Apple Inc. (AAPL): India Struggles are Distribution, Not Price

Apple Inc. (NASDAQ:AAPL) has been a market leader in smartphones in virtually every existing market in the world, developing a brand that transcends cultures. However, the company has had a difficult time getting a foothold in emerging, very large markets like India and its 1 billion people. Apple Inc. (NASDAQ:AAPL) is struggling with just a little more than 1 percent of the phone market in that country, and sales are expected to double in 2012 from their 2011 levels. With many of the phones in India purchased being entry-level phones (rather than smartphones), Apple Inc. (AAPL) is looking to take on a new stratgey to grab a larger share of the expanding marketplace.

It’s about distribution, not about price. Rather than lower prices or develop an entry-level iPhone – the new iPhone 5 is expected to retail for more than $800 when it hits shelves in India this month, while nearly 7 in 10 handsets sold in India last year cost less than $100 – Apple Inc. (NASDAQ:AAPL)  instead reported that it was going to change its distribution channels to reach more potential users. The previous take was to work solely through the carriers, but now the company said it was going to expand its supplies to other sales partners like retail stores that are not affiliated with wireless carriers.

Apple Inc. (NASDAQ:AAPL) CEO Tim Cook addressed the India sales challenge in an earnings conference call recently, saying that due to complex distribution avenues in the country, that has driven up costs for the phone.

But the market, while large, is still very much emerging. The country saw 11 million handset sales in 2011, and is expected to increase to 20 million this year. Overall, the market has 220 million handsets, but 70 percent of them are phones that cost in the double-figures, rather than the higher-end smartphones. Will this strategy work and help Apple Inc. (NASDAQ:AAPL) gain more share? What should investors like billionaire fund manager David Tepper of Appaloosa Management LP expect from this strategy? What would you do if you were in Apple headquarters to address the India challenge?