What Does Apple's Rs 130,000 Crore China Revenue Tell Us?

April was a tumultuous month in the People’s Republic of China. Graft hit new peaks, seemingly untouchable politicians were busted, ousted and bizarre revelations of their activities surfaced. Fleeing dissidents sought protection in the US Embassy in Beijing and apparently got it, much to all-around embarrassment. Speculation about China's political stability, direction and future reigned supreme.

In the midst of all of this, a California-based computer company called Apple Inc reported that sales in mainland China, Hong Kong & Taiwan tripled to $7.9 billion in the first quarter of 2012  - or 20% of total sales of $39.2 billion. It is now expected that Apple’s China sales will double in 2012 to around $26 billion (Rs 130,000 crore).

Now, of the $40 billion of sales for the last quarter, thanks largely to China, Asia Pacific contributed to $10.2 billion (in case you were wondering where India could possibly fit) This does exclude Japan where sales were $2.6 billion. Amazingly, Apple apparently did not even include Asia Pacific in its geographic breakdown till its results of December 2009.

In contrast, imagine any corporation, foreign or Indian, doing Rs 130,000 crore of sales in the India market not this year but in coming years. Surely not in consumer products. Energy perhaps. Either a state-owned monopoly or Reliance Industries, who in any case does not count India as its dominant market any more. (2011 full-year revenues are $66.8 billion, of which $40.9 billion are exports). Actually, most Indian business houses don’t.

There are two different perspectives on this. First, Apple has created an insatiable appetite for its products in China, so much so that millions are devouring iPhones, iPads and iPods. This mass Apple consumption frenzy – not limited to China - is evidently reflected in the Cupertino-headquartered company’s good fortunes. This may or may not last. After all, Korean giant Samsung is snapping at Apple’s heels and has already overtaken Nokia in mobile phone sales.

The other is that there is something fundamental that is changing about the emerging market consumption story. Jim O’Neill, the Goldman Sachs Vice-Chairman who coined the famous BRICS term, said the other day, "And now 20 percent of what [Apple is] getting is from China. How can you call that a traditional emerging market? It doesn’t make sense." Goldman Sachs now calls these the Growth Markets.

So the big question (posed frequently) is whether consumers in India or for that matter China are behaving similarly or differently, regardless of what the perceived political climate of the day is? And to that extent whether businesses tied firmly to consumption story will be affected by this ambient noise ?

A Business Standard opinion piece two weeks ago effectively said the answer to the first (India) question was yes, consumers were not as down and out as maybe businessmen and others were. At least recently.

It pointed out that Hindustan Unilever, India’s largest consumer products company, grew 20.4% in consolidated sales for the quarter ended March 31. Of this, 9.6% came from volumes, rest from price increases. Dabur, which gets 70% of business from India saw sales going up 23%, more than half of that came from higher volumes. Ditto for Godrej which reported similar trends in numbers.

The stockmarkets concurred. The Bombay Stock Exchange (BSE) Fast Moving Consumer Goods or FMCG Index is up roughly 23% at a time when the Sensex has dipped 11%. And the anticipation of the future is strong. A Hindu Business Line article says the FMCG Index trades at a `trailing earnings' multiple of 33 times, well above the Sensex and BSE 500 multiples of 16.6 and 17.8 times.

But its not just market optimism on companies whose sweep might be limited. The Business Standard piece also quoted Nielsen figures which said rural markets grew faster in the last quarter, actually growing between the last and the previous quarter to 17.2% while in the urban market it was 16.5%.

While in India large consumer product companies have strong rural focussed sales efforts now, the numbers would not have been good were demand or sentiment weak. To be fair, Government subsidies are also a contributor too but its unlikely to be the sole driver of demand.

A swallow or an Apple does not make a summer, in China or India. Not all of China's consumption and/or political trends are 'extrapolatable' to India. And an Apple may not be the object of attention tomorrow. Though some other brand or service might.

But indications do suggest the macroeconomic gloom as perceived by some is not all pervasive.  And thus, at least in the Indian context, frustrations about political stasis might not immediately affect consumer desires, rural and urban.

More importantly, the Apple story also suggests some fundamental shifts in what consumers desire and who is best positioned to meet those desires. Remember, Apple creates one product that works uniformly everywhere. No `glocalisation'. Though that's a story for another day.

The thoughts and opinions shared here are of the author.