Apples are Hot Items in India

For those of you who didn't catch my article that showed up on Wired News while I was knocking rival rickshaws off the road I thought I would post it here for you to check out. I spent a day or two cruising the various gray markets in Chennai and found that it is a lot more difficult to buy a legal iPod than it is an illegal one.

iPod Gray Market Booms in India

CHENNAI, India -- It's the same ritual every month. On the first, my wife sends the rent check to our landlord, a Punjabi cloth merchant with an enormous mustache. Five days later, he knocks on the door and tells us he never received it. As we fish around for the checkbook, he makes his way over to the couch and proceeds to lay down demands.

"When you go back to America I want you to send me a laptop. Get me a Macintosh like yours and I'll take it out of your rent," he says.

Never mind that the cost of a new MacBook is several times our rent; my landlord is just one of millions of Indians who have a taste for all things Apple. But it's a taste very few can satisfy since all imported computer goods are so heavily taxed they are out of reach to all but the most affluent Indians.

While Windows machines enjoy low prices because they're produced locally, Apple Computer products have to make their way from production facilities in China. Along the way, they pick up several cost-inflating customs stamps.

Shopkeepers have responded by smuggling huge loads of illegal iPods and MacBooks from Singapore, Dubai and Malaysia.

As a result, it's now almost impossible to buy any Apple product legally.

"You can't buy Apple in India. I have to fly out of the country every month to get more," said Om Gani, proprietor of a hole-in-the-wall stall in Burma Bazaar, Chennai's most notorious illegal market.

A street salesman who is wearing doti, south India's version of a kilt, leads me though a cramped passageway to get to his shop. Along the way we pass dozens of similar shops piled high with camera lenses, PlayStations, knockoff watches, computers, MP3 players and pirated DVDs. At every corner men try to catch my arm as sales pitches tumble unthinkingly from their lips.

"You want jig-jig?" they ask. "How about iPod?"

The term "gray market" is really just another word for seedy and illegal black-market goods that the police don't have the resources, or the will, to stop from being sold. The shops don't pay taxes. They only accept cash. But without a doubt, they're the best places to buy electronic goods anywhere in south Asia.

After a good deal of haggling, I can pick up a 30-GB video iPod for $280, which is only $20 cheaper than you can get one at Best Buy in the United States, but a whopping $160 cheaper than the $440 that authorized dealers sell iPods for in India.

"There is basically no incentive to buy legal," said Dina Mehta, a Mumbai-based blogger and marketing consultant. "They are launched officially late, and are often more expensive than what you find in the U.S., Singapore or Dubai."

For its part, Apple doesn't have much incentive to push retailers to stay legit. Since added costs go to the government, not Apple, it may well be in Apple's best interest to look the other way and let smugglers drive up the company's sales numbers.

Apple spokesman Steve Dowling declined to comment on Indian gray markets. He said Apple only provides worldwide sales figures, and "doesn't break out data by country." Last quarter Apple sold more than 8 million iPods and 1.3 million computers. Industry estimates by Daily News & Analysis suggest that the gray market makes up between 60 percent and 90 percent of sales in India.

Even though demand for iPods is as great in India as anywhere else in the world, Apple seems to have cold feet about expanding its presence in the country. In May, Apple closed down its only call center in Bangalore and halted plans to hire 3,000 new employees by 2007. Though Apple said only that it had "re-evaluated" its plans in India, it appears that high taxes, a strong gray market and a thriving environment for Windows systems have given the company pause.

Buying on the gray market has its dangers. Besides counterfeit parts and rough handling by smugglers, "customers also do not receive warranties and may not be otherwise supported by the manufacturer," said Peter Hlavnicka of the Alliance for Gray Market and Counterfeit Abatement.

But some might argue the warranty in India is almost meaningless anyway. The closest support center is in Singapore and most local servicing here is -- at best -- hit or miss.

Besides, without much official presence, the iPod enjoys underground cachet.

"The fact that iPods are unaffordable makes them iconic," said Rashmi Bansal, editor of Jam magazine.

In India, Apple products are prestige items that broadcast your ability to recognize what's cool outside the country. The fact that they might be smuggled only adds to the hipness factor.

When I ran into a group of cinematographers, investment bankers, film producers and other members of Chennai's glitterati at a recent party, every single one of them showed off their latest iPod, PowerBook and MacBook. There wasn't a Windows machine in the house.

Where did they get them? From abroad or the gray market. Even the rich don't want to pay full price.