The combined population of China and India accounts for 36 percent of the world population, or 2.9 billion people. The numbers are even more astounding considering they are emerging markets with middleclass demographics larger than the entire population of the United States. While the populations are very large, high-end products such as the iPhone (News - Alert) have had a hard time penetrating those markets. Never the less, Apple has increased its total revenue in China from two percent two years ago to 12 percent last fiscal year. The move to India has also been aggressive on the part of Apple (News - Alert), and sales have gone up 400 percent in the last three months alone.
The sudden interest in these markets comes at a time when the company is starting to experience a plateau in its penetration levels in all other developed markets around the world. With an average ownership time of more than two years for smartphones, Apple had to start looking for other markets aggressively. Furthermore, investors are growing uneasy, as Samsung (News - Alert) and other phone manufacturers are starting to capture more market shares – especially in emerging markets.
Apple has increased its presence from 30 people six months ago to 150 today along with a marketing campaign for the iPhone. The campaign is not tied up to mobile operators, leaving nothing to chance about making its presence felt in this country.
At the last earnings call, the Apple CEO Tim Cook explained, “I love India, but I believe that Apple has some higher potential in the intermediate term in some other countries. That doesn’t mean that we’re not putting emphasis in India — we are. We have a business there; that business is growing, but the multilayer distribution there really adds to the cost of getting products to market. So we’re going to continue putting some energies there, but from my own perspective, in the intermediate term there will be larger opportunities outside of there.”
It seems as if the company has been reconsidering that statement considering the recent influx of man power to the country.
While smartphone penetration rates in India currently stand at less 10 percent, a company that wants to make headway cannot wait until the market improves to introduce their product. The success of the last three months has been attributed to opting for an open distribution model with a couple of companies.
The price of the iPhone has to be seen in context with the average annual salary in India, which is 60,000 rupees ($1114 USD) compared to the price of the iPhone 5, which is selling for 45,000 rupees or ($835.50 USD). Even if India is an emerging market, it still has a long way to go before the average person starts considering spending 45,000 rupees for a phone.
Apple will capture some of the market with the population that is able to afford the phone, but the vast majority of people in India will not consider this brand. In order to address this market globally, Apple has mentioned that it has been working on a cheaper iPhone in the $150 range.
While this will still be prohibitive for most people in emerging markets, Apple will be able to compete with other manufacturers, and the allure of the brand will make it a hot selling item at this price.