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.
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.