Following lacklustre performance in Q1 2016, Apple Inc. ceded its top spot as the world’s most valuable company to Google. This left many of Apple’s investors a little concerned.
To reassure investors that Apple Inc. still has a firm footing, the company renewed its focus on the Asian market. With that, a majority of future growth for Apple depends on the company gaining a strong foothold in Asian markets, particularly China and India.
China
There are certainly barriers to entry in China—Apple recently came under some pressure from Chinese regulators, with its online book and film services being shut down in the last month. Another major roadblock came with the Chinese government’s decision to favor domestic companies in designing their own smartphone systems. If successful, this could mean China replacing foreign companies with its own smartphones—using Chinese parts and Chinese operating systems both at home and abroad.
But, there have been victories too. Apple declared in mid-May that it would invest $1 billion in Chinese ride-hailing service Didi Chuxing, which is China’s chief rival to Uber Technologies Inc. According to Apple’s official communication, this move is a strategic foray into the Chinese market designed to help the company better understand the business environment. The move is in-line with the company’s confidence in the long-term outlook of the Chinese economy. As the company pushes into the automobile business, it also provides a possible hint to Apple’s continued interest in the world of transportation. It may all be an initial move to curry favour with the Chinese government, especially with Tim Cook, Chief Executive Officer of Apple Inc, visiting China at the end of May.
India
According to Tarun Pathak, a senior analyst at Counterpoint Research, the active smartphone user base in India grew to nearly 220 million at the end of 2015, making India the second largest smartphone market after China. Still, fewer than 2 in every 10 of the country’s 1.3 billion people have a smartphone meaning there is a giant opportunity for companies like Apple to explore.
Even so, Apple’s focus on India has been a hot topic of debate over the past few months—a debate that Apple has not followed-up with action until now. With India outpacing China as the world’s fastest growing economy, and strong growth in sales of iPhones in India in Q1 2016, Apple seriously has begun to consider India as its next growth destination. This is evident in Tim Cook’s making a 6-day visit to India in May.
On his recent visit, Mr. Cook christened Apple’s first development center in India, located in Hyderbad, and confirmed plans of a “design and development accelerator” in Bangalore (the Silicon Valley of India) by early 2017. He also hopes to bring a host of new services to India soon, like Apple Pay.
Bottom Line for Investors
This renewed focus on the Asian continent, particularly in China and India, will support Apple in regaining momentum. But, a couple problems still stand between Apple and their success in India and China. Firstly, with the majority of Indian buyers being price conscious, Apple could struggle with the high price of their products. Secondly, the Chinese government’s much-touted “Made in China 2025” program could create opposition for non-Chinese businesses. Even so, with local manufacturing, incentives and lower duties, coupled with Apple’s focus on producing affordable refurbished phones, Apple has a shot at gaining a strong foothold in the Asian markets.
Disclosure