Wooing China Critical For Apple As Developed Markets Become Stagnant

Dragged down partly because of its own faulty strategies and partly because of social and economic factors, 2019 appears to be a tricky road for US tech giant Apple Inc.

The economic slowdown in China was cited as the reasons for a shock profit warning and sale forecast which resulted in a significant drop in its shares, by Apple chief Tim Cook last week.

The main problem for Apple is smartphone saturation points being reached in most of its crucial developed markets such as the US, EU and South Korea. Because such markets have very few first time iPhopne buyers, the task of Apple is to try and convince the customers in these markets to upgrade their iPhones – which is a tough task compared to attracting first time buyers. But more and more people are now not ready to upgrade their existing phones and using them for at least three or four years.

As a strategy, Apple has jacked up the costs of its best handsets to £1,000 or more which has kept it out of the mass market in India and therefore had left it only the Chinese market tp notch up a significant growth in sales volume and users.

However the consumers market of China is different from the characteristics where Apple has been successful earlier.

One of the issues for Apple in China is that its strategy of locking in consumers through services such as iMessage or Apple Pay – available only on iPhones, does not work in the market. In China, the most popular chat app WeChat also servers its users to access the government and news, conducting business, hiring cabs and purchasing goods apart from  acting as a chatting platform.

And the US tech company is also challenged by cheaper models from rivals that have similar quality and features which make the $1,000 or more price tag for the top Apple products hard to digest.

The issue for Apple, which has generated alternative sources of income and revenues, is that about 59 per cent of its revenue is accounted for directly by sale of iPhone. Moreover, the revenues generated by its services business are also acutely dependent on the iPhones for service delivery. Therefore it is critical that Apple manages to sell more iPhones to also ensure growth of its services business.

In the next few years therefore, it is more likely that the challenges for Apple would be tough where the tech giant has to choose between strategy and pricing aimed for the developing markets where the strategies and pricing used in the developed markets do not seem to work. And a lot also depends on whether the US-China trade war would continue or not.

(Adapted from TheGuardian.com)

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