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Apple's CEO Courts India

May 26, 2016
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SMITH BRAIN TRUST — Apple CEO Tim Cook is back from a weeklong visit to India, which the company hopes will be its next major growth center, now that China is cooling. But the company, which has only about 2 percent of the Indian smartphone market today, faces a host of challenges, explains Gary A. Cohen, associate dean for executive programs at the Robert H. Smith School of Business, at the University of Maryland. These range from a lower-income consumer base than exists in China, to regulatory hurdles, to a host of competitors that have a head start. "Apple wants India to be the next China," Cohen says. "But India is not the same as China."

"The Indian consumer is far more price sensitive than the Chinese consumer," Cohen says. "And there are numerous low-cost alternatives. That's not to say that Apple won't see an ROI in India, but it's unlikely to happen as quickly as in China."

In particular, he notes, Chinese-based Huawei has made significant inroads in India with lower price point, high quality phones. Meanwhile, at the high end of the market, Samsung outsells Apple. Overall, Samsung has 27 percent of the Indian market (a figure that includes both high-end and modestly priced models).

In wealthier countries, Apple benefits from its strong ecosystem of products that work well together: computers, iPads, the iPhone. But families that can afford a house full of Apple devices are scarcer in India, so the company may have to shift its strategy, Cohen says.

Apple has cut the costs of its phones in India, sacrificing profits, but they remain luxury items, as Cook acknowledged during his tour.  The company wants to supplement its sales of new phones with certified pre-owned models, but Indian officials are suspicious of refurbished products from abroad, viewing them as a form of unfair "dumping."  The two sides appear to be stuck on whether refurbished and pre-owned phones should be lumped into the same category.

Apple also faces the hurdle of an Indian requirement that companies that operate single-brand stores must source 30 percent of their products from Indian companies. Apple, whose manufacturing base is in China, does not meet that standard. Negotiations continue over whether Apple may get an exemption to this rule.

One path to market share might be for Apple to produce a phone even more affordable than the iPhone SE, the smaller model it recently brought out in the U.S. "But Apple would then face the risk of watering down their brand," Cohen says.

Pressed by the Indian Express on whether it might go that route, Cook said: "We are about making the best products and we are not going to lower the bar."  

Cook stressed the role of India as a source not just of consumers but of tech talent. The visit was partly about inspiring Indian developers to get excited about Apple's operating systems. That's an indirect but important way of increasing the company's prominence in this emerging economy — the fastest-growing smartphone market in the world.

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About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, specialty master's, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.