The emergence of iPhone in China and political economy

China's cold shoulder for the iPhone

While China has embraced many aspects of modern American technology, it has thus far proved impervious to the charm of the iPhone. Apple's local partner, China Unicom, sold a disappointing 5,000 units during the first week of the iPhone's debut in China and sales have remained soft. According to Bloomberg News: "Judging by the original iPhone's U.S. release in June 2007, the China debut should have generated sales of about 30,000…. [In contrast] the iPhone 3GS sold 1 million units within three days of its June debut in North America and Europe." One reason for the disappointing early numbers is that China, despite its increased appetite for higher-quality American products, has a thriving gray market in cellphones that is of relatively high quality. "Tiny only a few years ago, China's gray market is now huge, it now accounts for nearly 13% of all legitimate global cellphone sales" (Kharif 2009). The popular Chinese sentiment is why pay so much money for a so-called legitimate device, when cheaper gray market devices are available.

Adopting new technology is encouraged by mirroring one's friends, and when young, upwardly mobile Chinese consumers use gray technology, this encourages their friends to do the same. Gray market iPhones have had a 'first entrant' market advantage unanticipated by Apple. This is true of almost all forms of cellular technology. For example: "Chinese gray-market handset suppliers have become so successful that they are grabbing share from major international handset [manufacturers]" as well (Kharif 2009). Apple now regrets having waited to introduce the iPhone into the Chinese market, as now Chinese gray market vendors "have filled in the gap with cheaper iPhone-like devices" (Kharif 2009).

Apple's strategy has also been clumsy, in terms of its relationships with local suppliers. As anyone across the world knows, changing one's cellphone number can be a hassle. However, in China, Apple's actions gave consumers two options: buy a gray-market style iPhone and stay with their current China Mobile account or a legitimate iPhone with a new phone number through China Unicom. Furthermore, the Chinese version of the iPhone cost as much as $1,025, compared with $299 in the United States. "Apple picked a weak partner, irked the customer with its pricing, and ignored the competing channel. Essentially, it continues to cultivate competition by marketing the touch-screen smart-phone segment and weak-playing the largest market in the world" (Yaw 2009).