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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
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.
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-
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.