NEW DELHI: To reignite its growth, Apple Inc. is looking to India to be its next China. But the formula that worked so well in China won’t be easy to duplicate.
Apple Chief Executive Tim Cook is visiting India this week to push Apple proposals to open its own stores and sell second-hand phones.
But his ambitions are much grander: to become a bigger force in what is about to become the world’s second-largest smartphone market.
In India, Mr. Cook sees similarities to China: a large, developing economy where rapid growth could make Apple devices attainable luxuries.
“I sort of view India as where China was seven to 10 years ago,” Mr. Cook told analysts last month.
The reality is much tougher. Indian consumers have significantly less disposable income than Chinese. Per capita economic output in India today is 31% less than in China a decade ago.
Moreover, Indian consumers typically don’t buy their handsets from carriers, so carriers can’t accelerate the iPhone’s expansion, as China Mobile did. “Compared [with] China, India will be slower in iPhone adoption as disposable income of the Indian middle class is still less as compared with China,” said Tarun Pathak, a Delhi-based analyst at technology research firm Counterpoint.
To succeed, Apple will have to win over consumers like Sanjay Kumar, a university student here.
Shopping with friends on a recent afternoon at New Delhi’s Nehru Place, a dusty market jammed with smartphone shops and computer-repair kiosks, Mr. Kumar said he isn’t interested in Apple phones, including the new iPhone SE. That smaller-screen model is Apple’s cheapest new iPhone ever; in India, it typically costs more than $500.
“IPhones cost too much,” said Mr. Kumar, who said he plans to stick with his Xiaomi Corp. Note smartphone that cost him 8,000 rupees ($119).
While in India, Mr. Cook is scheduled to meet with Prime Minister Narendra Modi, said two Indian government officials familiar with the matter.
One of the officials said Mr. Cook would likely try to move along an existing proposal to refurbish and sell secondhand iPhones in the country. That could help Apple gain a toehold in a market where 70% of smartphones sold last year cost less than $150. The proposal may be approved with conditions, the official said.
In January, Apple said it had sought government approval to open its own retail stores and sell products online, to supplement Indian-owned distribution firms and retailers. An approval is expected “soon,” said one of the government officials.
Tapping into growth in India is especially important as China’s economy slows. After years of rapid growth in China that made the country Apple’s second-biggest market behind the U.S., sales in China fell 26% in the first quarter.
In the fiscal year ended September 2015, Apple’s revenue in India surpassed $1 billion, a milestone the company reached in China six years earlier. Without much investment in the India so far, Apple’s revenue grew 56% in the first quarter, compared with the prior year.
But Apple’s share of smartphone sales in India is falling as cheaper phones from rivals flood the market. Research firm Strategy Analytics said Apple’s market share fell to 2.7% in the first quarter, from 6.6% in the first quarter of 2012. Apple is “struggling to gain traction in India,” said Neil Mawston, an analyst with the research firm.
While Apple introduces new models only once or twice a year, homegrown rivals like India’s Micromax Informatics Ltd. have gained ground by pumping out new, inexpensive smartphone models every few weeks at various prices, often under $150. China’s Xiaomi and Lenovo Group Ltd. also offer inexpensive handsets with features typically found in higher-end devices, while Samsung Electronics Co.’s Galaxy J series, selling for $100 to $250, is also popular.
Another obstacle for Apple in India is distribution. In China, Apple struck a deal with China Mobile in 2013, making the iPhone available in thousands of China Mobile outlets. In India, though, consumers typically buy handsets separately and use prepaid carrier services. Apple is struggling to get its iPhones into smaller cities, where many shoppers purchase smartphones from mom-and-pop shops.
To help reach such users here, Apple has increasingly turned to distributors with relationships in various regions of the country, analysts say.
“Apple has a long way to go to crack distribution in India,” said Mr. Mawston. He reckons Apple has only penetrated some 1% of the roughly one million shops, market stalls and websites in the country.
Workers at several mom-and-pop shops in the Indian capital said they don’t display the new SE model, since they have few of the devices on hand and not many customers ask for them. Many buyers instead prefer India’s best-selling iPhone model, the older 5S, which costs about $300, workers said. But that model will likely be phased out in the next four or five months, said Mr. Pathak of Counterpoint.
“Most important is the price,” said Jas Nain, a worker at a shop selling smartphones and other goods Monday in Delhi’s Palika Bazaar. Mr. Nain said most customers wanted to spend just $60 on a smartphone. “Very few people are curious for the iPhone,” he said.