Taking A Bite Of The Action: How Apple Conquered The China Tech Market

When you type “Why would you buy …?” into the search box of China’s coveted lifestyle platform Xiaohongshu, the first two results are “luxury” and “gold.” But the third one, interestingly, is “iPhone.” A deluge of pre-orders crashed Apple’s online services for the newest model while the two hashtags (#iphone 14 and #iphone 14 Pro) have accumulated over one billion views on Weibo. Currently, there are almost a million posts about the US tech giant on Xiaohongshu and the number of netizens sharing their product reviews on Weibo is also growing. Online, the upsides for using Apple run from comments like “an iPad saves you from carrying textbooks” to “an iPhone is durable and is the most cost-efficient choice.” Top tech vlogger Zhong Wenze’s (@钟文泽) video on the iPhone 14 pro has 65,900 likes and 40,600 reposts. https://www.youtube.com/watch?v=7bFla3F5vOw Still, Apple’s story in China is one of ups and downs, highs and lows. Only two years ago the iPhone’s status was in fact declining. After the release of the iPhone 12 in 2020, many netizens were either criticizing it over its high price tag or negatively comparing it to offerings from local players Huawei and Xiaomi. Yet the company has managed to reverse its fortune post-pandemic. According to data from Samp;P Global, Apple is now the most profitable tech entity operating in China. In the financial year to September, Apple’s operating profits in Greater China shot up 104 percent over 24 months, to 31.2 billion (224 billion RMB). A meeting between Presidents Xi and Biden in November may indicate more stable ties ahead between their two nations, which will impact American brands like Apple and its positioning in China. Building loyalty via longevity Jerry Clode, a cultural researcher and founder of China marketing agency The Solution, has conducted consumer interviews throughout China since the 1990s and believes Apple provided locals with the archetype of an "exemplar brand," or a standard against which to judge others. Due to its brand attributes and distinctive design, Apple was associated with being a “cultural benchmark” among other phones and consumer products. “Importantly, Apple was distinct from Japanese consumer brands that had dominated China's early reform, thus creating a fresh definition of ‘quality leader’ in the country,” Clode says. It was not the effect of the iconic advertising campaigns which, though deeply influential in western markets, Clode maintains failed to close the language and culture divide in China. “It was instead the iconic design cues that signified social and global arrival which inspired loyalty among Chinese millennials — Apple's first audience in China,” he argues, citing the minimalist and iconic apple logo. “The impact on this demographic, now parents and career businesspeople, created a generational affinity to Apple. In my in-home ethnographies [or societal studies] in China, I have encountered consumers who had ‘collected’ every China-issued iPhone, describing these items as ‘markers in China's globalization.’” Retail innovation strategy Another key aspect of the cultivation of Apple’s Chinese fandom has been its iconic flagship stores, which are always located in prime locations in China's major cities. “Not only do they give Apple strong visibility with target urbanites, they also serve as key locations for brand localization,” Clode explains. He adds that flagship stores have been used as classrooms to "upskill" customers on the latest upgrades and product innovations — a rarity in China's high-paced retail environments. China marketing consultant Amber Wu agrees that the pioneering retail strategy was a key asset. “Apple has always been focused on personalized customer experience, and this branding strategy in the early years worked well locally. Their ‘town square’ store concept created a unique experience for local consumers in the country.” Wu cites too the allure of the original founder, Steve Jobs, and the brand’s “personality,” which has always been associated with being “innovative and inspiring.” On his travels around second- and third-tier cities, Clode talks of witnessing “shrine-like dedications to Jobs in libraries and public spaces” — remarking that present-day American entrepreneurs such as Mark Zuckerberg and Elon Musk will fail to see such fervor in the mainland. For him, the late Jobs seems to also occupy “an emotional role in memories of China's first entrepreneurial generation.” Finally, apart from outdoor advertising, Apple has not been a big media spender in comparison to other successful international brands in China, such as those in automobiles and hard luxury. Rui Ma, a China tech analyst and investor with a decade’s experience, notes that “Apple has China as a market as well as a supplier. As long as the Chinese economy continues to recover and consumer demand is robust, I don't see too much trouble ahead with Apple products in China.” Good news there, then. Not out of the woods yet Despite the momentum and well-laid foundations, Apple is not yet out of the woods. Given that China is responsible for 95 percent of iPhone production, supply chain worries are now its biggest challenge. The recent protests and worker exodus at Foxconn are an example of what might plague the corporation. Since then, analysts have been cutting Apple’s earning estimates. Investment banking company Evercore ISI cut its December quarter revenue forecasts by 8 billion (55.6 billion RMB) to 122 billion (848 billion RMB), down on last year. Wu admits that the overall slowdown of supply and demand is present in China as well as the rest of the world: “The average device replacement cycle is becoming longer as today’s smartphone and laptop designs are more homogenous, and there's little innovative disruption involved, and consumers are less motivated to upgrade.” In addition, Apple is facing local competition. Tech giants such as Huawei and Xiaomi offer alternatives, especially as national sentiment continues to drive shopping habits. But they are not without their own challenges. Beijing’s Xiaomi saw sales fall 10 percent this November to 9.9 billion (70.5 billion RMB), up on rivals Vivo and Oppo. Huawei’s business results for the first three quarters of 2022 saw it generate 62.3 million (445. 8 billion RMB) in revenue, with a profit margin on the main business of 6.1 percent, despite sanctions from the west. Even though the next decade won’t be easy, with global smartphone sales set to decline according to Jeffries, Apple is more than a technology company. And it has made it this far — despite the odds. Plus, China is the land of the mobile. Analyst Ma is optimistic. “As for the supply chain side, while there will be and already has been a gradual move to diversify manufacturing and assembly, China has one of the most advanced consumer electronics supply chains in the world, one that continues to improve in quality and capability, so I think the worries about Apple abandoning China are also overblown,” she explains. And according to Clode, many local tech firms have been influenced by the American brand’s design logic: “They are not clones of Apple, but respectful iterations.” As the saying goes, imitation is the sincerest form of flattery. And their homage to Apple’s minimalist lines affirms its leading market position — for now at least.

Taking A Bite Of The Action: How Apple Conquered The China Tech Market

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Published December 15, 2022

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Taking A Bite Of The Action: How Apple Conquered The China Tech Market