Tag: Emerging markets

Hong Kong
CNN
 — 

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

The opening on Thursday, which followed the high-profile launch of its first physical shops in India, means consumers in the fast-growing Southeast Asian economy will be able to buy any Apple product directly for the first time.

Markets like Vietnam, India and Indonesia are becoming more important for Apple as its growth in developed markets, including China, slows down, prompting the company to focus on places where it’s traditionally been less active.

For decades, China was central to Apple’s extraordinary ascent to become the most valuable company on Earth, serving as a 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. On an earnings call this month, Cook said he was “particularly pleased” with the performance in these markets during the first three months of the year.

Apple “achieved all-time records in Mexico, Indonesia, the Philippines, Saudi Arabia, Turkey and the UAE, as well as a number of March quarter records, including in Brazil, Malaysia and India,” he told analysts.

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

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

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

The start of online sales in a country usually precedes the launch of brick-and-mortar stores for Apple, he told CNN. This was true of India, for instance, which got its first physical outlets last month and a pledge from Cook to further invest in the country.

Thursday’s launch showed how Apple was “further cementing” 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, ramping up its distribution and network of authorized resellers, especially in Malaysia.

Apple has ample room to run in these markets.

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

Even Indonesia, a vast archipelago that is the world’s sixth-biggest smartphone market, doesn’t have a physical Apple store yet, said Chiew. Apple’s market share there is tiny, at just 1% in 2022, according to Canalys data.

“We’re putting efforts in a number of these markets and really see, particularly given our low share and the dynamics of the demographics … a great opportunity for us,” Cook said during Apple’s results call.

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

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

The consultancy has called this group of consumers “the next mega-market.”

The allure of Southeast Asia’s rising middle class “has changed the dynamic in these countries, which previously Apple stayed away from,” according to Ives.

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

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

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

He said Apple’s absence from places like Cambodia or Vietnam was typically more apparent around the launch of a new iPhone, as buyers from those countries often flew to Singapore or Malaysia to purchase devices and take them back for resale.

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

Ives predicted that Apple could “further expand its ecosystem and tentacles to emerging markets using its China playbook,” meaning it could try to hook customers through “various pricing strategies and building out from there.”

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

This has “been the core part of its success in China that now can be replicated in India, Indonesia, and Vietnam, among others,” said Ives.

But Apple may face hurdles in Southeast Asia, where several countries have placed stringent requirements on foreign businesses, according to Chiew.

For example, at least 35% of the components of electronic goods sold in Indonesia must made locally, a threshold 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 relaxation of regulations in 2019.

And while consumers are becoming more affluent, the company’s price points are still considered high in many emerging markets, noted Ives. “Growth will be choppy we believe.”