China Business

The Apple Way to Succeed In China: They Did It Their/Our Way

I say you glocalize this precise amount

I’m somewhat kidding with the title. Though I do have to admit one of the benefits of having blogged for so long is occasionally being able to write an ”I-told-you-so” post like this one.

Six years ago, when Apple was first getting started in China, a number of pundits wrote about why Apple was failing in China.

As a long time Apple shareholder and devotee, I immediately sided with Apple against the pundits and in The iPhone In China: Ain’t No Mountain High Enough, [link no longer exists] I called for patience:

Let me start out by stating as clearly as possible that I do NOT think Apple is failing in China. I do not know exactly how well or how poorly it is actually doing there, but the reason I am certain it is not failing is because it has not been there nearly long enough for anyone to say it has failed, or even that it is failing. Apple is a big company and I am quite certain it plans on being in China for the long haul and until the long haul is over, one cannot ascribe failure to it. Apple is still in the “getting its feet wet” stage in China and it is not fair to pass anything close to final judgment on it until it has gotten well past this stage. I again urge everyone to read the book, Chocolate Fortunes, to better understand how it can take a long time and a lot of money for a big company to establish a consumer foothold in China. Let’s just say Apple’s conduct in China has not caused me to even think about selling even one share of my stock.

Then, in response to a slew of comments and emails criticizing Apple in China, I wrote another “Apple will do just fine” piece, Apple In China (Again) And Why SMEs Usually Do Better Faster, [link no longer exists] in which I again pleaded for calm:

I wrote an article on Apple’s alleged iPhone failure in China. I say “alleged,” because though iPhone sales have not soared in China, I remain confident Apple will do just fine there.

After that article ran, I received a couple emails with “inside knowledge” of how Apple is messing up in China, largely because it is trying to do things “its way” in China, rather than the “Chinese way.”

And though those who emailed are probably right to say Apple has so far not done as well as expected in China, even as a shareholder, I say (in the largest font I can muster), SO WHAT.

I then went on to explain how large companies that go into China invariably start out slowly as they gain a lay of the land.

I defended Apple for a third time in Explanations For Apple’s China Success [link no longer exists]:

Here’s my own explanation. Apple stuck to its knitting.

Just about whenever I speak on China I am asked what it takes to succeed in business in China. In my response, I always  emphasize the need to stick to your business’s already established principles. To me the key explanations for Apple’s success are how Apple refused to go into China with its iPhone unless it would be free to make it a real iPhone in China, just like everywhere else and on how Apple waited until China’s consumers could afford its products, rather than giving them a cheap substitute in the meantime.

I am not saying companies should never create products just for China (because in many cases, they should), but I am saying companies that bend so far as to lose sight of who they really are, are not likely to succeed.

China business consultants have a vested interest in fanning the belief that China is totally different than anywhere else in the world and their peculiar China expertise is essential to assist Western companies in navigating China’s market shoals. The typical Western company is often of the view that “this is what we know and this is how we have succeeded in the past, and we are not going to change for anyone.” The trick is in balancing between what you know and localizing. This is never easy because the right balance varies between companies, products and countries (really even regions within countries).

I have long endorsed Apple’s China strategy (which is not much more than one part of its global strategy) and I still do. I am just glad Apple has been listening — that’s a joke!

What do you think?

8 responses to “The Apple Way to Succeed In China: They Did It Their/Our Way”

  1. From the start, Apple was destined to be a success in China, by virtue of the fact they were selling products (computers, phones, etc.) that were already widely available, but cost significantly more than anything else on the market. Intentional or not, it taps directly into the market for status which drives so many product sales in China.
    A Chinese friend of mine used to own a bar in Fuzhou with a perfect location, excellent decor, and a wide drink selection (by Chinese bar standards), but his business was awful. Day in and day out, more friends of the owner, myself included, would be drinking for free, than there were actual paying customers. One time I suggested he lower the price of drinks in order to attract more clientele. He looked at me as if I had just suggested adding lobster martinis to the menu of a kosher deli. “You clearly don’t understand Chinese people. If I make the price low, everybody will think my bar is low class. Nobody will want to come here. If anything, I may raise the prices in an attempt to attract more customers.”
    Thus is the Apple computer, which is (or at least was last time I was in China) even more expensive in China than it is in the US. More shocking, and somebody please correct me if this is no longer the case, when Apple computers first hit China, they all came with Windows XP conveniently pre-installed. When I asked users and dealers why this was, the typical answer was “Chinese people are not used to the Apple computer. They need time to acclimate, and the Windows operating system is familiar. But they like the Apple computer looks from the outside.” In other words, people were paying double the price of a regular computer for a new kind of computer which was stripped of the main reason (the better OS) it was more expensive in the first place.
    Nothing sells in China like status, and in this respect, Apple fell directly into a marketers wet dream. Same for Louie Vuitton, Dior, Audi, and a host of other brands which sell high-quality, but arguably over-priced goods for the Chinese market. As long as the brand has international recognition, and the cost is significantly higher than what the Joneses (or the Chens or the Zhangs or the Wangs) are using, there’s bound to be a market in China.

  2. I think you’re taking “jokey” credit for Apples success a bit too far. They have their own team of lawyers and advisors and it’s their joint success.

  3. You make a very good point on how consultants have a vested interest in convincing the rest of us that what we have always done “will never work in China.” If what we have always done did work in China, they’d be out of job. Of course there are the good consultants whose goals are to help the foreign company achieve the right balance between keeping its identity and sticking to its mission versus changing for China. I think the trick is in finding the good consultants.

  4. Can that many people really afford Apple products in China? They’re pricey even here and I was under the impression that the standard wages in China are still pretty small compared to costs of living.

  5. @Joe
    The vast majority of China’s population cannot afford fancy, expensive, computer hardware, but let’s not forget that there are (officially) 1.3 billion people in China. Even if we say only the wealthiest 5% of the country could afford an Apple computer, we’re still talking about a population equal to about the size of the entire population of say…Germany.

    • So Apple iphone will eventually go down to just 5% of the China smart phone market? There is more than just well to do buying iphone. It seems even people who by all estimation cannot afford an iphone (say a factory worker for whom cost of iphone is 2-3 months of their salary) still go out and buy an iphone with what is princely sum of money for them. But question here is how long can this continue? Will Chinese people keep buying iphone, despite it costing an arm and a leg?

  6. apple’s workings in china are not very clear…
    after trying to buy an imac from apple.com.cn i found out something very interesting … apple does not, cannot, use its own online payment platform … it is forced to use one “owned by the party”, to quote a computer customer service representative (based in singapore, by the way .. iphones/pads cr is in china).
    so i imagine apple is not as in control as one may think,

  7. I agree with your conclusions and congrats on your choice to stick with Apple. Steve Jobs is way smarter than the average bear. Apple is one of the few US firms to really truly beat China both on the manufacturing-export end and more recently in selling into that market. They did it without the usual practice of handing over most of the profits to some SOE or unscrupulous JV partner. They did it without giving up control. They did it without getting forced into technology transfer (a death sentence for a firm like Apple). They did it without being forced to move their R&D.
    A LOT of this had to do with their strong partnership with Taiwan based Hon Hai (Foxconn) and its very clever boss, Terry Guo. Kudos to choosing the right team mates and having a great deal of patience (and to whatever really went down behind the scenes with the Party operatives as well).

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