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. FULL DISCLOSURE: My family owns three Macs and too many iPods and iTouches and iPhones to count. We also own shares in Apple (yippeee!!!) and I have an uncontrollable lust for the iPad and fear I will not be able to fulfill the promise I made to myself to wait for its second iteration. In other words, I fit this description, though without the stickers.
Paul starts his post by explaining how Apple was for many years, pretty much a non-factor in China because its products were too expensive and because it would not affiliate with China’s mobile phone carriers. Apple would not affiliate because it would not bend:
For more than two years, China’s two leading mobile operators, China Mobile and China Unicom, jockeyed for negotiating position with Apple to become the official iPhone distributor in China. This was unusual: China Mobile is the largest mobile telecom operator in the world (more than 522 million subscribers as of March 2010), and it was not used to NOT having its way in business negotiations with any company.
Except for Apple. With Steve Jobs, they met their match.
For large state-owned enterprises like China Mobile and China Unicom, it is normal for them to ask for special changes and amendments because “China is different from other markets.” With any other company, they would get the changes they wanted. China Mobile wanted control over the App Store; Apple said no. And it went on and on.
Eventually, China Unicom, the No. 2 carrier, got the rights to become the official iPhone distributor in China. The only concession Apple made was to take Wifi out of the phones sold in China. But for many Chinese, this is not a problem since it’s easy to buy unlocked gray market iPhones with the Wifi feature from Hong Kong in China.
Paul then provides the following explanations as to why Apple is doing so well in China today:
* Apple is too much like its Chinese counterparties. Power and decision-making are largely in the hands of one person, Steve Jobs. The Chinese are unable to play off the different parties/factions against each other.
* Several times, deals were nearly announced with Apple by China Mobile, but seemingly at the last moment, the deal fell through and Apple walked away. With any other company on the line, they would have capitulated to last minute Chinese demands or amendments.
* Apple had a very strong product pipeline, starting with the iPod in 2001, and then the iPhone in 2007. These products were well-designed and received, and with each iteration, the audience widened. Their competition was simply too far behind.
* Even without China, Apple’s bottom line improved with each year. This chart is hard to argue with.
* Instead of making cheaper products for the Chinese market, Apple chose to wait until Chinese disposable income increased to levels where Chinese consumers could afford Apple’s main products.
* Apple products have snob appeal. Urban Chinese are into rank and status. Many identify more with their contemporaries in Paris, Tokyo, Berlin and New York than they do with their own parents. As the income of the urban Chinese climbed, they were now able to afford Apple products. What better way to differentiate themselves than by becoming Apple users and fans!
* Mobile phones are ubiquitous in China. Not only are they a communications device, but more and more, they are becoming an entertainment device. The App Store provides an endless assortment of new apps to play with. Most of the time, these new apps are free.
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.
Balance is key….
What do you think?