Vous êtes sur la page 1sur 8

Maen Hammad, Prasoon Tripathi, Yanfang Li, Piyush Kashyap

Apple In China Case Study


Qs 1. What is Apples strategy in China? Does it align with its strategy in the home
market?
Apple entered China in 1993 and but had different strategies for the PC, iPod, and the
Smartphone markets even though it did not have the first mover advantage.
In the PC market, Apples strategy was to Aggressively localize, Build their Visibility, Build the
ease of use, Build a solid base of relationship for future growth
Apples PCs included not just the tangible features of PC hardware and software (Operating
System), but also the intangible features such as buying experience, user experience, availability
of other software applications that work on its product etc. Because it didnt have the first mover
advantage, Apple had to compete using product differentiation strategy in all the above areas.
Therefore, Apple established long-term relationships with its distributors (The Legend Computer
Group) and resellers to ease the buying experience for its customers. Apple localized the
customer interface by providing entirely Mandarin-language operating environment for Chinese
customers. Additionally, if sponsored a computer-training center to develop long-term
relationship with developers, customers, resellers, government, and strategic partners.
For the PC and iPod market, Apples China strategy was very similar to its US strategy with only
difference that it had the first mover advantage in the PC sector in US. For Example, it tried to
control the sale of iPods only through Apple Stores both in the US and China.
In the Smartphone market, however, Apples strategy included the above but was different
because of various additional factors:
1) New Relationships: To begin with, the device itself had additional requirements such as
wireless capability for voice calls and data. This required relationship with not just new

Maen Hammad, Prasoon Tripathi, Yanfang Li, Piyush Kashyap


suppliers, as it formed with the PC market, but also new distributors - telecom providers such as
China Mobile etc.
2) Gray Market: Secondly, Apple had to deal with the fact that Chinese gray market had an
estimate of 1.5 million legitimately imported or counterfeit iPhones even before Apple could
officially launch the iPhone. The delay caused by failed negotiations with China mobile for two
years from 2007-09 only worked in favor of the gray market.
3) Government Regulation: Thirdly, the Chinese government had posed restriction on the use
of WiFi on cell phones. This implied that the iPhone needed to be redesigned for the Chinese
market. This was not the case in the US market.
4) Customer Price Sensitivity: Finally, the Chinese cell phone & smart-phone market had
already crossed the performance-gap phase and had entered the performance-surplus phase. In
other words, customers had lot of options to choose from in the market and it appears from the
case that Apple was not very sure whether Chinese customers were price sensitive or cared for
the status that the iPhone brand offered. This is evident in the fact that Apple launched a
relatively in-expensive or lower-end version of the iPhone iPhone 5C- along with its latest
high-end iPhone 5S. However, it must be noted that even though iPhone 5C was 15% percent
discount of the price of iPhone 5S, it was double the price of other local brand smartphones
available in the market.
5) Brand image repositioning: In response to rebuild its image in China from the former
controversial relationship with Dalai Lama, Apple repositioned its brand image. As the high-end
sophisticated Chinese customer desired goods that projected high status luxury goods, Apple has
located its Chinese stores next to high-end global brand boutiques since 2008 and repositioned its
products and services as luxury goods, making them the choice of top professionals with affluent

Maen Hammad, Prasoon Tripathi, Yanfang Li, Piyush Kashyap


lifestyles. It appealed to the local market and improved Apples share significantly in the
increasing Chinese market. The success of smartphones even had spillover benefits for Apples
other products such as laptops, desktops and accessories. This strategy is unique in its business
adventure in China, given the fact of different GDP per capita levels. For example, a nonsubsidized iPhone 5S cost $886, which is more than a months salary for the average urban
worker in China, while it is affordable for most smartphone users in the US.

Qs 2. How has Apple managed the competitive threat in China?


Apple followed few expansion strategies as seen through the lens of the article Building Layers
of Competitive Advantage. Apple understood the National Differences between US and
China especially in the fact that China is a manufacturing hub for various components of a
smartphone. A visionary company such as Apple relies on product innovation to sustain its
growth. This requires heavy fixed costs in R&D every year and is one of the key factors that
results in a differentiated product. Apple established relationships with its suppliers for
technological advances because it understood that the suppliers were willing to push their
innovations to Applet first, ahead of competitors, given their significance in the industry. This
allowed Apple to lower its R&D costs by concentrating only on the semiconductor & productdesign side R&D, and was thus able to pass some of the cost gains to its shareholder by buying
back its stock. Another advantage of this strategy is that the suppliers at China understand the
chinese customers more than Apple does.So Apple could leverage their innovations in its future
products, thereby making its products more aligned with Chinese customer needs. However, the
downside of this strategy is that the suppliers now gain the advantages of Scale Economies such
as Learning Effect caused by the increased R&D in the hardware and production and can
become potential competitors to Apple in the future.

Maen Hammad, Prasoon Tripathi, Yanfang Li, Piyush Kashyap

Apple originally has managed the competitive threat in China by repositioning its product as a
luxury high-end smartphone, by relocating its stores next to high-end luxury boutiques, which
had given it much success in the Chinese market. Apple has also made an exerted efforted, under
the reigns of Tim Cook, to highlight their commitment to the Chinese market and show face by
taking trips to China to enhance a strategic relationship. Apple furthered this by trying to reach as
many Chinese customers as possible by making contracts with all three of the big Chinese
cellphone service providers. This indicates that their commitment to the Chinese market was
measured and sought market domination.

The main reason for the lower iPhone 5C sales was that Apple had a high threat from the local
manufacturers such as Xiaomi & Huawei. Marketing iPhone as a luxury good, Apple has been
competing at the higher-end of the market with big players such as Samsung. Even though Apple
reduced its costs by building relationships with suppliers and outsourcing the processes in its
production that demanded heavy investments, Apple cannot lower the price of its new products
enough to compete with these local vendors to preserve its Brand-Image. As mentioned in the
case These national-champions were able to strike the ideal price point, about 70 percent of
workers monthly salary, as opposed to the two-months salary required to purchase an iPhone.
. Additionally, the lower EBITDA margins for mobile phones also put pressure on the Chinese
service providers to promote less expensive smartphones.

To make it worse, the 5C was viewed as an expensive cheap phone by Chinese customers, and
instead, they prefer to pay more for the iPhone 5S model. Here smartphones become a symbol of
income level and social status, and by introducing a cheaper 5C, Apple misunderstood its target

Maen Hammad, Prasoon Tripathi, Yanfang Li, Piyush Kashyap


customers in China and also somewhat damaged its own brand and reputation. It is a real lesson
for Apple and its marketing strategy in China, which may help explain why it never tried to
develop a cheaper iPhone 6C besides 6 and 6S models.

Qs 3. What are the key challenges facing Apple in China? How should it address them?
The key challenges facing Apple in China can be broken up into two components: the first of
which revolves around short-term and immediate issue areas, while the second, deals with longterm issues, mostly pertaining to the domestic and state-centered focus of the Chinese market.
Current Issues & Short Term Strategies:
The first arena of challenges discussed in the case are the negative PR from its contract
manufacturing and recovering from the iPhone 5Cs failure.
Negative PR:
Apple gained negative publicity because of its Iphone 5C manufacturing agreement with
Foxconn, which was known for poor working conditions and suicide among its employees.
Apple can address this issues in a multiple way; First, Apple can enforce its terms related to
better working condition for Foxconn employees, and to ensure that conditions are met through
regular audits of the facilities. This action, in turn, can sway the Chinese public and stakeholders
and help Apple overcome negative PR.

Recovering from 5C Failure:


The credit of this failure can be stemmed from the poor product designing. Apple did not capture
weak signals from the consumers and failed to understand the features that were important to
Chinese consumers. In the short term, Apple should completely withdraw the 5C model from the
Chinese market and it should make iPhone 5/5S available at market competing prices. The 2% of

Maen Hammad, Prasoon Tripathi, Yanfang Li, Piyush Kashyap


the market that the 5C achieved in the initial 4-month period is evidence that a strategic push for
the 5S model is imperative. In China, Apple has gained some success by placing itself as an high
end luxury product; thus, Apple should maintain this identity through various advertisements
channels.

Managing IP Challenges/Grey-Market:
Apple was also facing challenges from unlocked iphones (5C), which were offering features that
were not available in its customized 5C model for Chinese market, such as Wifi, which was not
available on customized model, was available on grey market Iphone 5C. Further, as these
phones were unlocked, people were free to use them on any wireless network because of which
both Apple and its partners, wireless service providers, were losing money.

To overcome this challenge Apple should come up with a strategy with the help of wireless
service providers to block unlocked phones from using mobile services, and further it should
collaborate with Chinese government to enforce IP regulation and counterfeit laws strictly.

Long-Term Strategy:
Definitely, China with largest mobile phone consumer market and contributing 26.66% in 2015
Q3 Apples revenue is a crucial market for Apple and despite all failures Apple will have to to
come up with strategies to sustain in this market.

Apples strategy should put into account the growing nationalism and favor for domestic
products that is rising in the Chinese market. This is not to say that Apple should lose interest in
securing a portion of the Chinese market, but instead, a focus on sustaining their image as a high-

Maen Hammad, Prasoon Tripathi, Yanfang Li, Piyush Kashyap


luxury phone maker. Because of the growing consumer power of the middle-class in China,
Apple has a long-term advantage to sustain this image and attract these purchasers.

Apple positioned itself in 2008 to accommodate the luxury preference and saw a quick and
dramatic success. This repositioning sustained even with the growth of the Chinese smartphone
market, with an 88% increase from 2011 to 2012. Not only this, but it assisted the Apple brand
name outside of just smartphones as there were increases in the purchasing of iPads, Mac, and
Apps from the Apple Store.

Another tactic Apple should implement is an increase in their R&D, and specifically expanding
this into China. Apple had only spent 3.5% of its $233 billion revenue on R&D, which is not
only extremely low, but also a wasted opportunity to set their foot into the Chinese market. By
centralizing this R&D at home Apple has lost the ability to capitalize on new developments
outside of their home market (217). Therefore, a dramatic increase in R&D facilities and
partnerships in China is important to infiltrate this domestic niche while also increasing their
stake in the Chinese market. By showcasing Apple as a partner in the country this will assist in
reversing any PR issues, while also rooting the company into the domestic market.

Further, considering strategies mentioned in the article The entrepreneur's path to global
expansion, Apple should also strategize to protect its domestic market from emerging
manufacturers in Chinese market. These emerging companies can attempt to enter high end
phone market in China as well as USA; therefore Apple must suppress these companies by either
buyouts or placing competitive pricing for its low end smartphones.

Maen Hammad, Prasoon Tripathi, Yanfang Li, Piyush Kashyap


By positioning itself for the high-end market again and increasing its R&D presence in China,
Apple can increase its focus on a transnational strategy, which in turn, allows Apple to have the
flexibility and efficiency at home and abroad and also a dispersed configuration of assets and
capabilities that can assist them in the Chinese market.

Vous aimerez peut-être aussi