1. Apple, India & China: iPhone maker’s foray into India might be in areas not seen before

Apple, India & China: iPhone maker’s foray into India might be in areas not seen before

In what is turning out to be an interesting strategy of expanding global production and protecting brand value, Apple is trying to weave in China and India into its long-term plans, causing both countries to wonder over who could be a more strategic partner.

By: | Updated: May 30, 2016 7:56 AM
 India, while beginning to emerge as a major market for Apple, is yet to figure as a manufacturing destination for Apple.(Reuters)

India, while beginning to emerge as a major market for Apple, is yet to figure as a manufacturing destination for Apple.(Reuters)

Both India and China, are trying to figure out, who among the two is more the ‘apple of Apple’s eye’. In what is turning out to be an interesting strategy of expanding global production and protecting brand value, Apple is trying to weave in China and India into its long-term plans, causing both countries to wonder over who could be a more strategic partner.

China has been a part of Apple’s production networks for a long time now. Apple’s global suppliers, like Foxconn, have been assembling iPhones and iPads out of the mainland for several years. China is also a major market for Apple’s various products. India, while beginning to emerge as a major market for Apple, is yet to figure as a manufacturing destination for Apple. It is likely to become so after the Apple CEO Tim Cook’s recent visit to India and his announcement of opening mapping and app development centres in India.

Apple’s journey in China has hit roadblocks in recent times. The first jolt is has suffered is in competitiveness. Making phones in China is no longer as cheap as it used to be earlier with Chinese wages having increased rapidly in recent years. The second setback has been losing a trademark dispute over the use of the label ‘iPhone’ to a local leather manufacturer. With Apple unable to establish that the ‘iPhone’ brand was well-known in China before Xintong Tiandi began selling its leather accessories (smartphone cases, covers and wallets) with the label from 2007, it will now have to share the label with local manufacturer in China. The implications could be serious for Apple, which has seen a decline in global sales for the first time in several years, and is facing serious competition in the Chinese market from Huawei and Xiaomi smartphones. These cheaper local smartphones have led to an almost 25% decline in Apple sales in China last year.

Apple was looking forward to sale of refurbished iPhones in China as a way of compensating some its loss in sales elsewhere. The loss in the trademark case creates a problem in this regard as higher priced refurbished Apple phones can no longer be expected to be sold in the Chinese market on the basis of brand exclusivity. These problems necessitate looking elsewhere for greener pastures. And what could be better than India—the world’s second-largest smartphone market, where iPhone sales show a 60% increase in first quarter of the current year? Unfortunately, India has not responded favourably to Apple’s plans of selling pre-owned refurbished iPhones in the country on the grounds of generating e-waste and dumping of smartphones leading to adverse prospects for local manufacturers. With hopes of second-hand sales dashed, Apple is reorienting its strategy of working in both countries. Working with local technology developers seems to be its preferred approach.

In China, Apple has announced a $1billion investment in a partnership with Didi Chuxing —probably the most popular ride-hailing app in China. The announcement came with Tim Cook’s affirmation of great promise of growth in China’s app development industry. It also showed Apple willing to venture into areas where it is happy to compete with other American companies—Google and Uber—who are the biggest rivals of Didi in China. Similarly, in India, Apple is looking to create new apps by working with local technology content developers.

Both China and India pose an interesting set of challenges for Apple that are identical in many respects. The two countries are the world’s largest and second-largest smartphone markets respectively. But in both, Apple finds that its brand cannot necessarily fetch the price it would like to. Second-hand iPhones cannot be sold in both countries at prices higher than first-hand local ‘iPhones’. There is no denying that both countries have a ‘premium’ segment among smartphone customers that is willing to pay high prices for owning iPhones. However, these segments are not yet wide enough to generate enough revenue for compensating drop in global sales. Both China and India continue to be markets where budget buyers can expect to get as much value-additive services as iPhones on local smartphones that are available at around one-fifth of the price of the former. Indeed, the large budget segments are the most conspicuous parts of Indian and Chinese local markets, where volumes can be more significant than value, and brand loyalty is as fickle as it could possibly get.

Apple has been strategically intelligent in probing ways to crack the two markets and deciding to do so by working with local partners. The Didi investment in China can show the way for future collaborative investments in India. With both China and India having taken to availing online services rapidly, the choices for Apple are far and wide, and can focus on any segment of consumer services. It is therefore just a matter of time before Apple shows up in India in as big a way as it is seen in China now. However, such visibility might well be in areas where Apple has not been seen before.

The author is senior research fellow and research lead (trade and economic policy) at the Institute of South Asian Studies, National University of Singapore.

E-mail: isasap@nus.edu.sg

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