Apple and China: The American Media Ignorance Continues

Over the past year, the tone of coverage of many China-related topics in the US has improved. For the most part, writers covering China have tried to look past the generally-accepted stereotypes, and have tried to get a deeper understanding of what is going on in China.

But occasionally something finds its way through the cracks.

This article is really exemplary; it seems like the writer has taken all the stereotypes about Apple and China, and thrown them all together in one basket. Judging from the tone of the article, and what he professes to be truth, it seems like he has never set foot in China. Otherwise, how could be believe some of the things he writes?

Let’s take a look at some of the choice statements:

Apple has less than 8 percent market share in China for media players, and far less than 1 percent of either PC or cell phone market share.

Yes, so? I wonder if the writer has walked into any cafe in Shanghai, Beijing and Shenzhen, and looked around? Or has he taken any of the subways in any of those three cities and looked around for the signature white earbuds? The question should not be the percentage market share. It should be the trend, and whether it is tracking up or down.

Apple’s second biggest hit in China, the iPhone, isn’t authorized. One Chinese analyst estimates that some 1 million Apple iPhones are currently operating on just one Chinese carrier — China Mobile — with a smaller number on other carriers. Most Apple “Authorized Resellers” in China sell black-market iPhones, and many even offer illegal cracking services — a process that reportedly takes less time than activating an iPhone 3G in California.

Apple makes money off of every iPhone sold, whether it is through authorized or unauthorized channels. Sure, Apple would like to have a carrier agreement in China, but having a group of fans, even though it is relatively small percentage-wise, which is very enthusiastic about Apple products, is a good thing. Besides, there are a lot of people in China who pay even more for more expensive feature-packed mobile phones in China. In fact, the iPhone is not the most expensive phone in the market. Ask Nokia.

Apple succeeds because customers love the products and the brand. But in China, brands mean little to most potential customers, and hardware even less. Chinese consumers prize value above all.

This quote is a true gem and qualifies as one of the most ignorant sweeping statements about China for 2008, even though we are only halfway through the year. Obviously the writer has not been to China and walked in the downtown of any major city. Here is an article about the runup to the recent opening of the Sanlitun store in Beijing and another story about Chinese youth camping out in front of the Beijing Apple store, where they were behaving just like American Apple fans.
I guess that’s why there are no Mercedes Benzes, BMWs, and Chinese women don’t care about the labels they wear? Maybe he thinks that they still wear Mao suits?

The rest of the world’s love of the Apple brand has enabled Apple to get favorable terms with carriers around the world. But this hasn’t helped much in China. Apple initially demanded a big two-digit percentage of carriers’ wireless revenue as a condition for granting its coveted exclusivity deal, according to reports (one company says Apple demanded 30%). The Chinese carriers were apparently unimpressed by the value of Apple’s brand compared with the value to Apple of access to Chinese consumers. They appear to have forced Apple to drop its demand for any share of wireless revenues.

The reason Apple has not been able to get an agreement with China Mobile is because they are both big companies with very big egos who want to control everything. I would say that Apple and the carriers have trouble reaching an agreement because they are so much alike, and don’t believe in compromise.

One-party rule in China actually affects product quality. One example is that Apple will probably be required to disable the iPhone’s Wi-Fi feature in order to comply with the Communist Party’s strict Internet control and censorship rules.

The relationship between one-party rule and product quality is an arguable point. But if it is that simple, then why are ALL of Apple’s products made in China? As for the disabling of Wi-Fi on phones sold in China, that is a China Mobile requirement, not a State Council requirement. (If you think that the rulers of China don’t have better things to worry about than whether mobile phones in China have Wi-Fi functionality, you don’t know anything about the country and how it’s ruled.) Besides, with the recent re-arrangement of the Chinese telcos, it’s not as if China Mobile is able to control Wi-Fi as much as it would like.

China is number one in intellectual property theft

Apple’s whole business model is based on creating value through exquisite design, superior branding and the sale of creative intellectual property (IP) — then defending its rights against the IP thieves, pirates and counterfeiters.

How will this formula succeed if China doesn’t enforce intellectual property laws?

The music piracy rate in China is between 90 and 99 percent, depending on whom you ask. China is the global epicenter of intellectual property theft in general, and of Apple IP theft in particular — especially iPhones and iPods.

Fake iPhones, and phones that steal Apple branding; illegal iPhone unlocking services; trade in illegal movie and music files; all appear to be tolerated and even government-protected activities in China.

Oh yes, how can we talk about China without IP violations? Seriously though, this is an issue. The best way to fight IP though, is for a country to get more prosperous. As people become wealthier, they are more willing to spend money on software, music, etc. In China, it is also very important to explain the importance of IP to various government ministries, and even be flexible about how much you charge Chinese consumers. Many Chinese think that they should not have to pay as much for music as US consumers because they have a lower income and standard of living. Does that fit into any American companies’ equations? Up until four years ago, Microsoft had a very high level of illegally installed Windows licenses in China, and constantly lobbied with the US Congress to “punish” China. When Microsoft China changed tactics and chose to engage Chinese ministries, educate them, and lower the license fees (as China’s standard of living increased), first the ministries, then the schools, then the people started buying original software from Microsoft. Now Microsoft gets more revenue from China, and the relationship with the government is much less confrontational. Piracy of Microsoft software still exists, but again it’s about the trend, which is improving.

Steve Jobs is an exemplary business and marketing genius. But when it comes to learning about other markets, he is lazy. He would like nothing better than to set prices for all media products sold through iTunes himself, and he would like it to be the same all over the world. China is a major kink in his vision.

How many times has Bill Gates been to China? How many times has Steve Jobs been to China?

I rest my case.

14 Responses to “Apple and China: The American Media Ignorance Continues”

  1. That’s hilarious.. brands mean little in China? LOL

    The funniest thing is this guy uses the terms “value” and “price” synonymously. Not only are they not the same, but they are almost the exact opposite in some contexts.

    Eric Gonzalezs last blog post..Overnight Successes Never Are

  2. XXXX says:

    heck! China does not respect IP rights because it cannot produce IP rights not just because it was poor – enough rich Chinese buying LV bags but still the same group of goons with little individuality, little respect to any Truth, all followers of Machiavelli but claiming to be disciples of Confucius. And some smart good people who comment on CHina without having been, give some of the best comments on China – you do not have to go live in China for a year and test out your own male prowess to understand that China for a hundred and fifty years had been insisting it should be treated differently from the other nations and peoples, much likely the hardline religious people brandishing knives and banners a like. So what, why the F does one have to know a culture to see the defects in it? WHy the H are their no good Chinese brand MP3 players? The Chiense value price and the cost of quality on any day, thats why they buy fake LVs with holes inside that coins drop into them or pirated DVDs that stops half hour before the end, yes poor people sometimes tend to put up with low quality, but Chinese, they inherent go for cheap crap. All the thousands of year they claimed to have lived – what a joke, look at CHina is like facing Simpson senior dozing off on a park bencher… cheap cheap China will not buy Apple, they will not buy anything that does not appear to be a knock-off, even the rich daughter of party sectaries, they buy what they are told and that is the end. They might get a iPhone, but they will not write a programme or even youtube on it – doggy KTVs are always better entertainment

  3. Ironfrost says:

    “As for the disabling of Wi-Fi on phones sold in China, that is a China Mobile requirement, not a State Council requirement. (If you think that the rulers of China don’t have better things to worry about than whether mobile phones in China have Wi-Fi functionality, you don’t know anything about the country and how it’s ruled.)”

    Not only is this completely wrong, but you seem to have some pretty fundamental misunderstandings of how the handset market works here. Most phones are not subsidised by or sold through the mobile carriers; they’re sold directly to the end user unlocked at full retail prices, with the SIM card sold separately. China Mobile can make whatever regulation it wants about WiFi capabilities and the vendors will just ignore it.

    The ‘no WiFi’ rule is actually set by the Ministry of Industry and Information Technology (formerly the Ministry of Information Industry), and it’s related to the Network Access Certificate that each model has to have before it can be sold legally in China. There may not be any written law or regulation about it, but the MIIT has made it clear to all the major vendors that handsets with WiFi functions will not be granted this certificate. The China Telecom story you linked to is something of a red herring; their terminals don’t connect to the cellular network so they don’t need an NAC.

    Now, this doesn’t completely invalidate your point, because the purpose of the requirement is more likely to do with protecting network operator profits than internet censorship, and if China Mobile asked nicely the MIIT would probably drop it. But if you think the government wouldn’t make petty regulations on some issue just because they have better things to worry about, it’s you that doesn’t know anything about how China is ruled.

  4. Haha, I found the article yesterday and emailed the article. I got no reply. The guy next to me in my office has an iPhone, several people either have are are contemplating buying an Apple laptop. The author of that article is totally clueless; let’s call it a lack of IQ and common-sense.

  5. sun bin says:

    :) that ‘brand’ quote is unbelievable.

    the reality is that because of varying and unreliable quality of non-brands, china had become perhaps the MOST brand sensitive country in the world. (ask if anyone would buy no-brand milk powder)

    but that is only the mass or the remote control journalists. ask anyone in LVMH, adidas, coca-cola. they know as much as anyone on the ground about this brand issue.

    “Apple’s whole business model is based on creating value through exquisite design, superior branding and the sale of creative intellectual property (IP) — then defending its rights against the IP thieves, pirates and counterfeiters.”

    that writer even got Apple wrong. true for the first half of the sentence. but i wonder how much resources of Apple is spend on ‘fighting IP thieves….”. of course Apple cares, but it wouldn’t bother too much on this. Imitation is the best flattery — we all know, and the smart businessmen as well.
    there had indeed been many iPhone ‘clones’ in China. but most people use the ‘real one’. (and those who use the fake ones won;t buy real one anyway. — clear cut segmentation)

    sun bins last blog post..ZT: Stephen Cheung – RMB and inflation

  6. sun bin says:

    btw, i passed by the apple shop in sanlitun the other day. it is more crowded than those in california. and people are buying.

    sun bins last blog post..ZT: Stephen Cheung – RMB and inflation

  7. disappointed says:

    This post seems like an angry rant. I’d like to see more substative arguments accompanied by evidence, not just falling back on the old Chinese habit of saying Lao Wai can’t understand China.

  8. equally disappointed says:

    To Sun Bin,

    There are 38 Apple shops in California. Perhaps there are enough shops in the US that they are not crowded. How many are in China?
    Go ahead and dream that 70% of Chinese are wealthy beyond imagination and that ‘we’ are so jealous.

  9. SinaSource says:

    One person writes a lousy article–one that is flawed in a number of areas–and somehow he represents “the American media”?

    But Chinese writers in papers and magazines talking about the racial superiority of Han and how the US is in decline (while filling out their visa applications during lunch)–they do not represent “the Chinese media”? No, because they are Chinese and the foreigners do not understand China because they are…well, foreign. Ah, your logic continues to impress.

    That is the same sort of mentality that blames the high price of housing in China on “foreign hot money” but has no problem at all with Chinese property investments in London or Vancouver. For criticizing that would be “racism”, “against China”, and “hurting Chinese feelings”.

    Enjoy your lifetime subscription to “China Daily”. And make sure that your green card is updated, so you get that win-win situation that so many Chinese enjoy practicing: “honestly, I love China, but gotta go….”

  10. Richard Drysdall says:

    I think the IP violation point is irrelevant anyway – what makes the iPhone (and indeed all Apple products) unique is not the hardware but the software. Many other companies have scrambled to try to match the iPhone (often by talking about features, which just goes to show how they miss the point entirely), and I think it’s arguable that they have failed.

  11. Thank you for your insider perspective on China.

    It is very true that the American perspective on China is a flawed one (that is slowly improving).

    In regards to ‘brands’: from what I’ve seen, when Chinese tourists come to Guam, they try to save money on hotels, dining, & activities, but then splurge on authentic luxury goods.

    It is indeed that case, that Chinese are very brand-sensitive about their products – when they can afford to be.

    Joe from Guams last blog post..Guam Island

  12. Rick Martin says:

    Yeah, I emailed him the other day and called him on that brand quote too.
    No word back from him yet.

    Excellent deconstruction Paul.
    I just called him a twat.

  13. Dan says:

    I completely agree with you. I was actually going to write the same post, but you beat me to it. The bit about Chinese not being brand loyal was going to be the highlight (or lowlight) of my post as well.

    My only complaint is with your title. This is just one person, not the “American media.”

    Dans last blog post..China Business Visas. Just When You Think It Can’t Get Any Worse.

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