Apple will have to change the way they do business for emerging markets

In order to succeed in emerging markets, Apple has to change the way they do business

If you look over at TechCrunch today, they have an interesting article on how the largest carrier in Russia is fighting with Apple to get a reasonably priced iPhone for their market. Current smartphone penetration in Russia is only estimated at 15%; however, that number is expected to jump to 60% by 2014.

According to the TechCrunch article, the VP of strategy and corporate development of OAOMobile TeleSystems (MTS), Michael Hecker, believes a price reduction would help Apple take advantage of the huge vacuum of smartphones in emerging markets. iPhones can cost up to $1000 in the Russian market, a completely ridiculous price.

The argument from Tim Cook, Apple CEO is that, he: ”firmly believe[s] that people in the emerging markets want great products like they do in developed markets. The goal is to make the very best product, and that’s more important and overshadows all other things.”

Apple needs to change it’s business plan for developing markets. In the US high carrier subsidies make $600 smartphones only $200 for the consumer, but this is not the same internationally. Internationally, users typically buy the phone at full freight. To combat this, manufacturers such as Samsung create lower-end Android devices to sell devices at what is considered a reasonable cost for purchasers.

GM and Ford do not sell cars for the same prices overseas as they do in the US. In fact, they create additional specific models for differing consumer bases. When American companies export, they choose price-points that make sense to the consumers. While Apple is enjoying unrivaled success in the US and the EU, that success will not last if they cannot find a way to tap into emerging markets (for more than manufacturing).

Economists often speak of the BRIC nations (Brazil, Russia, India and China) which they believe will be the drivers of economic growth in this and the coming decades. Until Apple finds a suitable sales strategy for the BRIC nations, they will be losing out to the Samsungs and HTCs of the world, those that create quality devices, at reasonable prices.

While Apple rests on their laurels of quality and being the “very best product,” their 40% plus margins disagree. While US and EU consumers have been filling Apple’s coffers splendidly, that same cannot be said for the emerging markets, and until Apple makes a shift towards them, they will be giving up huge amounts of profit in these markets.

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