We all know Apple is an American company and enjoys making a large chunk of their revenue
domestically.
But Apple sells their products in many international markets and even has retail stores in 24 foreign
countries.
Some of those markets, like Japan, have access to Apple products at a price comparable to
the US.
For example an iPhone XS costs 112,800 yen in Japan, which is about 1,058 USD.
And when you consider the country’s 8% sales tax is included in that price, it actually
makes the iPhone XS about $20 cheaper than in the US.
Although this fluctuates depending on the conversion rate.
But not every country is lucky enough to pay comparable prices for Apple products.
To buy the base model iPhone XS, you’d have to pay $1,235 in Mexico, $1,285 in India,
$1,454 in Sweden, and $1,800 in Brazil.
And these high prices have prompted customers to fly to the US just to buy a new iPhone.
So why exactly are Apple products so expensive in these countries?
Well, that’s exactly what we’re going to find out today.
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So one of the biggest reasons why Apple products are so expensive overseas is because of taxes.
And the perfect example of this is the Value Added Tax or VAT, which exists in over 140
countries around the world.
But despite its prevalence, it isn’t something that exists in the US.
So let me explain how it works.
In places like the European Union a VAT is a consumption tax added to the price of goods
and services.
Products exported abroad aren’t typically subject to the Value Added Tax, but imported
goods, like Apple products, are.
And depending on the country, prices of these goods can increase up to 25%.
And unlike the US, consumption taxes in most countries abroad are included in a product’s
retail price.
So when you notice the iPhone XS selling for $1,454 in Sweden compared to $1,000 in the
US, that isn’t really a fair comparison, since US prices don’t include local sales
tax.
Now if you’re doing the math, you’ll find that iPhone prices in countries like Sweden
still don’t add up.
Because if their Value Added Tax is 25% on a $1,000 phone, they should be paying $1,250.
But instead, the iPhone XS is priced about $200 higher.
And that’s because taxes is just one part of the complex equation companies like Apple
use when calculating retail prices.
Another factor to consider are any associated costs with importation.
Things like import duties, shipping, insurance costs, and tariffs all contribute to price
inflation when selling products overseas.
India is a great example of this.
They've enacted something called the Foreign Direct Investment policy which punishes foreign
companies who don’t source at least 30% of their products components from Indian suppliers.
And since Apple doesn’t meet that standard, they’re restricted from opening retail stores
in the country in addition to being hit with a 20% tariff.
There’s also an 11.4% custom duty on imported products in addition to the Value Added Tax
that we discussed earlier.
And when you add all that up, it isn’t surprising that customers in India pay a 28% premium
for products like the iPhone.
Now Apple is taking steps to not only price their products more competitively in India
but also to open their first retail store in the country.
I’ll talk about that in more detail near the end of the video.
Now you may imagine import costs only being a factor in foreign markets, but they can
also effect customers in the US.
Recently President Trump planned to implement a 10% tax on Chinese imports by September
1 which would effect tech companies like Apple.
Now that deadline was pushed back to December 15th, but Tim Cook would like to see the tax
eliminated altogether.
In fact, he met with Trump this week and apparently made a convincing argument since Trump told
reporters, “Tim was talking to me about tariffs and ... he made a good case ... that
Samsung is their number one competitor and Samsung is not paying tariffs.
I thought he made a very compelling argument so I'm thinking about it."
Now if the decision isn’t reversed and Apple has to pay the 10% tax, they’d have to make
a decision: Increase prices in the US by 10%, or keep prices the same and allow their profit
margin to take a major hit.
Both of which are dangerous for the company.
If Apple raises prices it would exacerbate the issue of slowing of hardware sales, but
if they allow their margins to fall 10%, it would severely damage their profit potential.
So depending on how this story plays out, US customers made soon be feeling the effects
of tariffs that foreign countries have been dealing with for years.
Something else that may contribute to high prices are legally binding consumer guarantees
that exist in places like the EU.
For example, when you buy an Apple product in the US, you receive a standard one year
limited warranty that covers faulty parts, product defects, or other conditions that
the manufacturer is responsible for.
But the problem is companies are free to define their warranty terms as they see fit.
That’s why only certain components may be covered, or you may have to pay a fee to ship
the product back to the manufacturer.
And that’s exactly why the EU established a consumer guarantee that offers customers
much more protection than a standard warranty.
Customers in the EU are entitled to a minimum two year warranty in addition to the standard
manufacturer’s warranty.
And this adds quite a bit of liability for companies like Apple who typically offset
the risk by increasing the price of their products.
But when it comes to foreign markets, a major concern is the volatility of each country’s
currency.
Just take the UK for example.
When Brexit happened, there was a 19% drop in the value of their currency compared to
the dollar, which caught a lot of companies off guard and caused them to quickly adjust
their prices to keep pace with the UK’s currency fluctuation.
Apple understands which foreign markets are most susceptible to this volatility and preemptively
raises their prices.
You can see this clearly with South Africa.
Notice how the value of its currency has fluctuated over the past five years compared to the EU,
Australia, and Mexico.
And that volatility is a major reason why Apple inflates their product’s prices in
South Africa beyond what’s typically seen in other foreign markets.
But in order to truly understand Apple’s pricing overseas, we have to consider the
American market.
Because consumer behavior in the US can be quite different than those in other regions,
mainly because American society is very consumption-based.
We have the most credit cards issued per capita in the world, with each person charging an
average of $4,000 annually.
Compare this to other countries like the UK or France, who opt instead for Debit Cards
and therefore charge less than $300 on their credit cards every year.
You can see companies like Apple capitalizing on America’s “buy now, pay later” mindset
by offering monthly payment plans for their products.
And all of this amounts to US customers buying a higher volume of products more frequently,
allowing Apple to charge less than other countries which don’t have a comparable level of consumerism.
Now up to this point we’ve discussed pretty concrete reasons why Apple prices their products
higher in some foreign countries.
But there’s one last factor I want to discuss that’s less easy to prove with hard facts,
and that is brand image.
Apple is considered a premium brand in countries like India where the average smartphone selling
price is $200.
So when it comes to the iPhone XS price of $1,285, it makes sense that only the wealthy
class in India could afford them.
And if Apple knows their product will only be accessible to the upper class, why not
charge as much as you can?
It’s an approach taken by many luxury clothing brands, whose customers have no problem overspending
on items that ultimately serve as a status symbol.
And you can find evidence of this when comparing the iPhone’s price to other flagship smartphones.
For example, the Galaxy S10 retails for $900 in the US, and $935 in India.
An increase of just $35.
The LG V40 retails for $900 in the US, and $700 in India.
That’s a discount of $200.
And when you compare those prices to the iPhone’s $285 premium in India, it supports the idea
that Apple is simply extracting as much revenue from customers in India as possible, since
they know people with money with pay any price for their premium phones anyway.
It would also make sense then that iPhones have only captured about one percent of India’s
smartphone market, which is a shame considering India’s sizable population.
But Tim Cook has made it clear that Apple has an aggressive plan to grow their presence
in the region and make India one of their biggest sources of revenue.
It all started earlier this year when Foxconn began trial runs of iPhone production in India,
setting the foundation for Apple to one day manufacture their smartphones in the region
and satisfy the 30% local sourcing rule.
This would allow Apple to avoid India’s 20% tariff in addition to opening their own
retail stores in the country for the very first time.
In fact, Apple has already finalized a list of several locations in the country where
they might build their store.
But they’re went a step further by saying they’d overhaul the company's relationship
with independent retailers, and improve apps and services aimed more closely at Indians.
So while Apple is known for being a pricey brand in the US, their products are typically
even more expensive abroad.
Perhaps they can take measures like those in India to reduce their tax burden and drop
prices, but it’s more likely that customers in foreign markets will have to continue biting
the bullet and shell out the extra money for their favorite products.
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Alright guys thanks for watching and I’ll see you next time.