Apple Inc.’s recent success in establishing itself in developing nations brings a spotlight to the market potential Southeast Asia has shown for many years now. The region has always seemed primed to become a hypermarket—an area considered a hub for multinationals and innovative companies to set up their businesses and thrive.
Recently, Apple announced it had posted a record in services revenue, achieving one billion paid subscriptions in the third quarter of 2023 and experiencing continued strength in emerging markets. Even though its quarterly revenue was down 1% year-on-year (YOY), the company earned USD 81.8 billion and had robust sales of its iPhone. According to Apple’s CFO Luca Maestri, they generated a solid operating cash flow of $26 billion, gave their shareholders over $24 billion, and invested in their long-term growth.
We examine the funding winter and its impact on seed-stage startups in Southeast Asia
In 2016, Business Insider reported that Apple was in negotiations with the Indian Government to set up an iPhone manufacturing plant in the country after it replaced the United States in second place behind China as a large smartphone market. Apple had already invested USD 44 million in Indonesia to set up a research and development centre so that the government would allow them to begin selling iPhones. This move came about because there were declining sales in the US and China, whereas India, Latin America, and South Asia had an increase.
Now, with investors receiving the surprising news that Apple had overcome the global iPhone sales slump and managed to lure Android phone users away, Chief Executive Tim Cook credited emerging markets for their device’s success.
ASEAN’s potential as a mega-market
Apple Inc.’s achievement provides insights into the potential for the Association of Southeast Asian Nations (ASEAN) to be considered a global mega-market. The region, blessed with a young, tech-savvy, and burgeoning middle class, offers ample opportunity for buying and selling goods and a willing workforce whose thirst for jobs lowers labour costs for companies. Moreover, the area continues its digital transformation earnestly, with the internet economy expected to reach USD 360 billion by 2025.
Finally, ASEAN’s youthful demographic has an entrepreneurial spirit and desires to innovate new solutions for its citizens. The services industry is an excellent opportunity for Apple to capitalise on its user base of over two billion devices. The company offers a novel high-yield savings account and applies a payment model through Apple Pay for buying products and paying for them later. It is similar to Southeast Asia’s Buy Now Pay Later (BNPL) model adopted by many tech startups.
Apple’s innovations in finance will ultimately enable users to replace their wallets with iPhones. ASEAN is known for its blossoming financial technology (fintech) sector, and Apple is benefitting from monetising services in global markets rather than depending solely on selling devices. According to Forbes, paid subscriptions had a higher gross margin of 71%, whereas products accounted for 36.7%.
Despite the massive chances for the region to thrive, it faces many challenges that multinationals like Apple must adapt to if they wish to succeed. On their part, emerging markets must develop infrastructure that upholds transportation, technology, and access to products and services. Logistical issues increase costs, hurting the business’ cash flow and alienating customers because goods will be much more expensive.
Secondly, there are inadequate skilled research firms to explain the nature of the markets that organisations are going into. As such, companies face problems with candidate recruitment, tariffs, competition from local companies, regulatory policies and protectionism, and less effective legal systems. Furthermore, valuable strategies in their countries are not easily transferable to developing countries.
Additionally, regions like Southeast Asia are very reliant on fossil fuels, which is not conducive for foreign businesses wishing to invest in local companies. There is a continued shift towards renewable energy, but adoption remains low. Multinationals now apply ESG (environmental, social, and governance) principles and primarily want to work with startups with high ESG scores. Thus, founders will have to focus on sustainability.
Takeaways for businesses eyeing ASEAN
Foreign investors seeking to merge or acquire ASEAN businesses can take advantage of its growth as a hypermarket. First, while the region offers a significant platform for doing business, companies must understand the institutional differences between the nations. Thus, they must conduct research, avoid biases, understand the cultures, check the regulations and consider positioning.
For example, despite iPhones costing more than most people in emerging markets make monthly, Apple has positioned itself to provide status, high-quality products, device financing options, and phone replacement or upgrade solutions. Moreover, it has an ecosystem where all its products are interconnected to enhance user experience.
Finally, Southeast Asia’s market potential is at risk if there is political and economic instability. Companies must understand the politics and learn about government policies in the region. Some countries may be more open than others, while others may adopt protectionism to benefit the locals.