China Law Blog

Yesterday I did a post on Apple's alleged iPhone failure in China, entitled, "The iPhone In China: Ain't No Mountain High Enough." I say "alleged," because though iPhone sales have not soared in China, I remain confident Apple will do just fine there.

After I ran that post, 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." I also received a fairly large number of comments saying pretty much the same thing, all of which I accidentally deleted (sorry!).

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

Of course this is true.

I began my legal career with a massive law firm representing massive companies and my present firm has a few Fortune 500 companies as clients. I have done enough work with large companies to know that they are generally slow to change. They rightfully view their large size as a sign of their success and they are rightfully (usually) slow in turning away from what has worked for them in the past.

This means when they go overseas, they usually start out doing pretty much what has enabled them to succeed elsewhere. And then they adjust. I have both worked with and seen big companies go into China because they believe it important they go into China, figuring they will figure out China as they go.

I do not know if that is what Apple is doing right now in China, but it certainly would not surprise me a bit.

Small and medium sized companies (SMEs) tend to go overseas very differently. They tend to go overseas either out of necessity or because they want to make more money and they want to do it fast. Lacking massive reserves, they are not well equipped to handle sustained losses and they tend to do everything they can to avoid it. I have had companies tell me that if they are not showing a profit in China within a year, they will probably pull out. I have had other companies tell me that they can only lose x dollars in China and if they are not profitable by that point, they are out. Their margin for error is smaller and because of this, they tend to be more open to doing things a new way.

Do you agree? What are you seeing out there? Those whose comments I accidentally deleted, please comment again.

UPDATE: A reader sent me a link to this post, entitled, "An article wherein it is explained why everything written so far about Apple’s iPhone launch in China is beside the point," positing that Apple knows exactly what it is doing in China and its iPhone sales through China Unicom are a minuscule portion of that.