Apple got rich in China. Other Asian markets offer the next ‘golden opportunity’ | CNN Business

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CNN
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Apple launched an online store in Vietnam this week, in another nod to the growing importance of emerging markets for the iPhone maker.

Thursday’s opening, which followed the high-profile launch of its first brick-and-mortar stores in India, means consumers in the fast-growing Southeast Asian economy will be able to buy any product from Apple directly for the first time.

Markets such as Vietnam, India and Indonesia are increasingly important to Apple as its growth in developed markets, including China, slows, prompting the company to focus on places where it has traditionally has been less active.

For decades, China has been central to Apple’s extraordinary rise to become the most valuable company on Earth, serving as the backbone for both its production and consumption. While the country remains key to Apple’s operations, the tech giant is now hedging its bets.

Apple ( AAPL ) CEO Tim Cook has pointed to the company’s prospects in emerging economies, calling them bright spots in the company’s financial results. In an earnings call this month, Cook said he was “particularly pleased” with the performance of those markets in the first three months of the year.

Apple “hit all-time records in Mexico, Indonesia, the Philippines, Saudi Arabia, Turkey and the United Arab Emirates, as well as several March quarter records, including in Brazil, Malaysia and India,” he told analysts .

That came as the California-based giant also reported its second consecutive drop in overall quarterly revenue, raising concerns about a broader slowdown in demand amid economic uncertainty.

“Clearly growth has slowed globally and so that has put more pressure [on Apple] to aggressively go after emerging markets,” said Daniel Ives, managing director of Wedbush Securities.

Ives predicts that “In the coming years, Indonesia, Malaysia and India will be a bigger piece of the pie for Apple, given its efforts in these countries.”

The launch of online sales in a country usually precedes the launch of brick-and-mortar stores for Apple, he told CNN. This was true in India, for example, which had its first brick-and-mortar outlets last month and a promise from Cook to invest more in the country.

Thursday’s launch showed how Apple was “further consolidating” its presence in emerging markets, according to Chiew Le Xuan, a research analyst who covers smartphones in Southeast Asia for Canalys.

He said the tech giant had been “actively increasing” its presence in the region in recent months, increasing its distribution and authorized dealer network, particularly in Malaysia.

Apple has ample room to operate in these markets.

The company currently only operates its own stores in more developed regional economies, such as Thailand and Singapore, according to Canalys.

Even Indonesia, a sprawling archipelago that is the world’s sixth-largest smartphone market, doesn’t have a physical device. Apple Store yet, Chiew said. Apple’s market share there is small, at just 1% in 2022, according to data from Canalys.

“We’re making efforts in several of these markets and we really see, especially given our low share and the dynamics of the demographics … a huge opportunity for us,” Cook. he said during Apple’s earnings call.

Apple joins a growing list of global companies that have become bullish on Southeast Asia, where more investment is pouring into manufacturing.

The region’s consumer base is also promising, with the number of middle-income and affluent households in economies such as Vietnam, Indonesia and the Philippines expected to grow by about 5% annually through 2030, according to the Boston Consulting Group.

The consultancy has called this group of consumers “the next megamarket”.

According to Ives, the appeal of Southeast Asia’s growing middle class “has changed the dynamics of these countries, which Apple previously stayed away from.”

“This is a golden opportunity for Apple,” he said.

For years, premium brands like Apple have struggled to compete in emerging markets due to the price of their products, choosing to rely on local distributors.

iPhones, which cost between $470 and $1,100, are expensive for consumers in less developed Southeast Asian economies, where most smartphone shipments are priced below $200, according to Chiew.

He said Apple’s absence from places like Cambodia or Vietnam was usually most noticeable around the launch of a new iPhone, as buyers from those countries often flew to Singapore or Malaysia to buy devices and return. to sell them.

That could change in the coming years, especially as Apple continues to increase its firepower in the region.

Ives predicted that Apple could “further expand its ecosystem and its tentacles in emerging markets by using China Play Guide,” meaning it could try to hook customers through “various pricing strategies and build from there.”

Once those users have converted to Apple’s operating system, iOS, they tend to stay and become loyal customers, he added.

That “has been a central part of their success in China that can now be replicated in India, Indonesia and Vietnam, among others,” Ives said.

But Apple may face obstacles in Southeast Asia, where several countries have imposed strict requirements on foreign companies, according to Chiew.

For example, at least 35 percent of the components of electronic products sold in Indonesia must be made locally, a threshold that Apple has had to meet by working with partners, he added. Similar rules prevented Apple from setting up shop in India for years until the regulations were relaxed in 2019.

And while consumers are increasingly affluent, the company’s prices are still considered high in many emerging markets, Ives noted. “Growth will be turbulent we believe.”