Apple's Chief Rival Has a Cautionary Tale for India

In July 2008, Apple Inc. opened its first retail store in China, marking the start of a meteoric rise in the country. Fifteen years later, Chief Executive Officer Tim Cook is offering the same blessing to India. It’s obvious that the world’s most-valuable company should hang out its shingle in what may already be the globe’s most populous country, yet there’s a cautionary tale not only from its time in China, but from its chief rival.

When hundreds of people queued up for the opening of that first store in Beijing, the nation was barely a blip on Apple’s revenue radar. By the next financial year, ending September 2009, China plus Hong Kong combined brought in a mere $769 million in revenue, accounting for 1.8% of the global total. Within another two years, the figure jumped to $12 billion, or 11.5%.

India is at that point now. Over the past year through March 31, Apple’s sales in the country climbed around 50% to almost $6 billion, Bloomberg News reported Monday, citing a person familiar with the matter. That’s an impressive jump given the global slump in gadget sales across all categories. Yet it’s still only 1.6% of company-wide revenue, and around 8% the scale of what the iPhone maker currently gets in Greater China.

In opening two stores this week — the first in Mumbai followed by another in New Delhi — Cook’s move could be seen as either driving business in an important market, or simply jumping on the bandwagon of growth that already exists. There certainly seems to be no downside given that he’s also pushed suppliers such as Foxconn Technology Group, Wistron Corp. and Pegatron Corp. to ramp up output in the country. While local manufacturing avoids import taxes imposed by Prime Minister Narendra Modi’s government, exports are also playing an increasing role, with outbound sales of handsets climbing 67% in the 12 months to Dec. 31 to more than $7.1 billion, according to India’s Department of Commerce.

Chinese brand Xiaomi dominated the market in India in shipment units last year, followed by Samsung, Vivo, Realme and Oppo, according to Counterpoint Research. Apple’s not among the leaders until you consider share by value, where the iPhone occupies the premium end. By that metric, the US company is second behind its South Korean nemesis. More importantly, Apple — which has far fewer discrete models than other players — occupied the top three spots with various iterations of the iPhone 13.

It’s easy to see why the future may be bright for Apple. With its high-priced device appealing to India’s middle class and its enhanced spending power, the Cupertino-based company is building loyalty it can use to sell other products: Airpods and Apple Watch would pair nicely with that sleek new handset. And from there, lure them into a growing array of services which includes Apple Music, Apple TV+, iCloud and more. Samsung, as the prime rival in the Android camp, also makes devices locally and has done well to build a loyal fanbase.

There’s a lot to navigate along the way, though. India is far behind China in key aspects important for manufacturing that include infrastructure, bureaucracy, attention to detail, and even a sense of urgency. If Apple is to rely on India for domestic supply, and demand rises quicker than output, then growth could be hit. Yet even as these issues get ironed out, a greater degree of political risk starts to emerge. Further revelations of poor worker conditions, or an uprising at a local factory, could sour India’s populace toward the American giant.

Apple has already experienced this in China. In 2015, the region accounted for 25% of total sales, but then started to plummet. The next year, Beijing banned the iTunes and iBooks stores, and growing nationalism, combined with rising tensions with the US, saw the Apple brand lose some of its shine. Yet no company has suffered more at the hands of consumer backlash than Samsung Electronics Co.

When Apple’s first China store opened, the coolest names in smartphones were Nokia, HTC, Motorola and Samsung. Not long after, the first three started to decline but Samsung stuck around. By 2013, Samsung had taken the lead with Huawei Technologies Co. a rising challenger and Apple enjoying its niche atop the premium list. As with India recently, iPhones were not the leader by shipments but tended to dominate by value.

For a while, Samsung enjoyed leadership in both value and shipments, a sign it was hitting just the right price points to garner broad appeal from Chinese consumers. But Huawei got stronger, Xiaomi moved from cheap to premium, and then in 2016 dozens of Samsung Note 7 handsets started to randomly catch fire across the planet. Within a few years much of the world forgave Samsung and started buying again, but not China. That the South Korean company didn’t issue a local recall for this model exacerbated the antipathy among buyers. Before long Samsung just wasn’t cool anymore.

There once was a time when it was hard to fathom Nokia not being the hippest device around, and after that Samsung was the “it” brand. Apple is there now, in much of the world. For a growing class of Indian consumers, the iPhone is an aspirational product. Great design, consistently high product quality, and interoperability across Apple devices and services makes it a perennial favorite.

That’s the kind of positive view Cook enjoys this week when he debuts Apple’s retail experience in India. It’s a sentiment likely to last for many years. But it’s a journey that will prove to be bumpy and uncomfortable along the way.