This blog first appeared as Steve Wunker's piece for Forbes
By Steve Wunker
Tech watchers and stock analysts are bullish that Apple will soon introduce a lower-cost version of the iPhone 4 targeted at emerging markets. Although emerging markets constitute about two-thirds of the global handset market of 1.4 billion units, the iPhone hasn’t made much of a dent due to its price. Carriers there typically don’t subsidize handsets, and so the iPhone retails for over $600, compared to some Android handsets selling for under $200. Rumors are that Apple’s entry will retail for around $300, earning it slim profit margins on potentially high unit volumes.
But hold on. This is precisely the trap that has ensnared so many Western companies tackling emerging markets -- create a neat product for developed economies, and then cut out some costs and ship it overseas. If this is really the strategy, it could get ugly. Moreover, with the iPhone estimated to account for half of Apple’s $300 billion+ market value, a notable failure in this franchise might cause real harm to the company. Companies of any stripe looking to expand to emerging markets can learn from the challenges Apple will face:
Despite these negative tea leaves, Apple has actually been doing quite well in China. Apple’s four stores in the country are its most successful anywhere, and they have even spawned a fake Apple store in an unserved city. Apple’s current appeal derives partly from the products’ current scarcity, and undeniably a growing upper middle class craves the latest toys. Chinese consumers also have a strong appetite for apps, and there are ample local developers to create them. Furthermore, the company benefits from a strong local telecom network, China Unicom, which provides an exception to the general rule of emerging market networks providing slow connection speeds.
As the scarcity cachet of Apple fades, it will need to watch out. Android phones also handle apps well and can leverage fast networks. They may not convey the status of genuine Apple handsets – phones being a very tough thing to counterfeit – but they can cost vastly less. If Apple is competing in the status game, it can easily price itself out of the mainstream market, and it will be fighting against a vast range of alternative ways for consumers to get this job done. Status brands can do well at the top end of the market. If Apple wants to be that kind of brand while playing in the much larger middle tiers of the market, that is a very tricky act to pull off.
Ford, Vodafone, and many other well-managed, global enterprises have struggled in major emerging markets. For all the elegant crafting of Apple’s products, that is just one ingredient among many that affect its prospects – and the fortunes of any firm – in these environments. If Apple has not paid as much attention to business systems as it does to technical systems, we can expect major struggles ahead.