Xiaomi, a high-end smartphone maker in China, and Movile, Brazil’s biggest and most important wireless carrier, showcase the challenges Apple faces in those two markets.

World Map 3D

Apple sells tens of millions of iPhones every quarter, but its biggest challenge is expanding the reach of the iPhone in markets where smartphones are incredibly expensive and new to a lot of potential customers. At the Dive into Mobile conference on Monday in New York City, two companies represented onstage offered stark examples of how Apple’s model, which it has nearly perfected in established markets, may require some adaptation: China’s high-end handset maker Xiaomi and Brazil-based wireless carrier Movile.

Xiaomi is selling high-end smartphones in China and is doing that in a way that essentially takes Apple’s own playbook and adapts it for a more price-conscious buyer. The company sold 7.2 million smartphones in China last year and plans to sell double that this year.

Taking cues from Apple

China-flag-Apple-logoIts recipe for success will sound familiar: it designs all the major apps on the phone as well as the hardware, uses all the latest chipsets (from Nvidia) and memory tech (from Samsung) and Foxconn does all the assembly. It also relies on longer update cycles: about a year passes before new hardware is released — there are no rapid-fire updates every few months. And when it lets buyers know the new phone is ready for sale on its website, customers swarm. When its latest device, the Mi 2 went on sale last year, 200,000 handsets sold out in two minutes, according to Xiaomi Co-founder and President Bin Lin.

A huge obvious difference between what Xiaomi is trying to do with its Mi phones and what Apple is doing with the iPhone: Xiaomi is building this all on Android. It’s saving costs on a marketing budget (it has none, just advertises on Sina Weibo) but it saves itself a lot of money on production by getting the base OS for free. And it can then offer the phones for cheaper as well: Mi phones cost about the equivalent of $260. And, Lin noted, he’s competing with smartphones, including Apple’s, that “sell for twice that” in China.

Apple is desperate to crack the Chinese market, and it is gaining some momentum: CEO Tim Cook said sales in Greater China saw triple-digit growth in the final quarter of 2012. But Xiaomi is tapping into a need for something that Apple so far cannot: much less expensive phones that still have a similar vertically integrated approach that tends to create the best kind of user experience.

The handset maker has also figured out how to work in a market that relies heavily on unsubsidized phones — Lin said about 70 percent of the Chinese market is unlocked phones not subsidized by carriers. In developed markets Apple can get away with charging $600 for an unlocked phone, but in developing markets, it’s easy to see how the iPhone’s higher price may be a status symbol for some, but for those that can’t afford it, pretty much out of reach.

Cracking the Latin America market

In Latin America, Apple also faces an uphill battle in countries like Movile’s home of Brazil. Android phones and iPhones are still about 20 percent of the market, Fabricio Bloiso Rocha, Movile’s CEO, said on Monday. The rest is made up of basic feature phones. The reason: all electronics, especially smartphones, are incredibly expensive in Brazil.

movile“Expensive in Brazil is not $200, it’s $2,000,” Rocha said. An iPhone is about 30 times more expensive in his country than in the U.S. because of “taxes, taxes and the mystery of the Brazilian economy,” he said. As a result, carriers like his focus right now on providing service for inexpensive prepaid phones (often just feature phones) with a la carte services sold bundled with data: things like mobile payments, video subscription services, food ordering services and more.

How does the iPhone fit into a picture like that? Big reform is coming to Brazilian taxes soon, Rocha says, so he believes there will be a place for smartphones to grow over the next 18 months in the country. But even then, he said, “I love the iOS experience. It’s the best UX, best product overall. But for Latin America, to invest there, you have to go Android because price is very important.”

Brazil is not directly representative of all of Latin America, but it’s the biggest and most populous country and represents a huge chunk of potential growth for the iPhone in the future. User trends in Brazil are the kind of thing Apple has to consider when broadening the iPhone and whether a lower-priced device makes sense to crack these markets sooner than later.

You’re subscribed! If you like, you can update your settings

  1. If you can lessen the cost for iphones in all emerging markets, apps can realize greater potential, therefore the market grows even stronger than expected, give them Imagination, the biggest selling films and their offshoots come from the imagination, we all love our avatars and star wars way back to peter pan and Alice in wonderland and snow white with her dwarfs.

  2. Erica, I think Mr. Rocha said/meant THREE times more expensive in Brazil. I live here and a Brazilian Real (R$) is about 1/2 a dollar. The 8GB iPhone 4 costs US$500, the 16GB 4S US$800. The 16GB iPhone 5 is US$1,200. All phones are sold unlocked. So it is actually 1.5 to 2X more expensive for an unlocked iPhone.

    “Expensive in Brazil is not $200, it’s $2,000,” Rocha said. An iPhone is about 30 times more expensive in his country than in the U.S.”

    1. But if you compare to the USA economy, the cost of living and the reality of the Brazilian salary, yes it is 30x more expensive.

      1. Flavia, it’s actually not.

        There are many brazilians buying apartments in Miami right now. Do you know why? Because it’s cheaper than São Paulo or Rio.

        So the statement is not taking cost of living in consideration, it’s just plain wrong.

  3. India is also One of the Biggest market in world they have to think about to reduce the price in india. Once they reduce the price around 100-150 US$ They can easily Rule in the smartphone industry in India. If they rule in india they can reach the top of smartphone selling in world.

  4. Guma Ogburn is right. There’s absolutely no way an iPhone in my home country, Brazil, is 30 times more expensive than in the U.S – three times would reflect the reality, probably.

  5. Actually, Apple is already doing very well in China with 73% marketshare for the iPad according to Analasys International and 11% marketshare for the iPhone according to Strategy Analytics.

    Now that 11% may not sound like much but the iPhone is not yet available on or compatible with the biggest carrier in China which has a massive 730 million subscribers (almost three quarters of a billion!).

    This means the iPhone has an enormous share of the other two carriers and is only 6% behind the number one smartphone manufacturer Samsung even though Samsung smartphones are available on all carriers in China.

    As such, there is no reason why Apple should introduce a lower cost iPhone in China at all.

  6. Tiago Bastos Da Silva Tuesday, April 16, 2013

    Hi Erica Ogg, I’m Brazilian and there is no big or even small wireless carrier in Brazil called Movile.

  7. Apple will do a world phone when it makes sense. But why now? Apple dominates the US and still competes worldwide. Here’s the real deal: The US carriers have to pay Apple about $450 a unit. If it put out a cheap plastic phone right now, Apple would be guilty of product mismanagement big time.

    You pay the same hidden fee to carriers whether you buy the iPhone 5 or a free phone. But carriers pay the phone maker a lot less than $450 on older iPhones or cheaper plastic phones. So the newest iPhone subsidy gouges only the US carrier profits. Buying anything else is just handing cash back to the carrier.

    When carriers drop the subsidy model, Apple will present its world phone. it’s the iPhone that is wrecking the subsidy model, in fact, cus’ it put a dent in carrier profitablity. Don’t believe for a minute Apple doesn’t have a world phone in the pipeline. But don’t assume it’s the same build quality as the iPhone today. Today the US carriers pay for that top end build quality. Thankee.

    Hate your carrier, buy an iPhone. But yes, if you love your carrier and two year contracts at exorbitant rates, buy a cheap or unlocked phone; your carrier will be delighted. You just saved them a heap.

  8. Movile is a content provider, not a carrier. An iPhone obviously is not 30x more expensive in Brazil. An article not intended to be read by the Brazilian folks, since it doesn’t show the reality here

  9. Movile is not a brazilian carrier. It is a brazilian tech company developing apps for mobile carriers.
    Mobile carriers in Brazil are VIVO (Telefonica), CLARO (Carlos SLIM´s), TIM (Telecom ITALIA) and OI (LULA´s – it´s a joke, of course, OI is the brazilian company created under Lula presidency). There are the smaller ones like CTBC.

    The high prices are due to years of non investing in basic infrastructure and monstruous corruption. Taxes are ridiculously high, especially if compared to what you get in return, but they are only a decoy for the actual problem: massive corruption.

    There´s a huge amount of feature phones in Brazil because 80%+ of mobile phone base is pre-paid. Probably, the remaining 20% of post paid phones are all Iphones and top Android models.
    The carriers are giving away iPhones, and you can get an Iphone 4 for US$ 200 with you tie it with a 12 or 24 months post-paid voice package of USD 120.
    I got an iPhone 4 for my wife for USD50 with a post paid plan of USD60 montlhy, last year with CLARO.

    Brazilians are incredibly heavy users of technology, internet and all things related. If they have access to better tech with smaller prices (or longer financing), they´ll grab it right away.

  10. My iPhon 4 is now in Brazil. Didn’t understand my friend’s reaction to my charging him $100 for it. Now I do! His wife is very happy.

Comments have been disabled for this post