For Apple, The Best China Strategy Was Not Having One

Paul Denlinger, None Comment Now Follow Comments

For a long time, Apple has had a small presence in China. Windows has long been the dominant platform, and the number of Apple computers is relatively small since most Chinese considered it to be expensive and the number of applications available limited. This has now changed. It started with the launch of the iPhone. When it was first released in June 2007, it was seen as yet another over-priced product from Apple. Furthermore, when the first version of the iPhone came to China, there was no official Chinese distributor for the product. In spite of this, it became more frequently seen in the trendy parts of Shanghai and Beijing, and became popular among local Chinese, who now had more disposable income to spend than their parents, and wanted to have a flashy status symbol to show off to their friends. Even though their iPhones were unlocked versions from Hong Kong, and had to be cracked, they were welcomed among many urban Chinese. For more than two years, Chinas two leading mobile operators, China Mobile and China Unicom, jockeyed for negotiating position with Apple to become the official iPhone distributor in China. This was unusual: China Mobile is the largest mobile telecom operator in the world (more than 522 million subscribers as of March 2010), and it was not used to NOT having its way in business negotiations with any company. Except for Apple. With Steve Jobs, they met their match. For large state-owned enterprises like China Mobile and China Unicom, it is normal for them to ask for special changes and amendments because China is

different from other markets. With any other company, they would get the changes they wanted. China Mobile wanted control over the App Store; Apple said no. And it went on and on. Eventually, China Unicom, the No. 2 carrier, got the rights to become the official iPhone distributor in China. The only concession Apple made was to take Wifi out of the phones sold in China. But for many Chinese, this is not a problem since its easy to buy unlocked gray market iPhones with the Wifi feature from Hong Kong in China. Why was Apple successful in China, whereas its competitors, such as Google have failed? Here are some of the reasons:

Apple is too much like its Chinese counterparties. Power and decision-making are largely in the hands of one person, Steve Jobs. The Chinese are unable to play off the different parties/factions against each other. Several times, deals were nearly announced with Apple by China Mobile, but seemingly at the last moment, the deal fell through and Apple walked away. With any other company on the line, they would have capitulated to last minute Chinese demands or amendments. Apple had a very strong product pipeline, starting with the iPod in 2001, and then the iPhone in 2007. These products were well-designed and received, and with each iteration, the audience widened. Their competition was simply too far behind. Even without China, Apples bottom line improved with each year. This chart is hard to argue with. Instead of making cheaper products for the Chinese market, Apple chose to wait until Chinese disposable income increased to levels where Chinese consumers could afford Apples main products. Apple products have snob appeal. Urban Chinese are into rank and status. Many identify more with their contemporaries in Paris, Tokyo, Berlin and New Yorkthan they do with their own parents. As the income of the urban Chinese climbed, they were now able to afford Apple products. What better way to differentiate themselves than by becoming Apple users and fans! Mobile phones are ubiquitous in China. Not only are they a communications device, but more and more, they are becoming an entertainment device. The App Store provides an endless assortment of new apps to play with. Most of the time, these new apps are free.

Apple opened its first Apple Store in Beijing only in 2008. It has plans to open 25 more stores in China in the next two years. And now, it has just introduced the iPad, which will attract yet another batch of Chinese Apple fans. In China, Apples on a roll. In the first quarter of 2013, Apple's iPhone sales were enough to garner 8 percent of China's smartphone market, according to a new analysis from Canalys (via Computerworld). Apple had fallen to sixth place in China for the third and fourth quarter of last year, but increasingly aggressive pricing tactics in the market grew sales last quarter. Apple still trails chief rival Samsung by a large margin in the country. Samsung strengthened its already strong position in China last quarter, increasing its share from 17.7 percent to 20 percent. Yulong Computer, Huawei, and Lenovo were the smartphone manufacturers ahead of Apple but trailing Samsung. Apple and its South Korean rival were the only two foreign companies to make the top 10 Chinese smartphone vendors. Domestic producers accounted for roughly 68 percent of Chinese smartphone sales. With 82 million smartphones sold in the quarter, China is now by far the world's largest market for the devices. In terms of sheer numbers, China's market is more than thrice the size of the U.S., which saw 27 million units shipped in the quarter. The comparative weakness in terms of purchasing power of the average Chinese consumer, though, means that the market is most open to lower cost handsets. Given its penchant for offering a wide array of phones from lowlevel to premium, Samsung is particularly suited to address the Chinese market, as evidenced by its strong position there in spite of its foreigner

status. Apple, meanwhile, has seen increasingly strong quarters in the market, despite some cultural obstaclesalong the way. Apple is thought to be preparing to debut its iPhone on the country's largest carrier. Many observers are uncertain of how successful the iPhone maker can be in the country, though, without acheaper version of its smartphone to offer consumers. China's smartphone market grew 156 percent in a year-over-year quarterly comparison. Each of the last five quarters has seen the Chinese market expanding at more than 100 percent year-over-year. China passed the U.S. in terms of active iOS and Android devices in February.

China's Smartphone Market Entering High Growth Phase

Published on: 10th Apr 2013 The Chinese smartphone market volume reached around 180 million units in 2012, and is estimated to hit approximately 280 million units in 2013. Citing estimates from China's three mobile networks, Taiwan's MIC said that the combined mobile phone user base topped over 1.0 billion, 700 million of which were China Mobile's users, constituting over 60% of market share, followed by China Unicom's 20%. MIC estimates that smartphones priced around 1,000 RMB (US$161) are becoming best-selling products in China. In 2012, the share of smartphones priced less than 1,000 RMB (US$161) reached around 24%. The share is projected to hit around 30% in 2013. Taking China Unicom as an example, some of its WCDMA smartphones have priced less than 500 RMB (US$80.60), thereby significantly lowering the purchase barriers for consumers. Meanwhile, with chipmakers continue to put forth low-cost and highly integrated mobile platforms, the

price competition in the Smartphone market is expected to become increasingly intensified in 2013. Looking at the smartphone IC market, Qualcomm continues to lead the market. Meanwhile, the MediaTek MT6573 solution has helped the company regain its market foothold while Chinese chipmaker Spreadtrum has a similar solution to compete against MediaTek. It is predicated that as the Chinese smartphone market grows rapidly, the smartphone IC market will become rather competitive as well. Of total mobile phone user base in China, nearly 80% are still 2G users. Nevertheless, the 3G user base grew fast in 2012 to around 233 million users at year-end 2012, up from around 128 million users at year-end 2011. As of year-end 2012, user adoption of 3G mobile services broke 20%, 37.7% of which were TD-SCDMA users, 32.8% were WCDMA users, and 29.6% were CDMA users. MIC observed that although China Mobile still has the most 2G users, the gap in user adoption of 3G among three major Chinese telecom operators is not as wide as that of 2G. Therefore, the competition in 3G is rather intense. After pouring a massive amount of resources to construct 3G networks, three major Chinese telecom operators have been actively launching 3G products and corresponding mobile data services in order to increase revenues. smartphones are envisaged as best means for delivering mobile data services and therefore telecom operators tend to place equal sign between 3G services and smartphones during promotions. In the initial stage, smartphones were classified as mid- to high-priced products. Nowadays, with smartphone chipmakers delivering more total solutions and subsidies plans proposed by telecom operators, it is estimated that the prices of smartphones will be reduced at a faster pace and the Chinese Smartphone market growth will appear promising in 2013, according to MIC.

Replacement demand for smartphones has been slower than expected in 2H12, but it is expected to continue for at least 1-2 years, reports DigiTimes. According to industry sources, more mobile telecom carriers have been accelerating the establishment of their LTE networks and more smartphones have seen lower prices.
Apples secret organizational structure adjustment of China The Apple secrets adjust organizational structure of China,

A source told the First Financial Daily, Apple is secret organizational structure adjustment of China. In the new architecture, it will no longer set the post of general manager in China, but the establishment of the four Division four Division general manager reporting directly to Apple Asia Pacific vice president of Luray First Financial Daily Luray verify the matter, Luray, said he has seen similar reports, but certainly not so complicated people think, while media reports the current Apple China General Manager Kang Zhiyong will also resigned this post. Kang Zhiyong in August last year month to take over the duties as Apple Hong Kong the post of general manager, the general manager of China is just a part-time, so Kang Zhiyong will continue to serve as general manager of Apple Hong Kong Luray expressed Kang Zhiyong in succession in China the general manager is a temporary position, Kang Zhiyong I als o said that, in China, to find the right person in charge will leave Apple this International Development well with people not related to any person leave not be business impact.

Apple China spokesman said Wong Kam Hung, The message can not be determined, I only responsible for the products, and other foreign affairs publicity is not responsible for the publicity of the affairs of the companys organizational structure and business structure adjustment to dispatch, First Financial Daily not linked to the new organizational structure of Kang Zhiyong According to the informed sources, Apple China, newly established four career part are: industrial customers division B2B, consumer electronics division B2C and the cause of education market Ministry Edu, there is a division of the name can not be determined, they will be directly affected by Apple Asia Pacific vice president of Luray leadership, personnel management, marketing and other functional departments still a ccept the corresponding departments of the Asia-Pacific region vertical management of the Informed sources, the general manager of the Education Products Division is a Chinese woman from the U.S. headquarters of Apple, the person in charge of the other two division are airborne - the new industrial customers division general manager from Dell in North China area of ??a high-level, general manager of the consumer electronics division Ye Peng, deputy general manager of Motorola Personal Division., a division general manager candidates is unclear Ye Peng and Luray had worked together at Motorola Industry analysts, leaves friends to join Apple now depends on the old one between him and Luray information, Ye Peng switched from Motorola in July 2005 to the German-owned satellite communications equipment Noda corporate communications, served as vice president of the company,

general manager of China Louret Prior to NEC communications general manager worked for Motorola in Augus t 2005, after Apple China occurred personnel storm, Kang Zhiyong hastily took office, agent, general manager of China in accordance with the agreement, the Chinese area of ??structural adjustment is completed, the post of general manager of Apple China, will cease to exist, then, the agent of the duties Kang Zhiyong will also be stepped down, withdraw from Apple in China within the Hong Kong News said Kang Zhiyong and his subordinates has not yet completed the handover of the work, its withdrawal of the last day in Hong Kong have also been postponed to the end of September. and Kang Zhiyong after separation from the general manager of China most likely will get a post Apple Taiwan control over, so, he came that still master the Apple power of the two regions flattening of the organization Interpretation According to the informed sources, Apple cut the post of general manager of China to channel flat, while implied dissatisfaction with the work of the last two years of th e post or according BDAs research data, Apples shipments in 2004 only 1.3% of the MP3 market rose to 4% in the first three quarters of 2005, but 70% of the market share of its global North American market is a very large gap in the past time of year, Apple in China has replaced the three general manager in May 2005, when he was general manager of Apple in China Zhao Fang resignation opened the prelude, after Apples Chinese district personnel shocks from IBMs personal computer business Li Bin in charge of China, after three months, Apple China, senior accused of collective cheating, the final conclusion is allegedly false sales August 17, the original Apple computer company in charge of Asia-Pacifics vice president He Zhongqiang new office of China General Manager Li Bin, China Channel Director, general manager of the three regions of the east, south and southwest, as well as multiple-level managerial executives was expelled from April this year, Luray served as vice president