By ChinaTechNews.com Editorial Team
Apple (AAPL) has arrived in China — about fifteen years too late but still with enough time to do some damage to both the stranglehold Microsoft (MSFT) has on the Middle Kingdom's computing market and to make a dent in the mobile handset sphere.

This past weekend, Apple opened its first self-owned store in the Sanlitun area of Beijing. Once known for rowdy beer drinkers, black market money changers, and counterfeit clothing stalls, in the last year Sanlitun has been transformed into an area for legit shops like Apple's new store. Apple says it will also very soon open a second store just south of Tiananmen Square in Beijing.

Apple has had a presence in China for many years, albeit with a hands-off, free-of-responsibility approach. It has attempted short bursts of entry into the Chinese market, and has even used the Beijing Mac User Group as the de facto emissary for its mainland business. ChinaTechNews.com has also done advertising campaigns for Apple in China. Apple has hundreds of agents selling its wares in China's main cities and many more consumers already use illegal iPhones purchased abroad or in gray market electronic shops around China. Apple also contracts to OEM's like Foxconn in China to manufacture iPods and other instruments — don't forget the Foxconn episode two years ago where the company was accused of abusing the staff who make the iPods. Though Apple is an American brand, it has many of its manufacturing and development roots in China.

But what does Apple need to do in China to make more than a splashy entrance? If Apple hopes to only ever maintain itself as an upper-tier luxury product, it needs to do nothing more. But if it wants to attract the Chinese masses, it needs to alter the way it has been doing business.

First it needs to focus on its pricing. Apple has a worldwide pricing policy, whose rates alone put a normal Apple computing product well above the price levels of Dell, Asus, Lenovo and others in China. And when tariffs are added to the price of a Mac computer, the prices really go up. The price for an iMac 2.8GHz in the United States is USD1,799; in China an iMac 2.8GHz is USD2345.16 (USD1 = CNY6.822). To be competitive and to be attractive to China's growing middle class, Apple must drop its prices.

Unknown to most Westerners, the Chinese newspapers are filled with stories of Chinese consumers complaining and suing retailers and companies for all kinds of perceived slights. What's going to happen when all those Chinese iPhone users — those people who are not supposed to be using an iPhone in China — start having headaches when they try to upgrade their phones' software or the non-removable batteries start dying? According to Apple, the company will not provide them support because the consumers are using software cracks which void their warranties. But tell that to a Chinese consumer. Can't you already see the news stories and blogs from angry Chinese consumers who say Apple refuses to help them? Apple will become just another hegemonic foreign interloper trying to cheat naive Chinese consumers.

What can Apple do? It needs to swallow its pride (and its Terms of Use) and put together help documents and some sort of way to assuage those angry consumers. Maybe Apple should relent and give them free software upgrades? Those iPhone users are Apple's best potential long-term users in China because they are the early adopters. It would be a shame to lose them because of something so small as purchasing a cracked phone.

By different estimates, 40-70% of all personal computers in China are running some form of bootleg Microsoft software. Say what you will about the evils of software piracy, it is piracy itself that has vaulted Microsoft and Bill Gates to become household names in China. Whether they realized it or not, Microsoft has used the old drug dealer technique to hook Chinese computer users: first let the users get the software cheaply via counterfeit means; then let them build a reliance on that software; finally threaten them with bodily harm if they don't buy legal software. Apple needs to allow a gray and black market for its software to explode in China. While we don't condone the use of counterfeit software, Apple needs to find a strategy to let its users find cheap methods to use its computers. There is already much open source software available for the Mac, so maybe Apple should put its energies into working with those global developers to distribute the software to Chinese users.

The iPhone is the best way to hook Chinese consumers to all-things-Mac. Yes, the iPod is already popular in China's biggest cities, but the iPhone is the best way to market a more useful device to Chinese businesses and wealthy Sino-users who can more easily attach a MacBook or iMac to their collection of Apple wares. Apple has had problems with getting the iPhone into China though. The company launched the 3G iPhone on July 11 in Hong Kong, but its talks with telecommunications operators in mainland China have resulted in no agreement. The latest rumors are that the iPhone will absolutely not be available anywhere (legally) in mainland China until 2009. Apple needs to give Chinese uses some face and the company needs to relent on whatever is holding up the talks.

At ChinaTechNews.com, we are avid Mac users and supporters. We self-servingly hope that Apple succeeds in China so we can have reliable repair options and don't need to deal with some of the haughtiness of its Chinese retail agents. But for Apple investors, they should worry if the company is truly able to warp its strategy for the complexities of the Chinese market (history has proven otherwise), or if it just hopes to continue using its useless American marketing know-how in China. Apple has made its biggest slice yet into the Chinese market, but apples spoil quickly after that first cut.

6 COMMENTS

  1. Investors should be shaken because I surely am about the problems when they began sales of the 3G iphone and then tried merging Apple's .mac with the mobileme.

    they can not chew gum and walk at the same time.

  2. Your observation of software theft being used for sales leverage will help Apple (as their closed system means only they will benefit) but I don't see them calling a local armistice on bootlegged iPhones, though possibly a global one. I don't think Steve Jobs is that desperate to become a household name.

    I would say Apple is unlikely to succeed as it's never chased the mass markets anywhere else in the world so I don't see why it would in China. Luckily for them China is fast becoming a hypocrisy of double-standards and a two-tier society with a base of wealth and status-seekers. Apple may not be the machine of the people but there's a good platform for growth.

    McD

  3. Missteps in China?? No — who? Apple? My beloved Apple? Would my lovely Apple have made all those bad decisions in the past? No…. not my Apple!

    Those prices are mighty steep my friends!! Apple is holding a middle finger to Chinese people and saying we don't want you to buy our computers because you are not rich enough!

  4. Your Apple pricing between USA and China are slightly incorrect. The USA price does not include the tax but the China prices does include the tax. However this is not a big issues since some places in the USA won't charge sales tax and also the sales tax varies greatly in different cities and states. The price in China is still much higher though even when adding a normal sales tax to the US prices.

  5. The Apple store in Sanlitun is small and doesn't have many things to sell.

    Don't waste your time going there.

    Oh and did I mention how the prices are more expensive than in Hong Kong?

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