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Apple is losing the game in China

Guest Author

Marcos A. Lima

Industrial Design PhD student @ Northumbria University


Once praised for its enormous potential as an emerging economy, the China It could be a threat to Apple and not an opportunity.

Historically, China has not been the most foreign-brand friendly market. Google, Twitter, and Facebook have found it difficult to do business there due, among other things, to censorship policies. However, this did not stop the Chinese people from discovering the wonders of social networking: just seeing the successes of Sina Weibo, WeChat, Baidu and the like.

These restrictions also work in many ways. startups Chinese companies specializing in copying successful Western companies. Thus, the Communist Party's (CCP) restrictive policies on the civil use of the internet also end up preventing foreign competition from gaining a share of the Chinese market. A win-win situation is formed (for the CCP, of course).

Apple's recipe in China is stagnant since 2014. What has changed since then? If the rise of Huawei, Xiaomi, Vivo, Oppo, Honor, OnePlus, Meizu and others players Chinese call your attention, means that you understand the disruptions in force in this market. And I worry if Apple is about to be completely ruined in China.

According to Counterpoint Research, Apple's market share in the region fell from 13% in the first quarter of 2018 to 9% in the same period in 2019. It is true that Apple can survive with a modest market share because its higher prices support generous prices. profit margins. However, I need to watch out for moves in the coming quarters as disruptions in the smartphone market tend to be incredibly fast Nokia, BlackBerry and Windows Phone disappeared very, very quickly.

Smartphone market in China

Not to mention the current trade war between the Trump administration and China. However, it seems that the rise of Chinese brands has been a trend since long before Trump's election. The US President's retribution only adds a touch of politics to this issue, but it is by no means the causative agent. The imbroglio gives the Chinese administration additional motivation to free its people from the imperialist evils embedded in every iPhone. made in china (irony here). But surely the growth trend of domestic manufacturers has been in place since before Trump.

The only advantage in this situation is that Apple seems to be aware of these problems. Last year, the company made the surprising decision to cut prices on its latest models sold at Chinese retailers. New Apple Store openings have retreated since 2016, from 17 new stores that year to zero in 2019.

Apple Stores in China

This retreat is a direct consequence of the growing number of consumers who prefer local brands:

(A decade ago) Apple was offering a product that was so much better and so different that it made sense for people to come to stores to buy something, says Ben Cavender, senior analyst at China Market Research Group. By 2018, it is unclear what Apple sells as drastically different or better than any other on the market.

Apple's shrinking exposure to the Chinese market also coincides with recent geopolitical events. The Chinese authoritarian regime has become increasingly repressive in recent years. The Chinese Communist Party is increasing its control over state bureaucracy, media, online speech, religious groups, universities, businesses and civil society associations (), according to the Freedom House center. In 2018, the National People's Congress amended the country's constitution to remove the two-term limit from the office of president. The unanimously accepted amendment granted President Xi Jinping the right to rule indefinitely. Was Xi Jinping, then, a kind of hybrid of president with dictator? a presider?

Geopolitical issues aside, I don't believe these questions of freedom and human rights are of genuine concern to capitalists, even to a self-proclaimed human rights defender like Apple. The point that a turn toward authoritarianism (or more authoritarianism, as in this case) scares any capitalist. This impact of politics on economies is known to practitioners as political cycles. When expectations become dim, investors suspend investment plans or reallocate capital to alternative opportunities where their money may be at lower risk. Global capitalists of this kind are driven by self-interest, not selfless belief, no matter how much their marketing tries to glue the bastard image of human rights.

However, the Chinese central administration has found a way to deflect these pressures. If foreign investors fear Beijing's policies, the party has money to fund domestic manufacturers, just as it has with all the Chinese brands I have mentioned here. If things get worse in the future, Apple will be blocked without a viable divestment strategy in some of its businesses. According to its annual reports, fixed assets in the country consist primarily of tools, manufacturing equipment, infrastructure and other assets linked to Apple Stores. Tools and equipment can be moved anywhere in the world. Retail stores? A little hard.

The scenario of a Chinese smartphone industry closed foreign competition is already a reality. The players Nationals account for over 80% of the domestic market, while Apple struggles to maintain its 9% share. The disastrous market share Samsung's 1% stake follows a boycott of South Korean companies, which began after South Korea announced that it is working with the US on an anti-missile defense system, according to analyst Cam MacMurchy:

There are many, many more examples of this, even against American companies. Some protests are genuinely spontaneous (like the one involving the Dolce & Gabbana brand), but those led by the government are the ones that make the most impact. The government of China has enormous power to influence purchasing decisions, particularly in framing certain companies as anti-China.

The situation may worsen in the near future, as Beijing does not hide that Apple is a target and also a bargaining chip in the trade war with the US. China is by far the most important foreign market for Apple, leaving it vulnerable if the Chinese people make it the target of anger and nationalist sentiment, he said. Peoples Daily in an article.

This publication is an official Communist Party newspaper, providing direct information on Beijing's upcoming policies and views. The article leaves an implicit threat:

China doesn't want to close its Apple doors despite the trade conflict, But if the American company wants to make good money in China, it needs to share its development investment with the Chinese people.

China may push competition out of its home markets, but Chinese manufacturers still rely on Western technologies such as the Android operating system and ARM architecture, which are key platforms in their products.

It should not be understood that your recipe for success depends solely on mass production, logistics and economies of scale. Some new product categories have also emerged there, such as electronic cigarettes, powerbanks, scooters electric, drones to name just a few. Shenzhen-based DJI, the world leader in civil and commercial drones, is responsible for over 70% of the drone market.

Much like the way the Japanese and South Korean industries became industrial powers, it seems that Chinese smartphone makers have dominated, and even surpassed, western design and innovation with a little help from the Communist Party. What is open if Apple still has a place in China.

Article originally published in english, on Medium.

image: Nikktage / Reuters