Despite Huge Spending, Apple Can’t Crack Indian Smartphone Market

Apple has a longstanding history of sewing up the profit in an industry without leading in sheer sales figures. The company regularly dominates profit rankings in both phones and PCs and has made inroads in China, which now constitutes its second-largest sales market. The third-largest phone market in the world, however, remains stubbornly resistant to Apple’s charm — and its hardware offensive.

According to Bloomberg, Apple has now lost three executives in India in recent weeks as it fights to increase its sales figures. It’s a particularly notable weak spot for the Cupertino-based company, given the disparities in market performance across the phone industry. Global smartphone sales fell six percent in China in Q1 2018 and five percent in America compared with the same period in 2017. India sales, meanwhile, grew 11 percent. Granted, overall revenue in the phone industry continues to grow and Apple is less dependent on driving revenue through market share than manufacturers like Samsung, but the company’s brand strategy is based on establishing a cachet that other companies can’t match.

So far, Apple’s efforts to pull this off in India have come up a bit short for several reasons. The firm faces high tariffs because it doesn’t build its latest models domestically. Apple builds a few older devices in India, but not newer products. There are several potential explanations for this. It’s possible that Apple hasn’t been able to construct a secondary supply chain in India that would satisfy its needs; Apple is famous for demanding rigorous control of its supply lines.

It’s also possible that Apple doesn’t feel, were it to take the above step, that its estimated market share in India would justify the expense of doing so. According to IDC, the Indian smartphone market shipped 30 million units in total in Q1 2018. Apple is estimated to have shipped some 52.2 million smartphones worldwide over the same period, with the company holding an estimated 2 percent of the India market. That works out to some 600,000 phones — not exactly the kind of figures that would make Tim Cook hungry to relocate his manufacturing divisions. Even if we assume that Apple could take 20 percent of the Indian market, that’s still just 6 million phones per quarter.

The catch-22 to all this, of course, is that while India is currently a tiny market for Apple, it has the potential to be a much larger phone market than the United States. India’s GDP is currently growing more quickly than China’s, and its population is almost the same size. Chinese incomes are still much higher, in per capita terms ($15,500 purchasing power parity in 2016, compared with just $6,490 for India in the same year). But if you were to run the graph above backwards, you find China’s per-capita PPP at India’s level today back in 2007.

In other words, it won’t be long before India’s smartphone market looks more like China’s — and is therefore worth considerably more money to Apple. But if the company waits until India’s market is objectively worth the investment required to take an early leadership position, it may find itself locked out of a market that’s likely to continue growing well after more established markets have shifted to replacement-only models.