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The Apple Way To Succeed In China. They Did It My Way.

Posted in China Business

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

A couple years ago, when Apple was first getting started in China, a number of business and tech consultants talked of why Apple was failing in China. Two quick and very typical examples:

1. CNBC guest writer Shaun Rein wrote an article proclaiming “How Apple and iPhone Blew it in China.” Rein blamed Apple for 1) failing to “take into account local consumer preferences,” 2) “Failing to Choose the Right Partner,” 3) “Failing to Launch globally all at once.”

2.  Buzzom Blog described Apple as “having failed terribly” due to 1) the cost of its phone, 2) its marketing strategy, and 3) its competition.

As a long time Apple shareholder and devotee, I immediately sided with Apple against the pundits and in my post, “The iPhone In China: Ain’t No Mountain High Enough,” I called for patience:

But 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 there 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 that 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,” in which I again pleaded for calm:

I did a post 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 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, said (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 slow as they are gaining a lay of the land.

I defended Apple for a third time in a post entitled “Explanations For Apple’s China Success“:

Paul Denlinger has a great post up on the China Tracker blog, entitled, “For Apple, The Best China Strategy Was Not Having One.

I have known and respected Paul since forever, particularly on issues relating to China’s technology and internet sectors.

Paul’s post extols Apple’s strategic lack of strategy in China and I agree with all of it, except the “lack” part. Paul’s point is that Apple has succeeded in China by not having a China strategy and my point is that Apple has succeeded in China by having a very clear and focused global strategy, which includes China.”

I then went on to say that Apple was succeeding in China because it was doing what it had always done and not “bending” to China, as so many had called on it to do:

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

Let me explain. Just about whenever I speak on China or am on a China panel, and am asked what it takes to succeed in business in China, I emphasize the need to stick to your business’s already established principles. To me the key explanations from Paul’s post 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 China 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 absolutely should), but I am saying that companies that bend so far as to lose sight of who they really are, are not likely to succeed.

The typical China advisor has a vested interest in fanning the belief that China is totally different than anywhere else in the world and that their peculiar China expertise is essential to assist Western companies in navigating China’s market shoals. The typical Western company oftentimes, however, is 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.”

I have a client, an unbelievably successful entrepreneur who has made tens of millions in a whole host of businesses in four very different countries around the world, who should be a poster child for the “company view.” Once, when he was about to undertake a very large project completely different from anything he had ever done before in a country he knew only because he owned a beachfront condo there, I asked him what he knew about X business in Y country. His reply (and I am completely changing the items and the countries so as to make it impossible for anyone to know of whom I am talking) was basically that he had made and sold tennis shoes in Cambodia and making and selling construction equipment in Germany is no different. I have to admit I thought he was crazy, until he sold his “Germany” investment a year later and cleared twice what he had put into it.

That is obviously one extreme, and I am not for a minute saying this sort of thinking always makes sense, because it doesn’t. But on the flip side, I do find it highly presumptuous of so-called China experts to be writing about a company like Apple as though they know better what is best for the company than the company itself. Apple and Google seem to be the favorite whipping boys for this sort of attack.

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 to me and sticking to what it knows best (that’s a joke!).

What do you think?

  • http://www.benross.net Ben Ross

    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.

  • C. Orange

    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.

  • Andrew Marks

    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.

  • Joe

    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.

  • http://www.benross.net Ben Ross

    @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.

  • gregorylent

    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,

  • http://www.deathbychina.com Greg Autry

    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).