BATTLE TO EXPAND IN CHINA
After Apple issued profit guidance and cited slowing Chinese demand as the reason for slower-than-expected growth, all eyes are on Tim Cook to drive sales in the country and fight regional competitors Huawei and ZTE. This week, read all about Apple’s ongoing battle in China, its price-slashing techniques, and the increasing threat of the Chinese government.
AN iPHONE FOR CHINA
Alongside the unveiling of the iPhone XS and XS Max back in 2018, Apple introduced the ability to add a second SIM - a virtual SIM card - to the iPhone for the first time. The news was met with praise from technology critics and business professionals, but for the Average Joe, the feature would no doubt never be used.
Unless you live in China, that is. In China and Hong Kong, Apple released legitimate dual-SIM iPhones with two SIM card slots, in an effort to appease consumers who have more than one phone line for family and business. At the time, Apple said it was creating a unique SIM card slot because China was hesitant towards the use of eSIMs, signaling its intentions to expand its presence in the country and work with both the Chinese government and local consumers to create a smartphone that truly served their needs.
However, following the release of the new iPhone lineup, Apple suffered a temporary sales ban in the country, and early predictions showed that the XS and XS Max models failed to live up to expected levels of demand.
CHINA BLAMED FOR WEAKENED SALES
In early January, Apple took the unprecedented step of cutting its sales forecast, with Chief Executive Tim Cook telling the world that iPhone sales in China were to blame. Thanks to the uncertainty around U.S.-China trade relations, Apple argues Chinese consumers are less willing to splash out on expensive new hardware and are instead turning to lower-cost rivals.
The news comes at a time when China is working hard to revive its stalling growth, with the country in unchartered waters and struggling to match its previous economic prowess. Some analysts argue China has fallen victim to the ‘fading technology boom’ happening worldwide, with consumers failing to upgrade their smartphones, laptops and other devices on the once-predictable annual basis, and manufacturers placing fewer orders including Apple. In a sign of the times, the latest figures show that Apple is cutting production of its iPhone XR and XS models by 10% following lower-than-expected demand for its latest flagship devices.
Following Apple’s sales forecast, shares tumbled in the business - the clearest sign yet of the economic slowdown in China, which perhaps hit Apple harder than many people had expected. In a press release this January, Tim Cook told investors that the company “anticipated some challenges in key emerging markets,” but that they “did not foresee the magnitude of the economic deceleration, particularly in Greater China,” citing the country responsible for its flagging quarter. Cook was quick to dismiss claims that the company had been targeted by
the Chinese government and added that he thought the “larger issue is the slowing of the Chinese economy, and then the trade tension that has further pressured it”.
APPLE SLASHING PRICES
Perhaps one of the biggest reasons why Apple has failed to make a dent in China thus far is because of its pricing structure. In 2017, the price of the iPhone hit the $1,000 mark for the first time - a price that many consumers both in the West and in the East cannot afford. An abundance of manufacturers and low-cost phones across China only add to the ‘shock’ of the iPhone pricing, leading many consumers to look to alternatives, including Huawei. On average, the iPhone is two to three times more expensive than other smartphones in China, so even if it’s head and shoulders above the competition, it simply won’t sell. As a result, Apple has worked with its channel partners in China and is dropping the price of its iPhone XR - the smartphone model that was designed to act as a ‘budget iPhone’ and help the Cupertino firm make headway across Asia and in developing nations around the world. Currently, the iPhone XR retails for $749 in the United States, but a deal with Chinese merchants will knock $100 off the price-tag, allowing vendors to pass on savings to buyers.
Whilst Apple is not planning to offer any direct discounts on its iPhone XR - that would go
against its values and premium image - the company is relying on third-party retailers to sell its models for a cheaper price. That follows similar schemes in the United States, such as with Costco, which offered the latest MacBook Air with up to $200 off - and AppleCare, too. By working with these third-party sellers, Apple is able to shift stock, increase market share and appease shareholders, without damaging its ‘premium’ reputation.
Back to China, where Apple is slashing the iPhone XR’s price from 5980 yuan (around $881) to 5380 yuan ($793), and also offering consumers a 150 yuan ($22) coupon. JD.com, one of the country’s largest e-commerce giants, is selling the iPhone XR at a discount, as is Suning. The prices are significantly cheaper than the 6499 yuan ($958) that Apple sells the XR for on its website and in retail stores,
signaling a new strategy for the company in markets like China.
This new discount pricing scheme comes just weeks ahead of the Chinese New Year, which will no doubt help the company to shift more stock. According to a report in China’s National Business Daily, the company has also secured distributor discounts on other iPhone models, including the 8, 8 Plus, XS, X, and XS Max, although the XR is most heavily discounted.
ONGOING BATTLES
The Chinese government has become increasingly difficult for Apple to handle, with the firm following many of its demands and upsetting customers in the process, who were once used to Apple standing ground on its decisions and avoiding government interference. Cast back to 2017, for example, when Apple removed VPNs from its App Store in China. Those apps were used by millions of citizens as a way to bypass China’s firewall and signaled a change at Apple, which now bowed to pressure from governments.
Another major challenge the organization must face in China is its intellectual property, in a country that’s renowned for copycats and counterfeit goods. Chinese manufacturers are able to build their own iPhone-like models and create software that, at least on the surface, looks and feels like iOS. But with it, they can create smartphones that are much cheaper than the iPhone, and as such price Apple out of the market. What makes matters worse is that these firms are often met with sympathy by courts, and Apple must spend millions to protect its intellectual property.
CHALLENGES FROM GOVERNMENT
With Chinese smartphone manufacturers Huawei and ZTE on the rise in the country, both with close links to the Chinese government, many have speculated whether the Chinese government is working to prevent Apple from making headway in the country. By working to knock down Apple and stop the firm from having dominance in China, the government is able to make domestic companies the brands of choice, and control their citizens as a result.
It’s also important to note that Apple remains a desirable, luxury brand in China - a country with high middle-class citizenship, all of whom have high levels of disposable income and can afford to spend $1,000 upfront on a smartphone. The Chinese government has, time and time again, worked hard to damage the reputation of such brands when they gain a level of popularity in the country, and so Apple is no doubt a clear target for the country’s elite.
But perhaps most importantly, China has been working hard to retaliate against the United States, which has banned Huawei and ZTE networking equipment as part of its 5G rollout. Technology today plays a more important role in politics than ever before, and with the US and Europe citing security and espionage concerns over Chinese equipment, it is clear that China wants to fight back and hurt America by targeting its most prized organization.
APPLE DOESN’T GIVE UP
It’s hard to pin down one reason, but it’s clear that Apple has a fight on its hands if it wants to make it big in China. But with billions of dollars
sitting in the bank and a growing presence in the country, Apple could dominate with the right strategy. Last week, it was revealed Apple was spending $150 million a year on United flights and that Shanghai was its #1 destination. There’s no doubting Apple’s drive to grow its Chinese market share, and it will be fascinating to watch where the company goes to achieve its ambitions in 2019 and beyond. Few American brands have been able to truly dominate and become household names in China, but with the right pricing, products, and marketing, perhaps Apple will…