Apple (the computer company) with relation to China. The paper will need to focus on the company's product development and supplier relations within the Chinese market.
"Apple Inc. (NASDAQ: AAPL; formerly Apple Computer, Inc.) is an American multinational corporation that designs and sells consumer electronics, computer software, and personal computers. The company's best-known hardware products are the Macintosh line of computers, the iPod, the iPhone and the iPad. Its software includes the OS X and iOS operating system; the iTunes media browser; and the iLife and iWork creativity and production suites. Apple is the world's third-largest mobile phone maker after Samsung and Nokia. Established on April 1, 1976 in Cupertino, California, and incorporated January 3, 1977… Fortune magazine named Apple the most admired company in the United States in 2008, and in the world from 2008 to 2012" (Wikipedia: Apple Inc.)
The following essay describes Apple's relationship with China focusing specifically on the company's product development and supplier relations within the Chinese market.
Apple's History with China
China has a definite love affair with Apple. In 2008, Apple had barely made its cut with China, but then business took off and Apple had resolved to make China its number 1 priority among the BRIC (Brazil, Russia, India, China) countries. Results of sales only solidify that decision. An exultant COO Tim Cook told analysts in January 2011 that "We put enormous energy in China and the result of that has been absolutely staggering" (CNN Money, 2011). In 2011, Apple proclaimed that it planned to build 25 Apple Stores in China within the next two years. Several of those stores have already opened, and Apple went further in their overtures to that country going out of their way to slant their smartphones with Chinese characteristics and qualities that would appeal to Chinese consumers. Examples of these qualities include the following:
Baidu has been made as a search engine in the Apple Safari browser
Apple has offered a better way to input Chinese characters into Mac OS X
Apple has integrated eight new Chinese fonts with Mac OS X
Apple has made video sites Tudou and Yokou, and Sina Weibo (China's Twitter-like microblogging service) easily accessible to iOS 6 users and has allowed them to facilely integrate content.
Apple has equipped iOS with a new Chinese dictionary
Apple has equipped iPhone Siri with ability to speak Mandarin and Cantonese
Apple and China really seemed to take off.
In 2010 however, a scandal occurred with their supplier relations that almost seemed to blow all.
Apple's products are produced in China by a $61 billion company named Foxconn which may well be the world's largest producer of electronic components. In September 2012, newspapers such as the British Telegraph reported that 16 people had attempted to take their lives by jumping off factory roofs and that 12 had succeeded in killing themselves., whilst another 20 were stopped before they could jump. The reason? Chine laborers working for Apple were making only about 51 cents per hour, whilst Foxconn was spending billions of dollars on building another plant in Chengdu where they could pay laborers even less than that.
Even now, this scandal has left its ramifications with some feeling that Apple's relationship with China is exploitative and Apple, even though it upped its wages, improved its labor conditions, and tightened its security, having lost greatly over the incident.
It is too soon to comment about Foxconn's exact impact on Apple's products. Apple seems to be still selling better to China than it does to America. Their present relationship can perhaps best be summed up by advisors Tim Hanson, Ron Gross, and James Early who, commenting for the Motley Fool in 2012, analyzed Apple's relationship with manufacturers in China relationship and commented that the relationship is not as black and white as some may believe. It is rather composed of shades of gray, although there may be more white than black. As recently, as April 2012, the Daily Freeman noted that:
Apple is generating record revenue growth in mainland China, thanks in large part to a deal with China Telecom (CHA) during the fiscal second quarter, as well as an expanded relationship with China Unicom (CHU)… CEO Tim Cook said yesterday on Apple's earnings conference call that it was an incredible three months in China, which produced $7.9 billion in revenue, up three-fold. (http://finance.yahoo.com/news/apples-future-products-made-china-152300792.html)
Apple's product development with China
Apple's love affair with China and the reciprocal relationship was first noted by business analyst McKenzie in June 2012. In June 2012, McKenzie noted that:
Steve Jobs never paid much attention to China, but now Apple's interest in the country could hardly be more obvious. In his short tenure at the top, Tim Cook has already embarked on a high-profile trip to China, talked about the importance of being a change agent for manufacturing in the country, and & #8230; has overseen a keynote at the World Wide Developers Conference that placed the world's largest Internet market on the same podium as the U.S. (Pandodaily, 2012).
Apple, apparently, sees great potential in China for the year before there was no mention of the country in its WWDC address. Come this year, and Apple keeled over to seduce China. This was, no doubt, due to the fact that Apple is realizing that a great chunk of its revenues come from that mammoth super spending power. Apple's revenue from China reached $12.4 billion in the first half of the fiscal year -- nearly as much as it made in the entirety of 2011, when it hauled in $13.3 billion. In June 2012, it was noticed that China had become Apple's second largest market with an exultant Cook proclaiming that "I've never seen so many people rise into the middle class who aspire to buy Apple products" (Pandodaily).
The stories of China's love relationship with Apple have been dramatic. They include that of one teenager even selling his kidney in order to procure an iPhone and iPad. Commented Richard Robinson, the Beijing-based co-founder of social networking company Youlu and mobile games producer Kooky Panda: "The iPhone is a very aspirational item… It's the same reason Starbucks has done well in China. Consumers are price sensitive, to a point. Then they will pay real money for status and quality." (ibid.)
And Chinese consumers, in the beginning of the year, were flocking to Apple not just for Apple's hardware, but for their apps too.
Whilst it is true that few of China's 1.3 billion citizens can afford an iPhone, Morgan Stanley's Katy Hubert estimates that there is a fundamental target market of approximately 50 million middle-class Chinese who have plenty of disposable income and a "strong interest in smartphones and the Apple brand" (CNN Money). Meanwhile Apple stores in China were reputed in 2011 to have drawn more customers than Apple stores located anywhere else in the world (ibid.) In December of that same year, it was reported that China Unicom (CHU) was unable to fulfill about a third of its orders whilst the iPhone 4 had been sold out for two months.
In 2008, Apple was just beginning to make their cut with China. Today, according to Morgan Stanley's Katy Hubert, Asia Pacific is the company's largest earnings driver, representing 39% of the company's operating income growth last quarter (CNN Money).
As the figure below shows, between years 2009 to the present, Apples sales in China have spiked to an all-time high Apple's sales in China. Sales in China gradually crescendo over Apple's four quarters in 2009 leaping in 2010 with the iPhone and iPad 4 to huge heights that peaked sales of 5000 million.
Fig. 1. Statistics of Apple's product development with China: 2009-2011
The only problem may be the present -- which may also be a blip on the horizon.
The Present: Apple with China
The present can actually better be described in shades of gray than in terms of black and white, possibly veering towards more shades of white than gray. Rathee (2012) reports that Chinese consumers seem to have turned their attention to Google's Android operating system preferring those to the new Apple smartphone introduced earlier the year.: "Apple saw its iPhone shipments more than double year over year, but they were down 37% compared with the first quarter of the year." In fact, Samsung was the top smartphone vendor with a 17% share, followed by ZTE, Lenovo, and Huawei. Apple, meanwhile, dropped to the fifth place.
According to Canalys analyst Chris Jones, Apple's fall from favor with the Chinese market is due not only to the fact that they are also one of the most - if not the most -- expensive brand, but that they also have to compete in a gray market. Chinese consumers prefer the cheaper brand. Change in seasonality for iPhone product debuts also affected sales:
It used to be a June launch and then it would roll around the world. That changed last year when it got introduced in…