectful guest in a strange country is unusual for Apple. Regardless, it’s clear Apple wants to carve out a huge piece of the smartphone sales pie in the second largest country on planet Earth. But that should come as no surprise.

So the real story isn’t Cook’s attitude, or alleged servitude, but what Apple plans to do to accomplish the task. Clearly there are huge obstacles, and one is the fact that the iPhone is priced far above what most of India’s population can afford. At least for now. Indeed, one published report quoted Cook as admitting that the prices of Apple’s flagship “may be too high.”

Now it has already been reported that the Indian authorities evidently turned down a bid by Apple to sell reconditioned — and therefore cheaper — iPhones in India. If that can be revisited, and the decision supposedly isn’t final, I suppose that’s one way to resolve the high price of admission. Another would be emphasizing the low-end model, the iPhone SE, and perhaps cutting the price some on the more expensive handsets. That Apple can pack most of the guts of the iPhone 6s into the smallest iPhone for $50 cheaper than its predecessor demonstrates a commitment to finding ways to fight the price barrier.

It’s not that $50, or the equivalent in India Rupees, 3,371.52, is all that much. But it’s a start. In saying that, Apple isn’t about to lose money on any hardware. It’s well known that this company won’t play that game, even though most makers of tech gear haven’t gotten the memo. Obviously very little profit can be had from selling Chromebooks for less than $150, but to many PC companies, it’s all about volume.

Only Amazon seems credible in taking little or no profit after all these years.

Another problem is that Apple’s gear generally also costs more in equivalent money in other parts of the world, which hurts its ability to compete. It’s complicated. Sometimes it’s all or mostly about different tax rates, to which you add varying foreign exchange rates. So as the U.S. dollar rises, an American company’s ability to compete in foreign markets becomes more difficult.

I suppose one way to deal with this is to assemble the gear locally. Apple depends heavily on China for manufacturing, and I suppose factories could be established in India to reduce shipping costs and take advantage of any local tax incentives.

That’s why foreign car makers have established a number of assembly plants in the U.S. So millions of vehicles from Honda and other overseas companies are, based on the percentage of domestic content, actually American cars.

One thing is certain from the published reports, and that is that growing sales in India is going to be a slow climb. Apple’s share of the market there is reported as a mere 1.5%. iPhones are, on average,five time more expensive than the typical sale price of a smartphone in that country. Now the average sale price for smartphones around the world is $261.30. The average sale price for an iPhone was $642 in the March quarter. You can see the disparity, but it’s also true that Apple competes in a more rarified atmosphere where the competition’s retail price is not that much different.

In short, Apple is not going to consider desperate measures to be more competitive. The iPhone, as with Macs, iPads and the Apple Watch, are meant to be aspirational products. They will cost more than the average gadget from a competitor, but they are within the range of products that directly compete on specs and features.

So it would seem that iPhone sales may stay in the single digits for quite a while in India, but if double-digit growth can still be achieved, there is hope for the future. As India’s middle class grows, Apple will have plenty of gear that will appeal to them.

Still, some reports I checked claim that India’s refusal to allow Apple to sell refurbished iPhones in that country marked a big defeat. The reasoning is said to be political, partly influenced by lobbying from the entrenched competition. Apple’s move to launch Maps and iOS app development in India will no doubt help some, as will setting up Apple Stores. A commitment to manufacture iPhones would do more, although its sales volumes wouldn’t seem sufficient to warrant that sort of investment, at least for now.

But it’s also true that Apple doesn’t plan for the short term. Lower iPhone sales will be tolerated, as will lower iPad and Mac sales, so long as profits remain high. It’s very possible that growth will resume in China, that future iPhones will attract higher numbers of upgraders and switchers, and plans to grow the market big time in India and other developing countries will succeed going forward.

Unfortunately, Apple’s critics will continue to demand immediate solutions to long-term trends. Apple would be making a huge mistake to listen, but it’s clear they are taking steps to explore new market opportunities. Anyone who wants to consider the iPhone ultimately dead and buried should look at the proportion of smartphone sales as a part of Samsung’s total revenue for a reality check.

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